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From Crowdfunding to Infrafintech - Growth Of Digital Finance Technologies

An ancient technology operating at the crosswalk of financial service and technology which the global financial crisis, portable devices, and internet availability has put on steroids.



The new digital financing platforms are made possible by the rapidly converging technologies and business trends in digital financing, which can significantly impact the traditional finance model. Blockchain, IoT, artificial intelligence, automation, big data, and machine learning are examples of technology trends accelerating innovation in financing services. These technologies hold the promise for solving some of the critical challenges of project financing, including financing the real estate, energy, and infrastructure sectors.


CROWDFUNDING

Crowdfunding exploits the collective efforts of a large pool of individuals, primarily online platforms that leverage their networks for greater reach and exposure. Organizations, businesses, and individuals alike can use crowdfunding for any project.


Crowdfunding was first implemented in 1713 when Pope Alexander translated 15,693 lines of ancient Greek poetry into English. Still, recently, the successful instance of crowdfunding occurred when a British rock band funded their reunion tour through online donations from fans in 1997. Inspired by the rock band's innovative method of financing, ArtistShare became the first dedicated crowdfunding platform in 2000. (TaoDust, 2019) Shortly after that, more crowdfunding platforms began to emerge, have grown each year consistently, and have become a widespread practice regulated in many countries.


The crowdfunding model is still inefficient for significant project financing.

CROWDFUNDING DEFICIENCY

While crowdfunding has become the modern-day miracle of the modern Internet age because of its widespread democratic fundraising popularity for small projects and charities, the model is still highly inefficient. In operation, it is like venture capital and limited partnership model, with central management controlling awarding preferential treatment to campaigns the platform may deem worthy of public support.

 

BLOCKCHAIN MIRACLE

By integrating Blockchain technology crowdfunding, blockchain helps overcome the inefficiencies associated with the crowdfunding model. The introduction of blockchain eliminates transaction delays while increasing operational efficiencies across industries, including global trade, trade finance, clearing and settlement, consumer banking, lending, and other transactions. (IBM, 2021) Blockchain disruption in the current crowdfunding sector is therefore not only inevitable but necessary.


"Fintech and InfraFintech entrepreneurs are encouraged to explore the Defi platform for the potential to create infrastructure more financing opportunities."
- Charles A. Aziegbemhin, General Managing Partner, DiliCapital Partners.


DECENTRALIZE FINANCE

Decentralize Finance (Defi), enabled by the cryptocurrency Ethereum, is an umbrella term for financial services on public blockchains. With Defi platforms support borrowing, lending, insurance sale, trade derivatives. It enables assets trades to be completed faster and requires paperwork or third-party involvement. The Defi application developer aims to recreate traditional financial systems on blockchain, such as banks and exchanges. Defi is global, peer-to-peer, and not routed through a centralized system, and it is open to all. Defi takes the basic premise of Bitcoin and expands on it, creating an entire digital financial alternative without all the associated costs. Fintech and InfraFintech entrepreneurs are encouraged to explore the Defi platform for more potential to create infrastructure financing opportunities.

 

ASSET TOKENIZATION

Tokenization exchanges sensitive data for non-sensitive data called "tokens" that can be used in a database or internal system without bringing it into scope. Tokenization protects sensitive data while preserving its business utility. This differs from encryption, where sensitive data is modified and stored with methods that do not continue its use for business purposes. Additionally, encrypted numbers can be decrypted with the appropriate key, but tokens cannot be reversed. (TokenEx, Inc., 2021)


INITIAL COIN OFFERING (ICO)

Blockchain and crowdfunding are already popular among start-ups globally. An Initial Coin Offering (ICO) is the cryptocurrency industry’s equivalent to an Initial Public Offering (IPO). ICO involves issuing tokens that function as shares without equity exchange. Investors purchase tokens instead of shares, using either cryptocurrency or fiat currencies. Most crowd sales on the blockchain are governed by smart contracts, which dictate the terms and conditions of the sale of the tokens. Tokens sale participants send their contributions via smart contracts, automatically allocating participants. (Wade, 2021) In such a scenario, the project developers, or project finance, the Special Purpose Vehicle (SPV) is the counterparty. The developer receives contributions from investors in the project's newly issued tokens.


