Overhyped: The case for crypto as an uncorrelated asset. Last week, Bitcoin’s wild swings closely tracked the rest of the market. Overlooked: The $1.7 trillion market for digital assets as an onramp to opportunity for founders from communities with fewer financing options.
Black, Latino and other underrepresented founders are driving innovation throughout “Web3,” the growing ecosystem of blockchain technology, cryptocurrencies and token-based economics.
Diverse founders who may not be able to tap “friends and family” funding or early stage venture capital are raising funds through decentralized autonomous organizations, or investment DAOs, token raises and other blockchain-based infrastructure.
“We’re moving beyond speculation as a use case,” says Renée Barton of Crypto Council for Innovation, an advocate for responsible Web3 policy. “Most of these projects really begin to create more impact by beginning to address the structural shortcomings of existing solutions.”
Backed by the W.K. Kellogg Foundation, Barton led research on “Building a More Inclusive Web3.”
To build an even more inclusive ecosystem, diverse founders that Crypto Council spoke with expressed the need for regulatory clarity to help them compete head-on with more founders with deeper pockets to absorb legal costs and market risks.
Community-based VC
Greater participation, in turn, means the creation of Web3 products and services for a broader set of society’s challenges.
Atlanta-based Tribl, an investment DAO and social investment club founded by Ikechi Nwabuisi, has helped more than 1,000 investors co-invest over $1 million, including in Black-founded unicorn Esusu, a rent-reporting and credit-building platform for immigrants and minority groups.
“The community is the VC,” Nwabuisi told CCI. “The community can replace a lot of the vehicles that unequally impact our community.
Komorebi Collective, a venture DAO that supports women and non-binary founders, has deployed a half-million dollars into seven projects. H.E.R. DAO, with sub-chapters in Latin America, Asia, Africa and Europe, is a developer DAO for women, nonbinary and underrepresented builders.
The Council’s Impact Base database includes more than 70 high-impact use cases for Web3 technology.
By helping simplify the process for tracking, voting on and deploying funds, DAOs “makes it very easy for people to organize in new ways,” says Barton, and “address some of those structural and systemic inequities and how capital tends to be organized and allocated.”
Diverse founders are also raising capital through token raises, which in lieu of ownership, allow supporters to participate in on-chain governance activities and access to specific functions or services related to the project.
The Crypto Council spoke to two Black founders, on condition of anonymity, who respectively raised $7 million and $30 million via utility token sales to build their startups. Both acknowledged the difficulty they’ve experienced in fundraising via traditional venture networks.
Regulatory clarity
The underdeveloped state of US regulation of cryptocurrency creates barriers to inclusion in the sector, according to the report.
Black and Latino founders told the Crypto Council that the lack of clarity favors founders with greater access to resources to absorb legal costs, consolidate market share and offshore operations to regions with more defined regulatory regimes.
“It creates a lot of risk for a company building in the U.S., having potential problems in the future because they don’t have clear rules,” said Joaquin Alvarez Vitale of Wooy. “It’s really a problem when you decide where to operate and how.”
Since the market highs of 2021 and legal actions that followed, overall funding has fallen faster for diverse founders than in the sector as a whole.
Diverse founders want policymakers to “understand the ways in which underserved communities specifically may be engaging with the technology,” says Barton.
Crypto has become a surprise issue in the US presidential campaign. Under the Biden Administration, federal agencies including the US Securities and Exchange Commission and the Treasury Department have both cleared the way for some digital assets (Bitcoin exchange-traded funds) while cracking down on unlicensed brokers, money laundering and other compliance failings.
In the campaign, some proponents have flocked toward former President Donald Trump, who has issued his own non fungible tokens (but has also called crypto a “scam”).
A “crypto4harris” campaign is making the case that Vice President Kamala Harris may be open to a “reset” on regulating the sector. Crypto proponents are gearing up to back pro-crypto candidates. Barton credits novel qualities of the Web3 ecosystems, including an emphasis on open source and public good, for helping to broaden access to capital. “I was really astounded to hear repeatedly from builders that we spoke to in this space that it felt more accessible to them than in other innovation spaces.”
