The Role of Algo Capital: Accelerating access, adoption, and liquidity of the borderless economy
Today’s centralized economies are held back by issues like inefficiency, unnecessary friction, and lack of inclusion for every member of society. In a system where 2.2 billion people worldwide are excluded from modern financial services, access to prosperity is limited to the powerful few. And on a daily basis, an inordinate amount of money is wasted on intermediaries, which charge transaction fees that total $4 trillion, representing 6% of global GDP.
We need a better way to exchange value — a decentralized system, where trust is automated, transactions are immediate, costly intermediaries are eliminated, and data is secure.
That’s the promise of blockchain technology: an inclusive and fairer economic system, where anyone has the opportunity to build prosperity.
The evolution of blockchain technology
Up until now, however, that promise has gone unfulfilled. The first generation of blockchain established the idea of a borderless digital currency, with Bitcoin. The second generation, ushered in by Ethereum, centered on borderless contracts in the form of applications. Though innovative, these technologies were held back by a series of technical barriers.
The natural evolution from borderless digital currency to borderless contracts brings us to the present day, where we’re seeing the third generation of blockchain take shape: a digital economy where parties can trade value without the friction of current financial networks. To do that, you need blockchain technology that can enable real disruption with real-life use cases for hundreds of millions of users, if not billions.
Part of the challenge is that existing blockchain networks have been built on proof-of-work consensus algorithms, which depend on substantial computational effort, driving up energy consumption and transaction costs.
We believe that the ongoing development of true proof-of-stake models will enable this third generation of blockchain technology, allowing blockchain to reach mainstream adoption and scale.
Where proof-of-work has been costly, slow, and difficult to scale, proof-of-stake is cost-effective, quick, and highly scalable.
Algorand’s borderless economy
The vision of a borderless economy is what Algorand, a new blockchain protocol designed by cryptography pioneer and Turing Award-winner Silvio Micali, is working toward.
We first learned about Algorand’s work in early 2018. The principals of Algo Capital were some of the lead investors in Algorand’s $62M round of funding. Algorand’s first-of-its-kind pure proof-of-stake protocol makes it the only blockchain technology capable of supporting the scale, open participation, and transaction finality needed for billions of users to build opportunity and fulfill the promise of blockchain technology.
For years, blockchain’s promise of offering transparent, decentralized and equitable economic opportunity has been held back by rampant speculation, technological limitations, and ideological disagreements.
At Algo Capital, we feel that Algorand presented the first blockchain platform truly capable of ushering in wide adoption, market disruption, and business value to this technology.
Here’s how we see our role in Algorand’s borderless economy.
Bringing access to the borderless economy
Algo Capital is a financial institution focused exclusively on powering Algorand’s borderless economy.
We develop financial products that accelerate access, adoption, and liquidity of the Algo, the native digital currency of the Algorand blockchain.
Algo Capital, founded by David Garcia and Arul Murugan, is a completely separate entity from Algorand LLC and Algorand Foundation. Algo Capital is building modern financial products to power Algorand’s borderless economy.
The first thing we do is bring access to the borderless economy. That’s where the Algo Tracker Fund comes in: to build a bridge between the existing economic system and the new borderless system, transitioning economic value into the borderless economy.
The Algo Tracker Fund enables institutional and qualified investors to invest in the Algo. To date, these types of businesses and individuals have been reluctant to invest in digital currencies due to risks like market volatility, the lack of downside protection, and a high barrier of entry due to regulatory and practical usability challenges.
The Algo Tracker Fund creates a simple way for endowment funds, pension funds, venture funds, hedge funds, financial institutions, family offices, or high-net-worth individuals across the globe to add digital assets exposure to their portfolio with the assurance of financial protection, regulatory compliance, and no fee. Key to the fund is a 90% refund policy for at least one year, a policy that was created by the non-profit Algorand Foundation but that is being extended to Tracker Fund participants. Moreover, investors earn a reward (dividend) of 5% per annum.
When investors invest in the Algo Tracker Fund, they participate in transferring value — in this case, through the Algo — from the old economy (fiat currency) to the new, borderless one (Algo).
Capturing value in the borderless economy
Besides offering the Algo Tracker Fund, Algo Capital is also creating the opportunity for investors to participate in the borderless economy through our Algo VC fund, which invests in category-leading businesses that leverage Algorand’s technology or create economic activity in the borderless economy.
The Algo VC fund is based on an investment strategy of creating and capturing value across all levels of the Algorand tech stack: the blockchain protocol, the infrastructure, and the applications built on Algorand. We believe that the value capture may shift among these layers over time, and the VC fund is well-positioned to create the network effect in the ecosystem, capturing value throughout.
As leading businesses build applications on Algorand’s blockchain, bringing in millions of users, the need for infrastructure development will prompt more infrastructure-based startups to join the ecosystem. Building more infrastructure and protocol enhancement will drive more applications to be built on the network, once again increasing the number of users of Algorand-based applications.
Algo Capital knows that more activity in Algorand’s borderless economy translates to more value for the Algo, which we will capture value in all the layers of the stack. This virtuous cycle, shown in the diagram below, will drive more network effect, accelerating adoption and bringing value to the Algo.
In the months ahead, we will also be exploring solutions and create additional financial products to improve the liquidity of the Algo digital currency.
Ultimately, Algo Capital is looking to offer a selection of financial products that make it easy and safe for investors, institutions, and enterprises, to participate and transact in the borderless economy. We believe that, like the way the internet transformed how we share information, the borderless economy will transfer the way we exchange value freely without friction. We hope to play an important role in shaping that and build a stronger borderless economy.