NFT Collateralized Supply Chain Finance for Buyer Default Risk
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Solution Overview
Problem
Small and medium-sized enterprises (SMEs) often lack access to capital or sufficient cash flow to fulfill large volume opportunities, necessitating supply chain finance solutions like reverse factoring and dynamic discounting, which come with risks such as buyer default on payments.
Innovation Solution
A system and method utilizing a SmartHub finance processor (SHFP) to facilitate early payment financing through non-fungible token (NFT) collateralization and decentralized finance (DeFi) on blockchain networks, enabling secure and unbreakable digital linkages for dynamic discounting and reverse factoring processes.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If SMEs use traditional supply chain finance (reverse factoring or dynamic discounting), then they can obtain financing to fulfill large volume opportunities, but they face risks such as buyer default on payments and lack access to sufficient capital
Solution Approach 1:
The patent introduces a blockchain-based smart contract system as an intermediary between buyer and supplier. The smart contract automatically executes payment terms when predefined conditions are met, eliminating the need for traditional finance intermediaries and reducing buyer default risk through cryptographic guarantees and decentralized enforcement mechanisms.
Solution Approach 2:
The patent transforms the financing model by changing the underlying trust parameter from institutional credit (banks/finance companies) to cryptographic proof and blockchain consensus. This parameter change enables direct peer-to-peer financing with reduced counterparty risk through transparent, immutable record-keeping and automated smart contract execution.
2Quantity of substance
If SMEs obtain financing through reverse factoring or dynamic discounting, then they can access capital, but the process involves complex financial arrangements and multiple intermediaries
Solution Approach 1:
The patent enables suppliers to independently initiate financing requests by posting invoices on the blockchain and receiving automated smart contract-based financing without requiring manual intervention from banks or finance companies. The system self-executes credit assessment, funding disbursement, and repayment collection through programmed smart contracts, dramatically simplifying the process for SMEs.
Solution Approach 2:
The patent extracts the intermediary functions (credit assessment, fund management, risk evaluation) from traditional financial institutions and embeds them directly into blockchain smart contracts. This extraction eliminates multiple layers of intermediaries while maintaining capital access, reducing both process complexity and associated fees for SMEs.
3Reliability
If traditional finance intermediaries are used for supply chain financing, then buyer default risk is managed, but financing costs increase and profitability decreases
Solution Approach 1:
The patent replaces traditional finance intermediaries (banks, factoring companies) with a decentralized smart contract mediator on the blockchain. This new intermediary charges minimal network fees instead of high interest rates and fees, while maintaining risk management through transparent, programmable enforcement mechanisms that reduce default risk without increasing costs.
Solution Approach 2:
The patent substitutes the mechanical system of traditional financial intermediation (manual credit checks, paper-based agreements, hierarchical fund management) with an automated digital system based on cryptographic verification and smart contract execution. This substitution eliminates the need for expensive intermediary services while maintaining or improving risk management through immutable, transparent recording and automated enforcement.
Data Source
AI summary
A method, system, computer program product of processing early payment financing request, enabling dynamic discounting (DD) or reverse factoring (RF) financing, via SmartHub Finance Processor (SHFP), including receiving request for Early Payment Financing Request (EPFR) from supplier; accessing asset SmartPass Non-FungibleToken (NFT) Repository; receiving risk management model; notarizing NFT ProxyPackage (NFTPP) to local NFTBlockchain Repository (NFTBCR); notarizing/collateralizing NFTPP to restricted access public NFTBCR; securely binding DynamicDiscounting (DD) NFT Cryptographic Token embodying DD Rights (DDRightsNFT), establishing Secure Unbreakable DigitalLinkage; notify EarlyPaymentNetwork (EPN), may notify FintechFinanceMarket; ValueChainFinanceExchange; DeFiMarket; or buyer; verify NFT to local NFTBCR; or respond to EPFR. Borrower requests funds presenting SmartPassDigitalCollateral, supplychainDigitalTrackTraceArtifact; Financer/Lender verify collateral process, provide bids for acceptance with a DigitalFundsTransferAgreement; register financers/lenders, provide secured access, verify DigitalCollateralBlockchainTransactions, secure collateral, ensure authenticity by Digital Signatures/Blockchain, process loan agreements, transfer electronic/cryptocurrency funds financer-to-borrower, assess fees/interest, process payments, Forward/ReverseFactoring (RF) or DD loan terms, DDRightsNFT, participate in DD making independent early payment arrangements with supplier not involving buyer.