Category: Knowledge

Will Super Apps Continue to Thrive? And What Should Financial Institutions Consider to Stay Relevant in Markets Dominated by Super Apps? 

It’s 2022, and the number of mobile apps have skyrocketed with no signs of slowing down. At the moment, there are over 3.48 million apps on Google Play Store and 2.2 million apps on Apple’s App Store. Among these massive numbers of apps trying to compete for a spot on a consumer’s phone, there are a handful of ‘super apps’ that managed to top the list. This article aims to provide readers with insights and analysis into the world of super apps and its future by shedding some light upon some of the ever-fascinating questions of 1) why super apps are concentrated in emerging markets; 2) how can super apps continue to grow sustainably, and 3) what do financial institutions have to consider when coping with the looming threats and emerging opportunities from a rise of super apps.

What is a Super App and What Makes It Super?

A Super Application (super app) is a mobile app that serves as a one-stop solution to multiple services for all possible users’ needs at their fingertips. Some services super apps offer are food delivery, ride-hailing, messaging, digital wallet, and payments.

How to Become a Super App

Here is how an app evolved into becoming an app that rules all:

A super app first introduced itself to the world as one killer app that offers a single function. With the purpose to quickly gain mainstream user adoption, the single function characterizes as one with high stickiness and open rate, the percentage of users who open the app after downloading. Features like messaging or ride-hailing services help the app capture and retain customers to open the app daily.

Once a mass adoption is established from the high-frequency niche function, super apps begin to equip themselves with financial services mainly due to the large user base demanding a convenient way to conduct their finances. In the case of payment, super apps must find the easiest way for users to conduct transactions by launching their own e-wallet or integrating with other payment services to satisfy the customers and drive revenue. With Grab, for example, the demand for better digital payments from users to pay for ride-hailing services led to the launch of GrabPay, Grab’s payment services. GrabPay not only allows users to make payments with one click, but also helps Grab manage cash flows to its drivers. Additionally, the visibility of payment flows allows Grab to offer more financial products like loans and insurance, which in turn draw even more new users to the ecosystem.

Demand from one area of the app drives the demand for another, and the ability of super apps to meet those demands entices more users to join. A large user base creates a positive network effect which further drives growth. Super apps broaden the use cases of apps through extensive partnership deals with third-party providers or in-house product development. This helps super apps expand vertically to achieve the goal of becoming a one-stop service to support users’ everyday life. For instance, Grab started with a ride-sharing service, then quickly expanded into food, and package and grocery delivery, with the goal of helping users organize their life’s logistics. At the same time, Grab could increase user’s usage frequency and earn higher average revenue per user (ARPU) by creating an attention flywheel – where a customer’s attention is increased by Grab providing more valuable services to them.

Tech companies further leverage customer data and loyalty programs to cross-sell new services to retain existing users, and to acquire new users for the app. For example, Grab utilizes users’ riding behavior data to send targeted food delivery advertisements during pre-dinner hours while the users are on their way home from work. Also, Grab segments its customers into gold, silver, and bronze tier, which is based on customer’s usage level as a way to reward and retain loyal customers (e.g. promotions, points for cash).

Super App’s Landscape in the World 

Since the inception of the super app concept, super apps have been rising in major cities across the globe. It is very common for super apps to gain strong traction and dominate the emerging market and less so in more developed markets.

**Penetration rate is the number of super app’s users in home country divided by home country’s population

Before diving into the reasons why super apps thrive in the emerging markets. Let’s quickly examine why super apps struggle to gain traction in the developed economies.

Three main reasons why super apps are struggling to gain traction in the developed economies:

1. High dominance of existing players in each vertical: Developed markets like North America and Europe are overcrowded with powerful existing players who specialize in each vertical, possibly because the developed economy’s tech market has developed long before that of emerging markets, making it harder for a super app newcomer to penetrate and scale. For example, in the U.S., Amazon already holds roughly 40% market share in eCommerce, and Uber has about a 70% share of the ride-hailing market. Thus, building one super app to win in fiercely competitive developed markets is an uphill battle.
2. Consumer’s concern over data privacy: Contrary to the mobile-first population in emerging economies, the developed economies’ population has experienced the desktop era of the internet and learned from it over the last three decades on poor data security such as data privacy abuse and data breach from big technology companies which raised the user’s concern over their data privacy. Users are wary of having all of their personal and behavioral data stored in one platform’s arm reach. Hence, to convince users to provide their data super app has proved to be very challenging.
3. Regulatory issues: In general, regulators in the developed markets have a more comprehensive framework and guideline to enforce stricter practices in data sharing and privacy. For example, Kakao only conducts know-your-customer (KYC) and anti-money-laundering (AML) checks for their users once and then passes on the information to their partners. Given the existing strict restrictions and scrutiny imposed by regulators in developed markets, a practice like Kakao’s cannot be implemented in the markets. Hence, super apps face yet another prohibitive constraint, preventing them from their success.

