Have You Tried Crypto Crowdfunding?
How individuals can leverage crypto based functions to raise money
I've had many conversations with people about how broad the crypto space is, and most recently I’ve been trying to figure out more ways crypto can be applied to existing systems, and whether blockchains are necessary or add any value at all - for both businesses and individuals. The conclusion I came to is that in most cases crypto and blockchains do improve existing systems. I’ve mentioned some examples of the benefits of crypto and blockchains before, but other great explanations on the benefits of blockchains come from Balaji Srinivasan, which you can read about here, and here.
For me, one of the many things that stand out about crypto is how the ecosystem can be leveraged for crowdfunding, for both businesses and individuals. We usually come across crowdfunding on BackaBuddy and Kickstarter among other platforms. In the crypto space crowdfunding takes the shape of tokenisation. This can be in the form or personal tokens, ICOs, tokenised ISAs, or NFTs.
Lets explore some of these crypto crowdfunding use cases.
Student Funding
A friend of mine that I met in university recently got accepted into the University of California to study her masters (LLM in Human Rights). She sent an appeal for assistance with travel and other expenses to family and friends. If I could, I would have funded those expenses myself because this is someone who’s extremely hard working, passionate about law, and is simply trying to pursue her dreams.
At the time of writing she had raised about 2.9% of her target.
Leveraging crypto, people in similar situations can create a personal token of sorts through which they can raise capital. This would, in a sense, take the form of micro-equity financing where as a student you offer your time and any other information/counsel (backed by the knowledge gained from your studies) in exchange for a portion of your future earnings.
One example of someone who did something similar is former Coinbase employee Reuben Bramanathan who created a personal token called Counsel, which holders could redeem for an hour of his time.
Another example is NBA player Spencer Dinwiddie who in 2020 tried to launch a company that would allow him and other players to tokenise their contracts and raise the value of that contract upfront. The token holder would then get paid interest over time, according to the terms set out in the particular agreement.
Another structure that crypto student funding can take is a tokenised Income Sharing Agreement (ISA). Here the student can create a personal token (or multiple tokens) ISA and raise money through that token exchange. Terms of the agreement can be worked out where the student starts repaying that loan once he/she is earning a salary. Alternatively, a portion of the student’s salary can be automatically rerouted to the funder’s ethereum wallet using a smart contract.
Here’s an interesting post that describes a tokenised income sharing agreement.
One question I’m yet to dive deeper into is how you would enforce the payback for the ISA, but I have come across an e-invoice system that India uses - referred to as GST invoicing. A version of this can possibly be implemented to enforce ISA’s as it would be near impossible to fake incomes, but it would require e-invoicing to be standardised across all industries, the implementation of which in jurisdictions with poor internet infrastructure can prove to be quite difficult. The analysis of that GST invoicing goes beyond this piece so we’ll talk about it in another post.
Another problem with personal tokens is volatility. How do you ensure that the token doesn’t experience huge levels of volatility, making some question the value of the underlying asset (the person and their experience in life and likelihood of success). Perhaps in this case you can make use of token boning curves, which can also be complex in and of themselves. Volatility is natural in a new market, and you’ll always get people speculating on instruments that involve the exchange of money.
There are a lot of unknowns but it would be great if more companies came about that focused on helping businesses and individuals explore blockchain solutions to problems that have no borders - meaning these problems are faced by people all over the world, just at different scales.
However, generally speaking there are interesting benefits of crypto based crowdfunding:
Global reach: crypto is a digital ecosystem and therefore has global reach. Performing functions in the crypto space exposes you to global pools of capital embedded in the trillion dollar crypto ecosystem.
Global Solution: because capital comes from all over the world, so do ideas and inputs - allowing problems to be seen from different perspectives, thereby attracting different solutions
Signal of competence in high-technology: the crypto space, mainly blockchain technology, has transformed many functions, and the entire space is only 14 years old. 10X’ing decades old systems is a signal of technical ability and willingness to take calculated risks.
