Crypto has made everybody an investor, significantly accelerating a broader trend toward democratized, decentralized, and community-driven investments. This enables individuals to leverage their audiences to become fund managers. Imagine a world where anyone can guide investment decisions - not just big, old, and slow institutions. It's a world where investing is open to all, shaped by communities. At the heart of this transformative shift is the emergence of a new investment infrastructure underpinned by three fundamental pillars: Contribution, Management, and Distribution.
This infrastructure, backed by an evolving ecosystem of innovative products and services, is making investing more transparent, efficient, and accessible than ever before.
The rise of Robinhood is a prime example of how companies can foster new financial ecosystems. By revolutionizing retail investing, Robinhood has achieved remarkable success, generating a revenue of $1.8 billion and managing assets worth $98 billion in 2021. Moreover, the increasing adoption of Web 3.0, as evidenced by the doubling of active addresses to a record-breaking 15 million over the past two years (as highlighted in the A16Z 2023 State of Crypto report), has created a growing demand for cutting-edge investment infrastructure.
However, the absence of a standardized and reliable investment system presents challenges, causing founders and investors to be overwhelmed with administrative complexities. Consequently, this may result in missed opportunities to support and nurture innovative companies crucial in shaping our future. In essence, new technologies, business models, and cultural shifts have significantly enhanced accessibility in the investing field, emphasizing the transformative impact of these developments.
Web 3.0 is also reshaping the financial landscape with innovative investment structures like investment groups and DAOs, challenging traditional VC funding. These innovative models enable individuals from all backgrounds to collaborate and invest in startups. Crypto investment groups raise and deploy over a billion dollars yearly in pre-TGE (token generation event) startups. In contrast, today’s private market primarily caters to VCs, sidelining everyday individuals.
But these new investment models come with their challenges. Picture orchestrating a token sale for 400 investors. For each deal, investor groups must:
- Navigate complex KYC processes for 400+ investors across multiple jurisdictions, which involve verifying identities, collecting and verifying sensitive information, and ensuring compliance with diverse regulatory frameworks.
- Collect funds from each investor, manage different stablecoins and blockchains, and create whitelists, ensuring that they meet the minimum and maximum investment thresholds while collecting necessary information and providing a seamless experience for your investors.
- Ensure that every detail is up-to-date and accurate, giving you a single source of truth. This includes investor information, cap table records, an audit trail, logs of refunds or OTCs, and compliance documentation to meet regulatory requirements and maintain transparency throughout the investment process.
- Distribute tokens accurately to each investor's wallet, considering factors such as investment amounts and vesting schedules while maintaining security and preventing errors due to outdated cap table versions.
This complex process entails managing and coordinating spreadsheets, Google Forms, DocuSign, Google Docs, and many other tools, demanding significant time investment during the fundraiser and in the following years. As a result, they become entangled in a suffocating web of operational tasks. This is the process for one deal. Investment groups repeat this process anywhere from 2-8 times a month.
This inefficient process increases the risk of errors and miscommunication and diverts attention from the main goal: nurturing innovation and supporting groundbreaking projects.
An industry that leads in innovation ironically relies heavily on spreadsheets.
To tackle these challenges, Web 3.0 needs its own investment infrastructure. An infrastructure that empowers an investment group of 400 people to operate more efficiently than a VC firm while streamlining token vesting and fundraising processes for projects.
Everything we’ve touched upon so far is what we’re building at Presail—the investment infrastructure for Web 3.0. For the rest of this article, I’m excited to talk about how we see the industry we’re creating shape over the coming years and why blockchain will be the backbone of the investment industry.
Next, we’ll explore the areas where the limitations of conventional finance are most noticeable and show how the infrastructure developed for Web 3.0 investments can effectively tackle these issues.
Filling the Gaps of Traditional Finance
In the following sections, we delve into the critical areas where the limitations of traditional finance become evident and how Web 3.0 investment infrastructure effectively addresses these issues.
Introduction of new financial instruments
Standard financial systems, built around fiat currencies, banks, and equity, struggle to accommodate the transformation towards stablecoins, blockchains, and tokens. Web 3.0 investment infrastructure is tailor-made to support these innovative technologies and their distinct demands.
