Our investment in Fairmint - How to decentralize Wall Street.
In our last blog post, we explained why we need new forms of collateral for DeFi to expand and de-throne Wall Street.
Currently, decentralized finance is focused on crypto type of assets, like btc, eth and stable coins. Traditional equity though is still built upon the old established, centralized financial infrastructure that doesn’t participate in the democratization of Finance 2.0.
Besides this, you might think it’s easy for a company to raise equity capital since '“everyone owns stocks these days”. But that’s not the case—especially at the early stage. Founders need to deploy their own capital (if they have the luxury to do so) and relocate to cities like San Francisco or NY to get access to venture capitalists. Retail investors and users not only do not enjoy early access but also they are restricted from many trading strategies when the company gets public.
Our latest investment, Fairmint, created a platform where startups can turn their company’s equity into programable equity by putting it on the blockchain, instead of holding paper titles through a broker (ie, Carta) or a lawyer. They let everyone participate in equity deals by buying into them and a year later the equity becomes liquid instead of waiting for an IPO or an exit event.
Equity on the blockchain means that the equity that you bought is now a non-fungible asset that belongs to you and it can be used as collateral for lending, or it can be traded for other assets, and so on.
The possibilities are endless:
An existing or new company like Uber can build its community by making all their drivers to early shareholders enjoying the upside when this equity gets liquid a year later.
An existing startup from Kenya or Greece can now fundraise through their website and attract US investors (their users, professional investors, or funds). After a year everyone who invested becomes liquid and they can sell their investment the same way it happens on the stock market.
A user who invested in a startup can use their shares as collateral to lend $.
An exchange built upon Fairmint where users or other investors can enjoy the same financial products as hedge funds.
Fairmint achieved this by introducing the SAFE 2.0, called CAFE. The CAFE is an investment instrument that was not available before. With CAFE companies tokenize debt for future equity and they can sell it publicly to individuals. This gives them access to a broader audience, not limited by location and lost and painful fundraising processes. In return, investors in CAFE get a fully liquid asset that represents a stake in a real company. What they can further do with it, it’s up to us all to design.