Can Blockchain disrupt Crowdfunding?

Tokecafe Blockchain application pitch…..

As part of our HKU MBA Blockchain course assignment, we were asked to pitch a blockchain application idea and our team came up with Tokecafe which is intended to disrupt the global traditional crowdfunding industry. The industry is estimated to be around $20.2 billion and is determined to reach $34.6 Billion by 2026.

Types of traditional crowdfunding platforms:

The offering of a traditional crowdfunding platform:

· Payment gateway that supports multiple currencies

· Progress meter to easily track campaign progress

· Secure mobile options to best reach your audience

· Responsive design that can adapt to user devices

· Social network sharing to expand your reach (Marketing)

· Built-in marketplace

Cons of traditional crowdfunding platforms:

· Obligations & Risk: if fail to meet promises

· Initial investment is huge: To promote, market, attract, content creation.

· Invite copycats, a threat to IP

· Limited markets — fails in developing markets.

· Political interference.

· Huge platform fees — 5% to 10%

· 75% of them fail to raise full capital

So why do we think blockchain can disrupt traditional crowdfunding?

• Traditional crowdfunding mostly fails to raise full capital in emerging markets.
• Traditional crowdfunding mostly fails to raise full capital in emerging markets.
• Initial Coin Offerings (ICOs) are already popular among start-ups today, the company benefits from its ICO by bypassing various hurdles set by venture capital firms and banks.
• The process of marketing a new token also attracts new users to the exchange.
• Applications built on blockchains are censorship-proof as well. This removes restrictions that traditional crowdfunding sites might otherwise impose on individuals or businesses. In the United States, businesses are not allowed to raise more than $5 million in a year from crowdfunding websites.
• GoFundMe does not process payments from China, Nigeria, Russia, Lebanon, Iran, and a host of other countries. With blockchain technology, investors or donors from these countries can easily contribute to a DAO.
• With fewer platform fees, you can send money across borders without paying neck-breaking transaction fees.
• The smartcontract makes life easy. Blockchain makes the funding process safe and offers transparent access, which means crowdfunding platforms that use blockchain can help maximize the success of a project.
• In a trustless system, blockchain-based crowdfunding can avoid the need for middlemen and the inefficiencies that they create. Both removing middlemen and automation lead to a faster and simpler process when compared to traditional methods.
• Using a blockchain-based system with an infinitely divisible token allows for investment at a micro-level. For example, 1 token could be offered for $100, or 100 tokens could be offered for $1. This provides a much deeper pool of potential investors across the world who would never be able to afford to participate in the traditional investment.
• Smart contracts and tokens can be customized to do anything that can be coded, providing limitless potential options to benefit the investor. This could be anything from increased dividends for those who hold the tokens longer, to proportional voting rights for token holders.

Types of Crypto Crowdfunding:

ICO — ICO is a modern blockchain-based form of crowdfunding that provide the same trust as famous platforms, like Kickstarter, but works without a central authority. In such cases, tokens often give you the advantage to earn some value from future operations. For example, you will be able to obtain products in exchange for tokens.

IEO — IEO obligates startups to create their crypto token as it’s much more secure and stable

STO — Asset-based security tokens which have ownership rights, like a security token but have to be careful with legal regulations.

IDO — A new type of the decentralized and permissionless platform which helps startups launch their coins or tokens.

Current crowdfunding applications in Blockchain

1. WeFunder –WeFunder bills itself as the “Kickstarter for investing.” Here regular people get to invest in startups that are typically at the early — stage, with projects listed on the website. According to the platform, users can invest as little as $100 into startups, with the hope of earning a return on investment.

2. StartEngine — Investing in Small Businesses Seamlessly. The platform is equally useful to founders and startups in search of funding for operational expenses and business expansion.

3. CoinStarter is a first-of-its-kind blockchain platform where users can launch a crowdfunding or coin-based campaign in minutes. The blockchain platform seeks to help entrepreneurs, innovators, and creators bring their ideas to life.

4. PolkaStarter is a protocol built for cross-chain token pools and auctions, enabling projects to raise capital in a decentralized, permissionless, and interoperable environment based on the Polkadot protocol.

5. Kickstarter plans to unveil a project that will merge the two worlds. It’s hatching a standalone company to build a crowdfunding system much like Kickstarter’s but based on blockchain technology.

