Crypto Technology’s Potential Goes Beyond Crypto
The kind of fundraising that crypto can enable helps underserved markets and those of us shut out of Big Finance. It gives entrepreneurs access to funding for innovative, unprecedented projects. We know this. But far beyond that conventional reading of the possibilities that blockchain technology enables, it can help other technologies evolve, Coindesk argues. It’s a quick read but definitely grist for the mill in discussing blockchain and the crypto industry. Here are some of the highlights.
The relative ease with which blockchain-based protocols and applications can raise funds by creating tokens and distributing them to users and/or investors is by now well-known. “Initial coin offerings” (ICO) drove the hype bubble of 2017, with harsh lessons learned in the subsequent shake-out. Since then, however, tokens have often worked in tandem with equity stakes to kick-start or boost economic activity on new layer 1 blockchains, decentralized applications and creative initiatives.
Blockchain-based fundraising for blockchain-based projects: we get that. What we are overlooking, though, is the potential crypto has to support fundraising and engagement for other, unrelated technologies, and what’s more, it can do so almost anywhere given crypto market structure flexibility.
A regional bank in Luanda sets up a platform that tokenizes tranches of loans to startups aiming to bring digital efficiency to Angola’s ports, mitigating lender risk by adding liquidity and thus lowering the financing costs.
An incubator in Addis Ababa works with the Ethiopian Ministry for Innovation and Technology to develop an exchange for the trading of equity-like tokens issued by exiting startups with ideas ranging from vertical farms to satellite launch sites.
A venture fund in Accra collaborates with the Ghanaian stock exchange to launch a crypto platform that facilitates token-based fundraising, ICO-style but with official oversight and sufficient disclosure, helping projects from telehealth to e-learning get off the ground and find a market.
Politicians across the developing world can be heard touting the importance of technology on economic growth, but few actually implement policies that move the funding needle. Raises outside the usual hubs tend to be small as pools of capital are less abundant than in the developed world and as the target demographic is often more limited in size given geographical as well as network restrictions. But this doesn’t always need to be the case. More liquid, transparent and innovative markets could kickstart regional development, especially if cross-border investment is allowed, possibly leading to tech initiatives that are global in scale.
Obviously, digital ledger platforms are not essential for this type of fundraising. Startups have been closing rounds, banks have been lending and grants have been funneled without them so far. But the transparency and immutability of public blockchains could give additional assurances to lenders, investors and startups, eventually encouraging more interest from a greater range of participants. And they are easier to spin up than traditional exchanges, lowering time- and cost-to-market.
Now, I’m not a trading systems engineer or a blockchain developer, so there are parts of this framework I’ll probably get wrong, but the rails on which the assets move already exist, and on-ramps are not as hard to design now as they were a few years ago. Platforms have emerged that essentially offer a plug-and-play back-end for exchanges, and the ecosystem has evolved to allow a degree of modularity in constructing the necessary stack of services – wallets, custody, know-your-customer, staking, tax accounting and more. The complicated part, I imagine, would be connections to banks or payment services, but the growing use of stablecoins can provide a stopgap while the market adjusts.
What of the regulators? Obviously, they’re going to want to have some say as to user protection, fund flows, foreign influence, etc. And anything new means risk, which regulators don’t like. But improved funding channels for local technologies that could boost employment, tax revenues and regional status while offering transparency as to asset distribution shouldn’t be too tough a sell, especially as governments change and/or are increasingly influenced by younger voters eager for the opportunity to work on progress. There could also be pressure from local institutions eager for a broader variety of assets with which to construct portfolios, as well as well as excitement from retail investors who do not live in more developed financial systems with more stable currencies and more readily available savings vehicles.