The Emergence of Community-Centered Investments
We’re seeing a massive cultural shift towards an investor mindset. Direct-to-consumer exchanges like Coinbase made investing in crypto accessible to a mainstream audience, Bitcoin became accepted as an investible asset, and investors are increasingly going earlier (pre-mint) for higher returns. Web 3.0 investments significantly emphasize community participation, giving rise to concepts like NFT token gating and tiers, which influence investment eligibility and amounts. Web 3.0 investment infrastructure caters to these unique needs, fostering more inclusive investment opportunities.
Advanced Compliance and Risk Assessment
Web 3.0 investments often require complex compliance processes, necessitating a blend of onchain and off-chain risk evaluation. Investment infrastructure must manage these requirements efficiently, blending them into one holistic and seamless experience.
Blockchain Compatibility and Integration
Multiple blockchains bring unique value propositions and technical attributes, so Web 3.0 investment infrastructure must adapt to ensure compatibility and communication across significant blockchains. This adaptation allows for seamless integration, fostering a robust infrastructure ecosystem built on various blockchains.
Addressing Trust and Fraud Concerns
The widespread use of similar fundraising methods, such as Discord, Telegram, Google Forms, and spreadsheets, confuse retail investors when distinguishing between credible and fraudulent projects. Fundraising as an integrated service is a must-have in Web 3.0 while not being needed in traditional finance. Addressing these concerns is crucial to strengthen investor confidence and unlocking widespread adoption.
Overcoming Challenges with Vesting
Token vesting and distribution pose unique challenges in the Web 3.0 ecosystem, especially when dealing with many participants. Manually handling token distribution processes can be labor-intensive, error-prone, and divert teams from their primary goals. Web 3.0 investment infrastructure streamlines the token distribution, automates calculations, and ensures accurate and automated distribution to all stakeholders. By minimizing manual intervention and reducing error risk, teams can save valuable time and resources, focusing on building and delivering value to their community.
Scaling Cap Table
Managing a large cap table and accommodating many investors present significant challenges for projects and investment groups. It’s perhaps the most significant blocker to democratizing investments. Traditional manual record-keeping and investor management methods become inefficient and susceptible to errors when dealing with hundreds or thousands of stakeholders. Web 3.0 investment infrastructure provides the much-needed scalability to manage a growing investor base, ensuring precise and up-to-date records.
Exploring the Phases of Web 3.0 Investments
To understand the Investment Infrastructure industry, it’s helpful to break it into three phases: the private and public markets and the transition stage.
Visualize the private market as the calm before the token launch storm. During this stage, a company amasses funds to build the startup that will put the token to work. At this juncture, investments usually take the form of Simple Agreements for Future Tokens (SAFTs), and the tokens aren’t launched. In traditional finance, this can be compared to investing in pre or at the seed stage.
Next up is the public market. This phase occurs when a token is up for grabs on decentralized or centralized exchanges like Uniswap or Binance. Here, the investment infrastructure zeroes in on securing and streamlining transactions.
Then, there’s a shift - a transition stage where a token is both vesting and trading on exchanges. This phase acts as a shared space between the private and public markets, leading the way for the token creator’s grand entrance into the public market.Having familiarized ourselves with the overall layout of the investment infrastructure industry and its three key stages, it's crucial to understand how these developments impact different customer groups. The Web 3.0 investment infrastructure is designed to solve numerous challenges, thus uncovering untapped opportunities for various industries.
Customer Groups Affected by Investment Infrastructure
Web 3.0 investment infrastructure targets a diverse market, offering unique benefits and opportunities tailored to each customer segment. From startups and retail investors to traditional VCs, syndicates, and blockchain providers, the expansive reach of this industry creates a valuable space for every participant. Let’s dive into the three parts we defined above and look at typical customers in each segment.
Public Investment Infrastructure Customers
- Startups: Web 3.0 investment infrastructure simplifies the fundraising process, opens up the possibility of doing a community raise, manages compliance, and cap table, streamlines token distribution, and reduces administrative burdens for startups operating in the blockchain space.
- Blockchain Providers: By integrating seamlessly with blockchains, investment infrastructure allows blockchains to attract and support projects, welcoming them to build on their blockchain. At the same time, they are growing their crucial metric, ecosystem growth.
