The Untapped Value of Web3: Connecting Digital Investing to Real-world Assets
We often hear “DeFi” (decentralized finance), “blockchain” or “web3” and images pop into our minds of accidental crypto millionaires on yachts or the wild roller coaster of speculative Bitcoin trading. Or worse, we hear stories of billions lost in a garbage dump or in scammy investment schemes. That’s what we see today and it dominates the media.
That hype obscures the potential of DeFi to upend the financial sector towards greater financial inclusion and access for both investors and investees. I’m personally the most excited about the potential for DeFi to make investing more accessible to everyone, and in particular, to make it easier and more rewarding to invest in emerging markets.
Let’s start with the broader context… Digital platforms are making it easier, cheaper, and more accessible for individual investors to invest in asset classes that were once only available to the very rich. The revolution started long ago, with investing happening on hole 9 at the country club between rich men in the 1950’s evolving to Charles Schwab (discount brokerages) in the 90’s and Robinhood in 2022, following a distinct progression of increasing access to investing for more people. DeFi is an abrupt acceleration of this progression. Every week there is a new DeFi platform making it easier for crypto investors to make fractional investments in everything from artwork and peer-to-peer loans to real estate and business loans. That fractionalization — turning something big and lumpy to bit-sized and digestible — is important and can only happen when transactions are so automated that transactions of any size are worth doing. Innovations in digital finance, whether it be DeFi, crypto, or just plain software, are great at doing this.
The point of this article isn’t to chart or predict the future of this evolution, but first to make the point that connecting this “digital” investing to real-world assets is something we are only seeing the tip of. Unless we all end up just living, shopping, and making money in the metaverse, the full potential of DeFi includes its potential to make the real world work better. What if more capital is available for real estate projects that are too small to get funding from conventional lenders? What if small businesses can be funded in real-time by a pool of individuals, with the entire transaction happening automatically based on rules that are transparent to everyone?
The second point is that connecting this digital revolution to investment opportunities in emerging markets represents a massive opportunity: an opportunity to make people more prosperous on both sides — higher returns for investors and access to game-changing capital for small businesses. But more importantly, it’s an opportunity to reshape how we invest, who we invest in, who gets capital, and who drives the economic destiny of entire continents.
To understand the magnitude of this opportunity and how it can drive and reshape prosperity in emerging markets, we can look at how digitization is changing how businesses operate in emerging markets already. Whether it is pay-as-you-go solar or better lending through mobile credit scores, digitization is enabling new businesses to better serve their customers through smartphones, smart devices, and smart assets, i.e. devices and services that are connected to the internet. This includes devices and services as diverse as smartphone apps that help motorcycle taxi drivers connect with riders to medical equipment in local clinics. The “smart” connection makes it easier to run things: ride-hailing apps make it easier to find a rider and collect fares; data from water treatment systems monitor water quality and track how much water is sold at a local grocery store; data from medical equipment ensure it’s working properly and helps the clinic improve its care.
Smart devices also make these services more affordable. More and more companies are embedding financing into their product. Instead of just selling the sonogram machine to the local clinic, which is expensive and sometimes inaccessible, a company can offer it to the clinic on a pay-as-you-use basis so the clinic doesn’t need to pay for it all at once. Instead of a grocery store buying the water machine at a high upfront cost, it can just pay for how much water they sold. That means more people can get sonograms in Kenya, clean drinking water can be purchased in almost every corner store in South African townships, and more people can get from their house to the market at a lower price.
This digitization is what enables Untapped’s Smart Asset Financing, where we are capturing real-time data flows and digital payment streams, and “securitizing” the productive use of smart assets. Smart Asset Financing provides assets that make money to entrepreneurs in emerging markets, our technology tracks the use and payments made by the asset, and then we collect a share of the revenues made to pay back our investors.
Untapped is building a technology platform to do that at scale and (enter DeFi) in a way that’s compatible with different kinds of blockchain and crypto protocols, to scale even further. We are working to be the bridge between the entrepreneurs in Africa who need capital to grow and the digital investors who want to invest in them. Or, as one of our insightful investors said it, we are “Pipe meets Kiva.”
The dual shifts — one making it easier for more people around the world to invest in just about everything, and the other digitizing how businesses do business — allows us to connect capital to investment opportunities that have the most financial and human upside around the world. Over 60% of economic activity is in the informal sector. If the entrepreneurs in the informal sector could access capital that wasn’t there before to start, grow, and scale their businesses and rely less on corrupt institutions or slow, bureaucratic intermediaries to get that capital, we would see a more equitable and prosperous world; more people, more communities would have the opportunity to pull themselves out of poverty.
It’s a well-known saying that talent is evenly distributed around the world, but opportunity is not. The complementary revolutions in DeFi and in a rapidly digitizing world have the potential to tackle that injustice and give people the agency to control their own futures.
Does that mean our SMEs will be getting crypto or that we’ll suddenly become a DeFi platform? No. The role we want to play in the value chain is to be the intermediary — a bridge — so that small businesses in emerging markets don’t even need to deal with crypto (or the complexity of private capital markets in general) and get on with running their businesses.
Our vision at Untapped is to be the bridge — between digital money and real-world assets, between capital sources and capital needs, between the old world of financing and the digital world, between decentralized finance around the world and decentralized ownership in emerging markets.
My goal with this post is to start an open conversation about the best way to do this. I certainly don’t have all the answers and know that many of you hold solutions that may solve the biggest bottlenecks. Please, bring it on and let’s tackle this together! Join our Discord group here and let us know what you think!
I talk about DeFi and the connection to digital assets on this podcast at 35:20 Seeking Startups. What do you think?
