A revolution has begun in finance that will have profound implications for capital markets, going forward.
The traditional project financing model is slowly becoming obsolete. At the very least, the options available are increasing in size, scope and variety. Traditionally, anyone wishing to start a new venture was limited to financing options from centralised institutions and services, such as banks, venture capital and institutional players.
The Revolution Begins: Crowdfunding
The first iteration of a diverse ecosystem occurred with the arrival of crowdfunding platforms. Here, individual contributors from anywhere could share funds as they desired, and in any project they liked.
Venture finance is now decentralised. Those in charge of projects are now able to raise small amounts from several interested parties instead of raising a large sum from a few players. Users of products and services can also act as financiers of said projects.
This model has worked well, and many have experienced success through it. However, crowdfunding still relies on centralised services to provide a platform. Still, revolutions are ongoing. An exciting progression has come with the arrival and development of blockchain technology.
Enter the so-called ‘app-coin’ or ‘meta-coin’.
Meta-coins and The Next Phase
Meta-coins are a new financing model for any project. They worked especially well for the Ethereum project itself. However, they should not be limited to protocols. Meta-coins can be used to finance a variety of projects.
Meta-tokens act like a kind of share in the underlying project. These blockchains, which meta-coins live on, are open and distributed. Because of this, IPOs are available to everyone, and not only to finance industry insiders and institutional players.
Investors have benefited from acquiring equity early in projects; now, anyone can do this by purchasing meta-coins early. This stage of the revolution is the most exciting. Centralised crowdfunding platforms have always struggled with a model that would directly incentivise and reward participants if they supported successful projects early, but with a blockchain issued meta-coin investors directly benefit with ownership of the token itself.
The Value Proposition of Ethereum
Compared to other blockchain systems like Bitcoin, Ethereum really shines in this aspect.
With smart contracts, relationships between investors and the project itself can be arbitrarily complex. Once the user sets contract terms between project contributors and project creators, they can freely express them as computer code. Users can then put them on Ethereum's decentralised world computer, with a meta-token attached to provide the economic incentives for participation.
Projects could create a meta-token and tie it to the profits of their decentralised application, via smart contract. The token would not only reward participants through appreciation, but also by accruing the profits of the underlying decentralised application itself. In this way, the token is earning a dividend. Some are already trying this.
What we have here is the beginning of a genuine revolution in an important industry. There will be successes and failures and a lot more experimentation with what is possible. This trend is definitely one to watch in the blockchain space.