- Investment Communities: Web 3.0 investment infrastructure facilitates collaboration and decision-making within decentralized organizations, empowering them to invest in and support projects they believe in.
- Launchpads: These platforms benefit from a standardized boilerplate, enabling them to support and launch new projects more effectively by building on top of existing infrastructure, much like how Shopify provides the infrastructure to eCommerce.
- Traditional VCs: traditional VCs are increasingly investing in Web 3.0 startups, and need to manage their portfolio, knowing when token distributions will happen, where and how to receive those tokens, and have an internal collaboration that allows them to know which internal stakeholders are responsible for certain companies in their portfolio.
- OTC Brokerages: By leveraging Web 3.0 investment infrastructure, OTC brokerages can manage complex token transactions more efficiently and securely by having an accurate order book before the token exist.
- Syndicates: Decentralized autonomous organizations (DAOs) that operate with a governed wallet and make shared investments as a group, where the governed wallet owns the syndicate’s assets. And syndicate members have tokens representing a percentage of ownership of the governed wallet’s assets.
Private Investment Infrastructure Customers
- Retail Investors: The infrastructure provides individual investors a more accessible way to engage with public markets, typically charging a transaction fee. Moonpay is an excellent example of catering to these customers.
- Banks and Neobanks: By incorporating Web 3.0 investment infrastructure, traditional and neo-banks can offer their customers access to innovative investment opportunities in decentralized finance.
- Exchanges: Crypto and traditional exchanges can benefit from standardized and secure processes for listing and trading tokenized assets. Many exchanges today rely on Fireblocks and their MPC wallet-as-a-service technology, combined with an easy-to-use policy and workflow engine.
- Lending Desks: Web 3.0 investment infrastructure enables more efficient management of collateralized loans and borrowing using tokenized assets through easy-to-use platforms with good team management, audit logs, and MPC technology.
- OTC Brokerages and Market Makers: These firms can utilize the new infrastructure to facilitate more efficient trading and market-making activities in the tokenized asset space.
- Family offices, Hedge Funds & Nation States: By leveraging Web 3.0 investment infrastructure, hedge funds can gain exposure to a broader range of investment opportunities in the decentralized finance ecosystem.
To understand the vast potential of this new paradigm, let’s first examine this new ecosystem and its three fundamental pillars: Contribution, Management, and Distribution.
The ecosystem and The Three Pillars
Understanding the ecosystem of investment infrastructure requires a comprehensive breakdown of its critical components. These are grouped into three pillars: contribution, management, and distribution.
Let’s delve into the dynamics of each pillar, addressing the investor’s and entrepreneurs’ challenges while highlighting the key players involved and the technological innovations that can resolve these issues. Afterward, we will touch on the thriving ecosystem of related products and services that has also emerged, complementing the core infrastructure solutions.
When discussing the contribution pillar, key players such as Presail, Binance, and CoinList come to mind. They are addressing different challenges focused on solving problems related to:
- Decentralization leads to fragmented investments and increased operational burdens.
- Rigorous bookkeeping requirements for a large scale of contributions made before a token launch. Traditional finance might see five investors on a cap table in their seed round, while a crypto company can see 600.
- Reconciliation challenges due to fundraising or distributing on multiple blockchains and onchain currencies.
- Regulatory compliance requirements, including on and off-chain KYC and AML processes.
- Reducing scams and rug-pulls by building credible standardized solutions that scammers can’t exploit.
- Creating user-friendly experiences that will help onboard non-crypto people.
- Many projects built on one blockchain resort to conducting fundraisers on a different blockchain, often opting for Binance Smart Chain (BSC).
By addressing these challenges in the Contribution phase, we create a solid foundation for the next critical pillar of the Web 3.0 investment infrastructure: Management.
In the management pillar, companies such as Presail play a crucial role. They are addressing different challenges focused on solving problems related to:
- Maintaining an accurate and up-to-date token cap table.
- Reducing errors and operational burdens associated with spreadsheet-based tracking.
- Efficient stakeholder communication and updates.
- Adapting to and keeping a single source of truth for changes in token setup, refunds, partial refunds, or OTC transactions.
- Access management and audit trails to minimize risks, promote collaboration and remove bottlenecks.