TOKafe pitch Idea:

Our platform is specially designed to support café and restaurant owners from emerging markets to raise capital through TOKafe — a platform that can get liquidity from the investors through co-ownership. Through the platform, they decide how much capital they need to raise (which is the percentage of their business), and then after signing a smart contract, the platform release the tokens in the market. Investors who want to diversify their portfolio and see an opportunity to invest in these businesses buy the token which raises capital for the business owners.

TOKafe Tokens:

We have a multi-token idea:

- Tokens which give ownership (DAO based), the right to vote, discounts, and offers.

- Speculative token which represents an investment in the company, has the value of “shares” and gives a return in USDC.

TOKafe Tech Implementation:

By reviewing the operation of the platform, we have identified certain criteria that the blockchain needs to achieve:

1. The ability to issue different types of tokens or NFT for governance and speculative streams.

2. Need to record all the transaction details and history upon request by the platform.

3. Be capable to record and share public information between co-owners and stakeholders.

4. Some generic requirements of the blockchain are fast, secure, and efficient, as we don’t expect an extremely high volume of transactions so throughput and latency are not some of our concerns.

5. However, we want some support from the blockchain developer to assist us to bridge different wallets to the platform.

With these requirements, there is no single blockchain that can work. But the story does not end here, our team was inspired by Toko and our platform will adopt a dual blockchain system with Hyperledger fabric and Hedera Hashgraph blockchain. The advantage of this dual blockchain system is that the platform will be able to run both private confidential information and public information on the two Blockchains separately and collaboratively. Some key features of both blockchains are enterprise-grade, allowing for to issue of tokens, low gas fee, and deterministic.

The Hyperledger fabric will run for the private confidential information and it supports AWS and it runs with a modular base design so we can add features one by one to suit our operation. For Hedera, public information such as co-owners profiles will be logged there for information sharing between stakeholders. Hedera is more friendly with transactions of stablecoin such as USDC, so we will use it to distribute dividends for the revenue stream.

TOKafe Business Model:

We offer the most flexible funding and payment options in the industry.

Funding options:

1. Base package: All OR NOTHING. Meaning, that the business owner picks a funding goal he/she believes can be reached and receives the full amount if it’s achieved. If failed to reach the goal, money is returned to the investors.
2. FLEX funding: Business owners keep whatever money is raised. This option is in case the business owner is uncertain about achieving the target or the business itself is in a niche and needs time to gather steam.
3. BACKED funding: Where we as a platform decide to invest in the project which allows the business owner to achieve its funding goal in full

In terms of payment options — we accept crypto (stable coins), Credit cards, and bank transfers, so all options exist for the investors which broadens the access for everyone to invest.

Revenue stream — Fees we charge and the model is the following

• 2% of the money raised (not the target) for the FIXED funding
• 3% of the money raised (not the target) for the FLEX funding
• 5% of the money raised (not the target) for the BACKED funding

In terms of payment processing — we don’t charge for crypto payments, but we do charge 3% + 0.30 cents of the dollar on CC payments.

TOKafe Competitive landscape Porter 5 forces:

1. Competition: Customer loyalty, Backers Insurance, the community of moderators who rate listings

2. New entrants: Blockchain is booming, Traditional crowdfunding moving to blockchain

3. Power of suppliers: No exclusive deals, a chosen blockchain platform with relatively low network fees

4. Power of customers: Fluctuating, Volatile, Market entry barrier

5. Substitute products: Kickstarter, StartEngine, Pledgecamp, Coinstarter, Wefunder, Tecra Space, etc

Disadvantages of Blockchain Crowdfunding:

· Equity liquidation is not regulated in various countries.

· Certain investors may have insufficient sophisticated knowledge or resources to assess the risk involved.

· Lack of standardization between DLT offerings and their native tokenized commodities like those found on Ethereum, EOD, Waves

· Consumer protection laws and regulatory status lack clear guidelines

· Risk of market abuse by issuers and investors

· Weakness in KYC/AML registration, compliance, and auditing.

Despite all the current challenges in Blockchain, we are believers in this decentralized technology.
I am a big fan of Shark Tank, but after learning the power of Blockchain I wonder why we leave the destination of founders who want to change the world in the hands of a few rich sharks or influential VCs.
Why don't we create a platform where people from any part of the world can dream big and find their community who can support them to make it a reality?
Hence our team — Kent Huo Thai, Yaniv Hoffman, Marco Caruso, Bhavya Siddappa, and Chung Winson presents to you all TOKcafe!