Security Token Offerings are asset-backed and comply with regulatory guidelines of the issuing jurisdiction, but most Initial Coin Offerings are just utility tokens
 

SECURITY TOKEN OFFERING (STO)

Security Token Offering (STO) represents an investment contract into an underlying investment asset, such as stocks, bonds, funds, and infrastructure projects. Security is a “fungible, negotiable financial instrument that holds some type of monetary value,” It is an investment product backed by a real-world asset such as a company or property. A security token represents ownership information of the investment product, recorded on a blockchain. In traditional stocks investment, ownership information is written on documents, unlike digital certificates, like STOs. The record is kept on a blockchain and issued as a token.


ICO and STO

STOs are asset-backed and comply with regulatory guidelines of the issuing jurisdiction. Most ICOs, on the other hand, are positioned as a utility token that gives users access to the native platform or decentralized applications (DApps). As a result, ICO platforms can circumvent specific legal frameworks and do not have to register or comply with strict regulatory guidelines of the issuing authority. Therefore, companies' entry barrier to launching an ICO is much lower than STOs. (Pauw, 2019).

 

FINTECH

Fintech emerged in the 21st Century; the briefcase word “Fintech” was initially applied to the technology employed at established financial institutions' back-end systems. ​ Financial technology (Fintech) is now used to describe new tech that seeks to improve and automate the delivery and use of financial services. Fintech utilizes software and algorithms in computers and handheld devices to help companies and consumers better manage their financial operations, processes, and lives. Fintech includes different sectors and industries such as financial services, education, retail banking, fundraising, insurance, non-profits, etc., investment management.


Smart contract implementation is one of the factors that will disrupt the infrastructure sector that operate on a contractual basis.

FINTECH IN BLOCKCHAIN

Fintech has significantly enabled and disrupted all aspects of financial services. However, the impact rate of fintech on infrastructure financing has been slow, but that is changing because of the integration of Fintech and Blockchain technology. Blockchain application in fintech provides new opportunities for financial innovation and efficiencies. Fintech and blockchain technology integration can pave the way to wholly democratized finance.


There here are many features that make blockchain technology stand out, especially the use of smart contracts. Different from traditional contracts, smart contracts are self-executable and self-verifiable contracts. Smart contract implementation is one of the factors that will disrupt the infrastructure sector that operate on a contractual basis. Blockchain is a good fit for fintech to improve operational efficiency in InfraFintech and other financing services.


InfraFintech is a briefcase of “Infrastructure Financial Technology,” a derivative of Fintech.

INFRAFINTECH

InfraFintech is a briefcase of “Infrastructure Financial Technology,” a derivative of Fintech. Fintech is an ancient technology that operates at the crosswalk of financial service and technology. The global financial crisis, portability of communication devices, and availability of the internet place an old technology on steroids. Fintech is a comprehensive acronym for software applications for computer and mobile platforms to enhance, streamline, and digitize traditional financial services.


CONCLUSION

The Defi ecosystem is an expansive network of integrated protocols and financial instruments with over $13 billion worth of value locked in Ethereum smart contracts. Decentralized finance has emerged as the most active sector in the blockchain space, with a wide range of use cases for individuals, developers, and institutions. Asset management, Compliance and KYC, Decentralized exchanges (DEXs), Insurance, Lending and borrowing, Payments, Savings, Tokenization, and Trading are decentralized finance protocols.


InfraFintech will unlock a world of opportunities for infrastructure financing. The above list of use cases is proof that Defi is much more than an emerging ecosystem of projects. Instead, it is wholesale of integrated effort to build a parallel financial system that rivals traditional centralized financing services that is profoundly more accessible, resilient, and transparent.



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We can help answer more specific questions related to sustainable investments in private equity, credit, project financing, real estate, energy, hospitality, infrafintech, and infrastructure worldwide. Please contact one of our experts below who can answer any queries you may have.

 

Charles A. Aziegbemhin

Managing General Partner


+1 416 548 7678 Ext 221

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