- Simplifying the ability to report and pay taxes accurately.
- Allowing stakeholders to update and self-report changes in their investments.
- Enabling and simplifying the process to have a risk-based approach to compliance.
Innovations that solve the challenges in this pillar aim to simplify token cap table management, improve data accuracy, and enhance communication between stakeholders.
The efficient and seamless management of tokens enables us to move to the final pillar of the Web 3.0 investment infrastructure: Distribution. Although distribution has challenges, it is an indispensable part of the token lifecycle.
Finally, companies like Presail, Sablier, and Liquifi lead the way for the distribution pillar. They are addressing different challenges focused on solving problems related to:
- Manual token distribution or airdrops to wallets.
- Unique and varied vesting schedules.
- The precise timing of token unlocks.
- Legal and tax implications related to token accessibility and distribution.
Innovations that solve the challenges in this area enable automated, secure, and timely distribution of vested tokens while addressing the associated legal and tax requirements.
While these pillars form the basis of the Web 3.0 investment infrastructure, the surrounding and emerging ecosystem is also fascinating to pay attention to.
Various products and services have emerged to address the needs of stakeholders in this evolving industry. This rich ecosystem, featuring various vital players, addresses complementary needs, enabling a more seamless experience for investors and entrepreneurs. Examples of such products and services include:
- Compliance tools for KYC, AML, KYT, and travel rule compliance, such as Chainalysis and Ellipsis.
- Community tools, such as Collab Land.
- Tax reporting tools, like Koinly.
- DeFi tools, including contract scanners such as DEXTools.
- Blockchains, including Layer 1 and Layer 2 solutions.
- Currency providers, such as Circle or DAI.
- Data-labelers, like Nansen.
- Crypto payroll providers.
As the industry grows, we expect an expanding ecosystem with companies built directly on top of infrastructure providers. The same way apps today are built on services like Stripe, Shopify, or Notion. With this thriving ecosystem in place, it paves the way for fascinating developments in the future of investment infrastructure.
The Future of Investment Infrastructure
The dawn of Web 3.0 investment infrastructure is ushering in two transformative developments – security tokens are rising, and the existing ecosystem is maturing.
As BlackRock CEO Larry Fink has pointed out, “I believe the next generation for markets, the next generation for securities, will be the tokenization of securities.” The global securities market is worth over a hundred trillion dollars. Today, many tokens exist, such as transactional, governance, utility, platform units, and NFTs. Regulatory uncertainties mainly cause the underutilization of security tokens.
As the industry advances over the next decade, we expect transparent processes and guidelines to catalyze the widespread adoption of security tokens.
We're rapidly moving towards a future where all elements of securities, including cap tables, equity, and governance, are onchain. Initiatives like Norway’s Brøk program already demonstrate this impending reality, as they enable companies to put their shareholder registers onchain, streamline share transfers, manage shareholder information, and organize share pledges.
In the next 5-10 years, blockchain-powered solutions will become so seamlessly integrated that users won’t need to comprehend the underlying technology to interact with it. It’s analogous to our present-day interactions with the internet or banks – we use them without understanding their intricacies.
But why is the tokenization of securities superior to our current format? Let's explore.
Enhanced transparency and due diligence
Moving securities onchain will combat money laundering and make it more challenging by simplifying the ability to uncover the actual ownership of entities, which is currently an error-prone, time-consuming task for compliance professionals. There is also no hiding; once onchain, it doesn’t disappear.
Onchain securities will allow employees better to understand their ESOP (Employee Stock Option Plan) and exercise their options more easily. Employees can claim, trade, or sell their shares by receiving tokens representing their ownership, making the process more accessible and tangible.
Improved governance and voting power
Entities like BlackRock, Vanguard, and passive index funds hold significant voting power in the current public market structure. The industry can address monopoly concerns and promote fair decision-making by democratizing this voting power through onchain solutions.
Increased financial accessibility
Tokenization empowers a broader audience to comprehend and actively participate in the financial sphere. By making finance more tangible and accessible, more individuals will be encouraged to invest rather than leave their money idle in bank accounts. Presail is a testament to this, with over 35,000 retail investors that have invested in what can be called private market investments. Something they previously didn’t have access to.
