How Future Founders Will Build Entirely on Crypto Rails?
As with any frontier, there are unknown dangers, but there are also great incentives while investing, trading, or building businesses using cryptocurrencies. Deciding whether or not to leverage digital assets depends upon the nature of the companies you want to build.
Moreover, given the adoption of crypto assets worldwide, future businesses may be built entirely on crypto rails. In this article, we will go through how businesses can be built using cryptocurrencies as a main source of governance, fundraising, distribution of equity, raising debt, banking, and NFTs for adopters/users.
Organize as a DAO
Traditional organizations are governed by rules and regulations that are applied to every member of the business. However, companies can mimic their structure and establish governance rules as a source code with the advent of tokens and crypto-assets. An organization adopting a structure is called a decentralized autonomous organization.
Smart contracts can help execute such code when certain conditions are met. Also, since the code is publicly audited, which helps solve the principal-agent dilemma. Communities lead DAOs, i.e., no central authority can control the governance of organizations.
Fundraise with cryptocurrencies, stablecoins
There have already been eight large fundraising rounds of crypto and blockchain startups in July 2021; these companies account for more than half of the top 12 fundraising rounds in this sector since 2018. Be it cryptocurrencies or stablecoins; these virtual assets have become a novel source of fundraising.
During the recent Russia-Ukraine war, most of the fundraising has been done in BTC, ETH, and USDT.
Issue tokens as equity
Issuing crypto tokens as equity is called tokenized equity, i.e., the production and issue of digital tokens or "coins" representing equity shares. Businesses are finding it easier to adapt to the digitized crypto-version of equity shares as blockchain adoption grows. Such tokens carry the traditional initial public offerings (IPO) model.
A set of procedures must be followed in order to issue an equity token. This is because equity tokens must adhere to each country's legislation when conducting share or security purchase and sale campaigns. The Equity Tokens Offer (ETO) is the name given to these initiatives.
The steps to issue ETOs include:
Raise debt through DeFi
Companies can raise debt through decentralized lending platforms like Aave, Compound, MakerDAO. P2P lending is a decentralized network that allows borrowers to take out loans directly and without the requirement of physical collateral.
Collaterals come in a variety of shapes and sizes, and any crypto token can be used to repay a loan. For example, if a user wants to borrow one BTC, he must first deposit one BTC's price in DAI.
Furthermore, the lending protocol enables the lender to profit from interest payments. As a result, Defi has the fastest loan growth rate of all the decentralized applications (DApps) and is the most common contributor for locking crypto assets.
Bank with protocols
Businesses can access banking services like deposit, send, receive money (in this case, crypto tokens); however, they are convertible into fiat currencies. For instance, Fantom DeFi intends to reconstruct finance by making it more global, open, and accessible, allowing anybody to participate and exchange value without the need for intermediaries.
Depositing your cryptocurrency onto a platform that will pay you an APY (annual percentage yield) for it is the most straightforward approach to making a passive income through DeFi.
NFTs for early community
A non-fungible token (NFT) represents ownership, which is distributed to the community, giving them the right to use it. Communities created around NFTs aren't only about shared identities; they're also about shared experiences and interests.
The chance to generate more fair access to wealth is perhaps the most significant potential for NFTs. For example, people who previously were unable to invest in or sell their artwork in traditional venues now have the opportunity to do so.
The blockchain offers investors of various cultures and backgrounds a unique opportunity to reduce the wealth gap by owning, collecting, and distributing NFTs and other cryptocurrencies.
Final Thoughts
Despite the mainstream adoption of cryptocurrencies, the future of cryptocurrency is still very much questionable. Critics see nothing but risk, while supporters see nothing but boundless promise.
Whether someone supports it or not, seeing the benefits of digital assets for the financial world, crypto is the future, and the virtual currencies that will survive the market's ups and downs will yield a return for the investors.