The interest in investing has really grown up lately. Smart people believe that investing is an effective way to put their money to work and potentially build wealth. They firmly believe, based on past information that supports, smart investing allows your money to hedge against inflation and increase its value. Basically, a theory of predicting future performance based on past information. The growth of investing primarily comes from a simple quantitative framework – compounding and risk-return trade-off.
At present, we have different asset classes that we can invest upon (we truly believe in) to potentially grow our money in long-term. Some of the popular ones that have been emerging aside from equity investments are cryptos and NFTs (Non-Fungible Tokens).
Let’s look at what it means to invest in these 3 asset classes and what difference we can find out. Before that, let’s continue with some assumptions:
- I have $5000 in my account that I would like to invest upon.
Equity Investing
This is the traditional method of investing in a traditional stock market where I can invest on companies that I believe in. “I believe” is a term which I would define it as where the company’s fundamentals are good. By that I mean:
If the company’s business model is sustainable long-term or not,
Can it be replicated,
Who are the key players/peers that it would compete with,
How far can I envision company’s goals and,
To what extent I can trust the management?
Also, the most important aspect is the financial health of the company, can it survive if any uncertainties like the pandemic, occurs. Once, I assess these, let say I want to invest in 5 companies that I believe which have good fundamentals and are from different sectors. If I put $1000 in each, I would end up investing in 5 companies with minimal investment and facing risk-returns of it. However, that’s diversification, which is good, but let’s see the same about crypto tokens now!
NOTE: Equity investing is much stable investing asset class as it is regulated by bunch of boards/SECs to mitigate volatility.
Crypto Tokens
Crypto tokens are digital assets that are built on top of cryptocurrency blockchain networks. They are for instance, ERC-20 tokens on Ethereum blockchain or SPL tokens on Solana blockchain. Crypto tokens are assets that have potential value (based on the project that they are built on). There are use cases for various purposes like –
Governance tokens – where a crypto token gives a voting right to the holder in a cryptocurrency project. It enhances the ability of token holders to make and vote on proposals that determine the future/future value of project.
Decentralized Finance (DeFi) – If you are not from crypto space, DeFi is nothing but an alternative financial system that is built on blockchain technology. It’s basically lending and borrowing protocol with bunch of features. So, crypto tokens in DeFi allows you to take a loan from lender by depositing DeFi platform’s own tokens as collateral. Crypto tokens act a platform owned currency for lending and borrowing. Also, these tokens can allow holders to gain access to governance of that DeFi platform.
These are just two of them, but there are bunch of other purposes with crypto tokens. Let’s say that I want to invest my $5000 in crypto. Although it’s extremely less cumbersome to invest in crypto tokens, there is a huge volatility that I need to be ready for during uncertain times. This is a high-risk asset class, apart from other stable-coins. So, this could possess a greater risk to my portfolio at least in the short-term which not every investor would like to face.
Let’s now jump on to NFTs!!
NFT (Non-Fungible Token)
NFTs have real world use case that cryptocurrency has expanded its universe to. NFTs are token based on a blockchain that represents the ownership of a digital asset. They are non-fungible meaning that NFT is a unique digital asset that is not directly replaceable with another digital asset. Many physical assets are also non-fungible like for example – real estates. Each piece of property is unique from others. NFT can represent any digital creation – art, music, videos, writing etc.
We can access to these bunch of NFTs via marketplaces like OpenSea, Rarible, NBA Top Shot etc. The NFT space is currently in the toddler stage and there could be lot of exciting projects that would come up in future. Also, with any creative industry, there have been few problems with “counterfeit.”
Let say I want to invest my $5000 in NFTs, there are bunch of premium NFTs that are worth millions. I with my $5000 have to invest in emerging NFT projects at which I need to bet on. Betting is a risk-reward thing. It’s risky for me being invested in risky asset class using my savings. Although, I do the necessary sanity checks like who the artist is, his past Proof of Work (PoW), how the community is aligned and engaged with the NFT project – the investment would remain a riskier one.
Let’s summarize the difference of investing in stocks, crypto tokens, and NFTs. This would be summarized in the point of view of a retail investor.
To mitigate these challenges and enhance investor’s (retail investor) experience on-chain, we have investing DAOs, one of which is strongly emerging with Investment Clubs is Syndicate DAO.
DAOs
DAOs (Decentralized Autonomous Organizations) are organizations that are built to be autonomous and decentralized in operations and structure. DAOs are communities of people who share the same interests or work or vision on same projects. Anyone can build a DAO if you and your community is aligned with same goal or interests. DAOs operate using smart contracts which is a piece of code that automatically executes whenever set of criteria is met. These smart contracts establish the DAOs rules where it is transparent. DAOs are less about governance and more about ephemeral team, spontaneous capital formation and made to order capital allocation.
Alright, now you must have understood what DAOs are, let’s understand what Investing DAOs are.
Investing DAOs
Investing DAOs work like any other DAO through smart contracts which enables members in the DAO to collectively pool funds to invest, manage their portfolio and run the community, governance process. These investing DAOs would invest pooled capital in tokens, NFTs, startups or any other asset classes. The underlying action of Investing DAO is to pool and invest capital with the shared goal of generating financial or social returns in transparent manner.