Traditional securities often face significant constraints regarding liquidity, meaning they can be challenging to buy or sell quickly. Tokenization can enhance this liquidity. By representing ownership through tokens, investors can trade their shares more easily, fostering a more fluid market and unlocking value in previously hard-to-trade assets, even while being a privately held company.
The Existing Ecosystem Maturing
While security tokens are set to become a big deal, we expect the current systems to grow, develop, and become self-standing markets worth billions of dollars. These include:
Integration of real-world assets
Tokenization, a significant advancement, turns tangible assets—like houses, paintings, or patents—into digital assets that can be bought and sold online. You can even split it up, like breaking a physical object into many pieces, each representing a share of ownership. This way, assets become as tradeable as cryptocurrencies, broadening opportunities in the investment infrastructure.
Decentralized finance (DeFi) expansion
We expect new financial products and services as the ecosystem grows and DeFi expands. Such as tailor-made investment portfolios, early-stage index funds, unbiased credit scores, and intelligent AI tools that help manage risk. These innovations will cater to a wide variety of investment needs.
Privacy and data protection
As privacy and data security concerns grow, the Web 3.0 investment infrastructure is key to keeping user data safe and transactions smooth. Picture a digital lockbox with technology like zero-knowledge proofs (a digital key that verifies transactions without revealing all the details) and homomorphic encryption (doing calculations on the lockbox without needing to open it).
Financial Inclusion and social impact
One of the most exciting possibilities with the Web 3.0 investment infrastructure is the potential to increase financial inclusion. For those unfamiliar with the term, 'financial inclusion' refers to making financial services accessible and affordable for all individuals, regardless of income level. Using blockchain and other Web 3.0 technologies, we can lower the barriers to entry into financial markets, making them more accessible and thus enabling even the underserved communities to participate.
Global Regulatory Alignment
Imagine a future where global regulators recognize and harness the enormous potential of blockchain technology. They wouldn’t just be bystanders but collaborate actively with private entities to establish a unified regulatory framework. Global regulatory alignment can serve as the bedrock for the growth and stability of the Web 3.0 investment infrastructure industry. This convergence will enhance cross-border collaboration, reduce inefficiencies, promote fair competition, and considerably diminish fraudulent practices.
Sustainable Finance and Environmental, Social, and Governance (ESG) Investing
Investors worldwide increasingly value sustainability and responsible investing. If these terms are new to you, they are often called ESG (Environmental, Social, Governance) criteria. In this changing climate, the Web 3.0 investment infrastructure industry can be instrumental in adopting and emphasizing ESG principles within the blockchain sphere. By offering tools and platforms that support ESG data tracking, reporting, and decision-making, this industry can contribute to developing a more sustainable financial ecosystem. Blockchain can monitor supply chain processes, ensuring materials and goods are sourced responsibly and sustainably. This can help companies verify their ESG compliance while also giving investors confidence in the sustainability of their businesses.
In conclusion, the emergence of Web 3.0 investment infrastructure is an inflection point for global finance, laying a foundation for a fairer, more inclusive, and transparent world. It disrupts traditional norms with its three foundational pillars: contribution, management, and distribution, each tackling unique challenges while offering unprecedented solutions.
This new model has profound implications, heralding security tokenization, the rise of DeFi, the integration of real-world assets, and an emphasis on sustainable finance and ESG investing. It isn't merely a fleeting trend but the dawn of a transformative era in finance. By embracing and supporting this infrastructure, we shape a future where finance is transparent, accessible, and equitable, benefiting both society and the global economy.
The Presail Mission
At Presail, our dedication lies in developing Web 3.0 investment infrastructure. We see a future where this transformative technology can create a financial system that benefits everyone.
We believe in the strength of community action and value the insights we gain from our members. This collective wisdom helps us better understand the future of finance.
We invite you to join us on this journey. As an investor, entrepreneur, or blockchain enthusiast, your input is crucial in helping us meet our ambitious goals.
You'll be part of an exciting movement by getting involved, helping us drive innovation, and making the most of blockchain technology. We can build a financial ecosystem that champions transparency, accessibility, and fairness. Your involvement can make a real difference in the world of finance.
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The path to simplifying your Web 3.0 investment workflow starts here.