Attracts attention: as with anything crypto based these days. The great part is that if you are a genuine person with genuine needs you can explain why you chose crypto based means to pursue your project - thereby spreading knowledge and expanding crypto adoption - at the same time adding to your skill set.
Different thinking: The different approach to capital sourcing probably signals higher likelihood of success, because you show that you are willing to hustle - putting in hard work, so more people will want to invest in you.
NFT Funding
Individuals and businesses can also use NFTs as a crowdfunding tool.
NFT stands for non-fungible token and these are tokens that are not exchangeable for one another. For example one bitcoin can be exchanged with another bitcoin. Bitcoins have the same price and underlying value so they are fungible. Tokens described as NFTs have different prices and underlying values. For example one Bored Ape Yacht Club NFT cannot be exchanged for another because these each have different features. In the digital world we can make infinite copies of anything, and it was difficult to prove originality and scarcity, before crypto. With crypto, the underlying blockchain allows you to prove originality and scarcity, verifiable using Etherscan, and with NFTs you can create scarcity in a digital world - from which people can benefit massively.
I recently came across a South African singer named Nalu who got an opportunity to sign with a record label in Los Angeles, California. She needed money for travel and other expenses so she decided to launch a thrift store with the help of people close to her.
The thrift store was a great initiative but with crypto she could done even more for herself.
Being an artist she could have created a one of one, or one of few collection of NFTs that she could have auctioned to raise money. NFTs can take different forms but for Nalu she could have created MP3 and JPEG versions:
MP3: of a song of hers (an original song with restricted commercial rights). If she becomes a superstar this song will go on to become a very valuable piece of art, the ownership of which is forever embedded in the blockchain with provable value and ownership - and from which she can earn perpetual royalties.
JPEG: She could have partnered with a good photographer and minted an NFT of photos she took, forever embedding a piece or pieces of visual art on the blockchain - the sale of these would again result in perpetual royalties for her.
As an aside… many argue that JPEG NFTs aren’t special because you can screenshot or “right-click, save-as” - but you can say the same thing about the Mona Lisa, Basquiat’s Tuxedo, Takashi Murakami’s Flowers, and all other visual art. I have copies of art from all of those creators saved on my phone but that doesn’t mean I own any of their work. Its human nature to want to own an original version of something. Thats just how we are, we like to signal status of sorts. NFTs leverage that human condition, allowing artists to scale their work like never before. In the same light, the day Nalu gets a Billboard hit or perhaps feature’s on a track with Drake, she’s off! Her NFTs would become high demand pieces.
NFTs could have created great awareness and hype for her campaign, taking advantage of network effects and the points I mentioned above about the benefits of crypto based crowdfunding.
We’ve already seen successful crypto based crowdfunding at scale. The most eye-opening is probably the ConstitutionDAO.
ConstitutionDAO
The idea here was to create a decentralised autonomous organisation (DAO) where funds were collected to bid for an original copy of the United States Constitution at an auction at Sotheby’s. A DAO is a group of people coming together in a lightweight organisational structure to move funds and interact with the world.
Each DAO is different but they all mostly make use of Ethereum and smart contacts to be able to execute as intended. Governance structures also vary but essentially each member/contributor to the DAO is granted voting rights and with most structures your vote preference is determined by the size of your monetary contribution.
The participants/contributors of the ConstitutionDAO all owned a piece of the DAO with voting rights, and ultimately would own a piece of that copy of the constitution had they won the bid. The project was able to raise over $40 million in days, and participate in the auction at Sotheby’s, but the DAO was unfortunately outbid in the last minute.
This however was a great showcase of what crypto can do for crowdfunding.
Conclusion
Taking many forms, the crypto industry is transforming the way crowdfunding is done. Over time there will be more examples of and successes for projects similar to the ConstitutionDAO.
As that momentum gathers, its also quite possible that crypto crowdfunding disrupts the entire venture capital industry because crypto is a global space with no physical or other barriers of entry, meaning greater awareness for startups and therefore access to global pools of capital.
However for individuals specifically, its important that we explore and share knowledge on crypto applications, and come together to introduce crypto and blockchains to existing systems to greatly benefit students and early working professionals.