Crypto holders: Try impact investing!
The crypto investment model mirrors traditional investing: profit is still the bottom line. But this model is being increasingly criticized, and in the world of traditional investing, things are shifting. We at Cardashift strongly believe that crypto investors could accelerate this shift — by combining profit-making with impact generation.
10x, 100x, and beyond?
The blockchain ecosystem has often received bad press for being ultra-speculative and driven by greed. In 2017, Alex Preukschat, an expert on blockchain tech in Spain, lamented that, ‘everyone wants to make money quickly and that prevents blockchain experts from focusing on the best and most interesting uses of blockchain’.
Things have certainly changed since 2017. The blockchain ecosystem is no longer on the margins of society and economy; we are beginning to see the emergence of powerful blockchain applications that have the potential to transform entire sectors of the economy. Big corporations are seeking a piece of the action, like Facebook, which has rebranded to Meta, and Jack Dorsey’s Square, which is now called Block. In fact, traditional investors of all sizes are jumping in. They have poured more than $28 billion into global crypto and blockchain start-ups this year — four times the total investment in 2020.
‘It feels a bit like the 1990s and the birth of the internet all over again. It’s that early, that chaotic and that much full of opportunity.’ Sridhar Ramaswamy, chief executive of Neeva
However, despite this explosive growth in the blockchain ecosystem, the investor mindset has not changed much, with profit coming first, and social/environmental impact a distant second, if indeed it is considered at all.
Everyone is looking for 10x, just like in the 90s’ Internet bubble.
But do we really want to recreate the same model of speculation and centralization? Can we encourage a return to the blockchain community’s original goal — to make the world a better place?
At Cardashift, we believe that impact should be one of the key drivers for the crypto investor community. We are not naive, and realize that investors are still looking for good returns.
But does making a positive impact mean drastically reducing your profits?
Let’s dive into what has been happening in the traditional investment world since this timid shift towards impact-investing began about fifteen years ago.
What we have learned from the first 15 years of this industry: Impact investing is profitable
First, let’s break down the conventional wisdom.
❌ No, impact is not an externality to be managed.
✅ Yes, financing impact-oriented projects offers a real potential for profit-making.
Misconceptions about impact and profitability come from an outdated vision of capitalism, wherein a clear separation exists between for-profit professional activity and philanthropic commitments to community, and there is no question of social or environmental accountability in business decisions.
When the first reflections on the negative externalities of certain activities appeared, ‘impact’ was immediately seen to undermine profitability.
But recently, impact investing has revived the old ‘do well by doing good’ ethos, by reconciling the notion of profit with that of positive impact.
The GIIN made this clear in its definition: ‘Impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return’.
The results are consistent: a 2015 Report by Morgan Stanley indicated that sustainable investment funds have actually met or exceeded the median returns of traditional equity funds. The investors in the sector are very optimistic about the future. According to the latest GIIN report, 69% of impact funds managers see the market continuing to grow steadily, and 21% even predict that it is about to take off.
While the results are encouraging, the ecosystem is still nascent. There is certainly room for improvement, notably with regards to early-stage investments. Impact venture leaders, firstly, often lack funding as they face a lot of uncertainties, and secondly, need appropriate support in designing a viable business model, to increase their success rate.
Thus, early-stage impact investments appear to be riskier. This is where crypto holders can step in, as they are prepared to deal with risk.
Two reasons why crypto holders can make a huge difference
At Cardashift, we aim to create a bridge between the crypto community and impactful projects in need of funding. Here is how crypto holders can help this industry take off.
1/ Risk that suits the crypto community
A McKinsey study on impact investing in India shows that the Internal Rate of Return (IRR) range is wider in seed investments: the risk is higher, but so is the potential gain. Traditional investors are often cautious about the risks associated with this type of investment, but the crypto community is well prepared for this risk model. Crypto investors are much more willing to take risks if they can expect good gains (i.e., if the risk/reward ratio is high). And with the right support, investment risks can be reduced. This is where Cardashift comes in, with its acceleration program for early-stage projects that facilitate profitable impact investing for crypto-holders.
2/ A decentralized model with investors-citizens
The second reason why crypto holders can transform impact investing, is the decentralized nature of their communities. Traditional actors, like PE funds, apply a purely financial rationale to their investments. Their goal is to maximize profit for shareholders. Social and environmental accountability has only just started to emerge in this sector. On the other hand, a crypto community is composed of investors who also participate as citizens. They can integrate social and/or environmental considerations into their thought processes more easily, especially when there is an impact on their daily lives. Wouldn’t a crypto community in Cameroon or Vietnam, for example, be more sensitive to funding projects that directly impact their environment, than a PE fund based in Paris?
We strongly believe that impact investing should be community-driven, going beyond traditional investment considerations by giving equal weight to impact and profit. In this regard, DeFi has huge potential for impact investing.
And it’s just the beginning…
It has been estimated that achieving the Sustainable Development Goals (SDGs) by 2030 requires investment to the tune of $5–7 trillion annually.
Impact investors will benefit from huge opportunities over the next few years, with an urgent need to fund innovations to meet the world’s greatest challenges.
Let’s debug the world together!
Written by Anaïs Bouchet & Yannis Baala — Impact Projects Managers and Medium Enthusiasts