These Investment DAOs have certain advantages like where each member of the DAO would be adding value and sharing the vale with other members which translates into higher returns that an individual would have achieved.
With this comes low risk-returns opportunity, as the funds are pooled and invested in a decentralized manner at various sectors or with diversification funding, the risk would eventually be lower.
To make this happen, Syndicate is revolutionizing how the world creates value by introducing Web3 Investment Clubs.
Investment Clubs – Syndicate
Investment Clubs are first mainstream social investing tool that is built on Syndicate Protocol. This enables any Ethereum wallet in transforming into an investing DAO in seconds for just the cost of gas.
Investment clubs are not new to this world. They have been around for thousands of years. The first one started in Texas in 1898 during the Wild West. To help you understand better, Investment Clubs are group of people who pool their funds to invest together in shared interests/ideas, increasing their buying power and sharing the risk and reducing transaction costs. These investments can be in stocks, bonds, cryptos, NFTs real estate, even startups, etc. anything.
In old-fashion, investment club members meet in person, share their ideas, discuss the pros and cons by sharing their opinions on each and make investments together by calculating the risks accordingly to their risk appetite. Lately, lot has changed as the collaboration shifted over internet and investment clubs became internet native, but still there are few challenges that investment clubs face –
Creating an investment club: It is very slow, difficult process to create an investment club.
Compliance/Laws – Investment clubs are hard to maintain with laws and regulators as investment clubs are member driven and run by a community, they are generally not regulated by SEC. But there are certain guidelines these need to follow. Check out here.
Tools – Web2 has completely ignored developing an internet native tool which would ease members of the club in investing together especially in internet native assets.
But, with Syndicate Protocol, members/groups can create and run an investment club on internet with composability on web3.
Let’s look at key benefits that we can leverage from Syndicate to create an Investment DAO.
Web3 native: As Syndicate in a web3 protocol, it helps in running the club natively on internet blockchain called Ethereum. The protocol is working on launching in other chains too in their road ahead.
Wallet to DAO transformation: Any Ethereum supported wallets like Metamask, Ledger etc. can enable you to create and run an investment club.
Easy-peasy: It’s very simple and easy to create on-chain investment club in seconds. The cost factor is only gas fees that would be in the process of creating an investment club.
Transparency: As the real-time transactions are transparent it enables anyone manage investments and club members.
Composability: With composability a feature on blockchain, it helps in integrating with future Syndicate tools and other ERC-20 based protocols or web3 tools.
Legal infrastructure: Syndicate offers to get DAO legal entities, DAO legal documents, EINs, bank accounts, K-1 tax filings etc.
Let me dive into Syndicate’s protocol features of Investment Clubs. Before that, let me show you the on-boarding experience for beginners.
Connect your wallet listed to connect to Syndicate protocol and if you are not in any investment clubs, you get an option of creating one.
You can create an on-chain investment club by reading the given instructions and following steps.
I’m creating a Rocket Club which gets published on Ethereum blockchain.
I would like to create an investment club with a highest pooled amount up to $100k and a timeline of 1 month to pool the money. I would want to create this club within my close community capped at 25 members.
Once, you are done you can accept the guidelines of the protocol and click on confirm wallet to complete the transaction thereby a club get created on Ethereum chain.
Features
Creating and Investing in Few Clicks
Deposit Links, Mirrortable, Mirroshares
Syndicate makes you forget about surveys and spreadsheets for deposits to track manually as the protocol generates a deposit link to send to members where they can contribute capital for investment clubs and the updates are automatically recorded on-chain ‘captable’ (which is a mirrortable). Mirrotables basically streamline the logistics or document signs of angel investing in few clicks.
By this, each member who deposited will receive a proportionate number of ERC-20 “mirrorshares.” The mirrorshares are non-transferable by default.
Legal Document Generation and Web3 signing
Syndicate can help you generate, send, and collect signed copies via its website in a decentralized way. Nothing is stored on a centralized server which maximizes privacy, security, and control of the key information. Latham & Watkins, a global law form advised Syndicate on the creation of these standardized legal documents for Investment Clubs on Syndicate protocol.
On and Off chain Data
As shown earlier, you can track real-time dashboard that helps in understanding investments into tokens and NFTs on Ethereum as of now, Syndicate is currently working for other chains soon.
What about off-chain investments?
With Syndicate you can record off-chain investments like startups, equity, bonds etc. by attaching off-chain memos, meta data and links that display the investment which ultimately get represented on investment club’s dashboard.
Final Remarks
Syndicate is an interesting protocol for investment clubs that can be created, managed, and recorded on-chain enabling transparency, enhancing security and empowering composability features in the future. It is not just a power tool for investment clubs investing in tokens or NFTs but also for off-chain investment that clubs make in VC funding or angel investing into startups or pre-public companies.
Reference Links
Syndicate - https://syndicate.io/
Syndicate’s social links - Twitter, Discord
SEC regulation on Investment clubs - SEC
Syndicate Guidelines
Syndicate Blogs