Blockchain, Cryptocurrency, & Social Impact Investing

Asset Investment Pools

Nexsis Group
Sep 3, 2018 · 5 min read

Asset Investment Pools (AIP) are an exciting development in the cryptocurrency/blockchain industry, allowing cost effective, accountable cross-border, multi-party investment in asset acquisition and shared ownership rights. This article briefly explores some of the key benefits and challenges.

What are AIPs?

At their core, AIPs are essentially a form of collective investment facilitated through a blockchain platform. The underlying concept of collective investments has existed for centuries — many investors or owners pool their resources to finance the creation, acquisition, or ongoing ownership/operation of an asset. They then share the rewards (and risk).

AIPs look to take the concept further to manage more secure, auditable cross-border investment and ownership by diverse parties in income-producing assets (to date, typically in the renewables space).There are some practical similarities with crowdfunding arrangements, with the big difference being that AIPs typically result in shared ownership of/rights to the assets created (rather than just a distributed source funding for acquisition).

In broad terms, parties place their funds (crypto or fiat) into a pool which is used to acquire ownership of an asset and fund associated expenditure. Ownership rights and entitlement to outputs of that asset (on sale or ongoing revenue) are then managed accordingly. This process is recorded on a blockchain.

To date, focus types of asset to be funded/owned via AIPs are those that (a) entail a social benefit to acquiring; and (b) produce varied forms of value output. Key examples include hardware for renewable energy production (eg solar panels, wind-farms), or clean water production (eg water treatment systems in emerging economies).

What are the benefits?

In short: greater automation (ie lower costs), and — theoretically — easier cross-border/global investment pools (ie greater reach).

The underlying benefit of blockchain/crypto AIPs surrounds the ease, cost, security/accountability, and effectiveness of administration that arise by using the technology. Blockchain provides a method to solve the ‘lack of trust’ problem and thereby enable decentralised transactions between unknown parties without an intermediary. Smart contracts add the potential to provide a software-based system for automated implementation and execution of various functions, further overcoming the need for intermediary involvement for certain ongoing administrative functions.

Where AIPs integrate crypto tokens, accountability of transactions/ expenditure can be increased by the immutable, transparent nature of a token’s transactional blockchain record.

The ability to leverage blockchain technology for accountable, cross-border transfers of value makes AIPs well suited to investment in renewables and in emerging markets.

AIPs — The Short Term Outlook

In some circumstances, it may be that AIPs can do away with the need for any sort of intermediary administering the collectively-owned asset. In practice, certain ‘real world’ functions like overseeing asset construction/creation/ acquisition, or managing asset upkeep — eg rent inspections — probably mean that intermediaries are still needed for certain practical tasks.

In the short term, it is likely that the most successful blockchain AIPs will seek to leverage blockchain ownership records and smart contracts to administer ownership and distribute rights to proceeds of income-producing assets in a cost-effective, cross-border way.

Ultimately, collective investments and shared ownership arrangement that are facilitated through AIPs ought to become significantly more feasible and cost-effective across borders and between varied and ranging categories of stakeholder.

What are the challenges?

There are several models through which AIPs can be implemented. Several projects have proposed their own form of AIPs, though to date there has been limited success implementing such proposals.

One widely known example in the crypto industry is the ‘Asset Germination Pool’ approach proposed by some existing crypto projects — PowerLedger in particular. Market experience to date also highlights the challenges with effective implementation of AIP projects.

At their core, the main hurdles are legal/regulatory ones. Rules surrounding collective investment schemes can be highly complex, and vary from jurisdiction to jurisdiction.

Even if crypto projects can design an AIP which integrates effectively with that project’s underlying crypto token from a software, economic and fiscal perspective (complex, though feasible), adapting that AIP to fall within requirements of legal frameworks can require a substantial redesign of the system. For instance, involvement in AIPs might impact the utility/security token status, and the exact obligations for disclosure and KYC in facilitating collective investment arrangements vary significantly between countries and may be commercially prohibitive.

For this reason, it is likely that successful AIPs will be designed from the ground up by lawyers as much as by experts in blockchain or the AIP target industry.

Is it worth the effort?

Unquestionably, yes.

AIPs can allow broad participation in funding the acquisition costs behind creating and operating a diverse range of new asset classes — socially-beneficial assets in particular.

They offer a way to enable investors (or charitable donors) an accountable mechanism to improve environmental and other outcomes in a commercially attractive way, through obtaining rights to innovative new asset classes, with a level of diversification that can be otherwise difficult to achieve.

There is substantial potential and importance behind attracting socially-conscious investment in improving the lives of developing market users, working with NGOs, NFPs, charities, governments and supranational agencies to use AIP platforms to leverage the multi-billion dollar general investment, CSR investment, and charitable donation markets to drive improvement in markets through hardware acquisition.

For projects that can overcome the challenges to setting up AIPs, they may provide one of the strongest, most exciting forms of blockchain and cryptocurrency use case.

AIPs in Action — Learn More / Contact

To learn more about developing AIPs and leveraging blockchain technology, contact Lupercal Capital’s Strategy Consulting team at enquiries@lupercalcapital.com or via its website.

To see AIPs in action, follow Nexsis on twitter & facebook.

Nexsis is a tech company developing innovative new software, blockchain and hardware solutions to improve financing, access, management, and allocation of water & electricity, and drive financial inclusion in emerging and underserved markets.

One of our most exciting forthcoming projects involves the Nexsis AIP, which we expect to announce in the coming months. To learn more about us, go to nexsis.co, or follow us on twitter & facebook.

Nexsis Group

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Tech company leveraging software/blockchain + hardware to provide water, energy and financial services to new, emerging markets

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