Web3 Transforms Crowdfunding With Greater Accessibility & Enhanced Participation
It’s often said that you need money in order to be able to make money, and there’s certainly a lot of truth to that statement. Whether you’re trying to start a new business, publish a book, launch a new product, or something else, you’ll likely need some funding to help you get started.
But unless you come from an extremely wealthy family that’s happy to support your ambitions, getting hold of those funds isn’t so easy. It means spending months trying to find and convince investors of the merits of your plan, or going cap in hand to your local bank and begging for a business loan.
That capital comes at a cost, though, with outside investors demanding you give up a substantial amount of equity in your nascent venture, or else crippling interest payments attached to any loan.
Fortunately, with the emergence of crowdfunding, budding entrepreneurs have another way to go about it. Crowdfunding refers to the practice of raising money from hundred or even thousands of regular people, who all chip in with relatively small amounts in return for some kind of stake in your venture.
It has become a popular model for small businesses, inventors, musicians, designers, artists, charities, and filmmakers because it’s one of the easiest and most accessible ways to raise funds.
The blueprint for today’s crowdfunding model was created by the U.K. rock band Marillion back in 1997, when it realized that it couldn’t obtain enough money to fund its proposed tour of the U.S. When investors said no, the band turned to its fans and managed to raise $60,000, giving all who contributed free tickets to one of its concerts and other perks, such as a chance to meet them in person.
Crowdfunding has since become a revelation, with the emergence of online platforms like Kickstarter and Indiegogo bringing opportunity to thousands of individuals globally. These platforms make it possible for anyone to create a project, pitch it to the world, and secure small donations in an effort to reach their funding goals, whereupon they’ll be able to fulfill their dreams.
A Better Foundation
With the rise of Web3, the decentralized version of the internet, crowdfunding has gone into overdrive, becoming even easier and less expensive than it is on traditional funding platforms.
Web3 is like the cooler cousin of Web2, the internet we know and love today. While Web2 gave birth to social media platforms, blogs, and dynamic websites, Web3 introduced the concept of decentralization, where every single user becomes a participant in a sprawling ecosystem. Whereas the current internet is controlled by massive corporations like Google, Facebook, and Microsoft, Web3 is built on a distributed blockchain, essentially a network of computers that everybody owns. Agreements are handled by smart contracts, eliminating intermediaries. It puts the power back in the hands of the internet’s users, and the big companies lose their monopoly.
Web3 provides an ideal foundation for crowdfunding, as its financial model is based on cryptocurrencies, which anyone can create, distribute, buy and sell. The global reach of Web3 breaks down the geographical boundaries that may have previously prevented entrepreneurs from reaching out to the furthest-flung audiences. Because crypto knows no borders, it’s possible for you to sit in your apartment in New York City and invest in a small farm in Kenya, a folding bicycle inventor in Taiwan, a Papua New Guinean student’s science project, or any other venture you might discover.
In addition, Web3’s decentralized nature ensures that crowdfunding processes are extremely transparent, with every transaction recorded on the public blockchain, so everyone can see exactly how much capital a project has raised, and how much of a stake each investor has. Blockchain transactions are highly secure and efficient, meaning they can be processed in close to real-time, with lower costs too.
This is in stark contrast to Web2 crowdfunding platforms like Kickstarter, which only accept fiat currency and require investors to give up a lot of personal information. Not only do they prevent people from participating, but they also charge significant fees that would otherwise go toward the projects begging for funds.
Web3 Crowdfunding In Action
We can look at some real-world case studies to see just how Web3 is changing the game for crowdfunding. One of the most prominent examples that made tons of headlines back in 2021 was Constitution DAO, which was a decentralized autonomous organization set up in that year to try and purchase one of the few existing original copies of the U.S. Constitution, which had been put up for auction by Sotheby’s.
Constitution DAO raised $47 million but was ultimately unable to match a competing $43.2 million bid, due to the need to keep some of the funds it had raised to insure, store, and transport the document.
Although Constitution DAO was unable to fulfill its mission, the headlines it attracted were an amazing showcase for the power of crowdfunding and inspired numerous other models. One of the more successful new models was created by the decentralized cryptocurrency exchange Uniswap, which hit upon the idea of “liquidity pools” to facilitate trading on its platform.
So rather than keep masses of its own cryptocurrency to fulfill customers’ orders, it simply crowdfunds the necessary capital. Users deposit funds into its liquidity pools, enabling others to buy and sell digital assets, and in return, they earn a share of the fees charged for each transaction.
Unit Network has since come out with a dedicated, collaborative crowdfunding platform that allows anyone, including individuals, entrepreneurs, artists, cities, and businesses to create their own cryptocurrency tokens and use these as incentives to attract funding.
It’s building an ecosystem where communities can rally behind new ideas and participate in democratic governance. Its platform includes tools for users to set up their own DAO, which allows anyone who invests in a project to propose ideas and vote on them. For instance, a farmer seeking to raise funds to buy a flock of sheep can outline his project, create a DAO, and then mint his own cryptocurrency, which might represent a stake in the business or provide some other benefit, such as discounted prices on the wool his sheep produce.
The tokens that represent a stake in the project are backed by collateral that includes a mix of Unit’s native token, UNIT, plus other cryptocurrencies like BTC, ETH, SOL, DOT, and so on.
Any investors who are sold on the idea can then purchase those tokens, and the farmer can then use the proceeds to purchase the sheep he needs. By creating a DAO, a digital token, and tokenomics structure, Unit Network effectively offers an inclusive blueprint for crowdfunding that ensures the process is fully transparent. Already, it has hosted numerous projects that have gone on to raise funds,
Web3 Is Crowdfunding On Steroids
Web3 is building a more inclusive investing world that anyone can participate in, not only to generate a return on their investment but also to take part in the decision-making process. Because Web3 crowdfunding introduces DAOs, it puts more power into the hands of individual investors. Even if you only have a very small stake in a project, you also gain the freedom of expression and the opportunity to convince larger shareholders to back your ideas.
Moreover, the borderless nature of Web3 means that crowdfunding is open to anyone who wants to participate, regardless of where in the world they live. This means more opportunities for entrepreneurs seeking capital and the investors looking to back them. It makes it possible for anyone who has an idea to obtain funding.
Web3 puts crowdfunding on steroids, and with its potential to democratize access to capital and investment opportunities, there’s every reason to think we’ll see more entrepreneurs considering this option in the years to come.