Economic, social and regulatory aspects are very different in developed economies as opposed to in emerging ones. Super apps in developed markets find it difficult to rise above competitors, gain customers’ trust and combat regulatory constraints. Hence, they often fail to gain traction and growth.

On the contrary, why are super apps rapidly proliferating across emerging economies?

Over the past decade, following the rise of WeChat in 2011, dozens of new super apps have emerged and quickly gained massive popularity and adoption. These super apps have catalyzed the economic, social, and cultural growth of emerging markets. The proliferation of super apps came from the company’s efforts, which is to ensure product market fit and seamless customer’s experience, and was driven by supporting market factors as follows.

Market Factors – Emerging markets possess these factors that help drive the adoption of super apps:

1. Mobile-first population: Emerging economies such as China and Indonesia jumped from the desktop internet revolution in the 90s straight to smartphone adoption as the mass population is able to afford the mobile device. Accessing the internet through mobile apps has become second nature to emerging markets’ populations which accelerates super app’s adoption. Early super app developers like WeChat leveraged this opportunity and designed their app to cater specifically to mobile users.  
2. Banking the underbanked and unbanked: Super apps allow underbanked and unbanked consumers to conduct digital banking services all through a super app such as accessing their online banking and purchasing financial products such as property microinsurance or personal loan for their new smartphones. Before, traditional financial institutions did not focus on these segments as the customer lifetime value is not worth it compared to the high customer acquisition cost. Thus, the access to financial products/services which has been made available by super apps consequently further drove adoption.
3. Government support: Governments did not prioritize their budget, resources and capabilities to build financial infrastructure. Instead, the governments supported the private sector like super apps to help build the necessary infrastructure. A prime example of this case is WeChat. During its early days, the Chinese government heavily supported the app which was another lever that drove WeChat’s viral growth in China.

Future of Super Apps: How Will the Future of Super Apps Look Like? 

Now that we have grasped the reasons why super apps thrive or fail in certain markets. What will be the future of super apps? This section will explore the challenges that super apps are facing today and consider ways for them to grow sustainably.

Where are super apps today and why are they struggling to get where they want to be?

Super apps envision a bright future of becoming profitable ecosystem owners and market leaders in their prospective industry. However, how to get there is not as easy as initially pictured. Today, super apps are operating in ultra-competitive red-ocean markets, which are swamped by large-size super apps backed by deep-pocket parent companies or investors. New market entrants and existing players fiercely compete to protect and seize every decimal point of market share by burning their capital to acquire and retain users through aggressive price incentives. Super app companies trade off their profitability for growth in market share, which often causes them to incur massive losses from thin margins and fleeting user loyalty.

With the example of Grab and Gojek, Southeast Asia’s top tech companies, neither companies are profitable despite owning the majority of market share in their home market, 50% in Singapore and 59% in Indonesia in the first quarter of 2022, respectively. Due to low switching costs and little product differentiation, once the super apps stop injecting money into huge discounts and marketing expenses, users flee to competitors. Lack of customer’s loyalty explains this unsustainable market share. This tradeoff between profitability and market share does not seem to get super app companies anywhere near their goal. Perhaps there are other considerations that they need to adopt instead of sacrificing their profitability for growth when customers possess little to no loyalty to the apps.

What are the key considerations super apps should ponder in order to grow sustainably?

The majority of super app companies have already captured a sizable market share, at the expense of their profitability. Super apps that can sustainably grow are the ones that find the fine balance between spending to build customer’s satisfaction and loyalty, and company’s profitability.

Customers who are exceedingly satisfied and appropriately rewarded, are very likely to become loyal customers and will be more willing to pay and spend more on the app. In fact, research shows that loyal customers are up to 65% easier to sell to than first-timers. Additionally, effective loyalty programs increase customer’s lifetime value, which could be worth over ten times their first transaction.

Profitability can be achieved through effective cost minimization and monetization. Super app companies may have to determine which vertical or sub-vertical in which market is worth fighting to gain market share. For instance, Gojek was operating at an increasing loss ever since it entered the Vietnam market in 2014. It lost VND 1.67 trillion in 2019, up 89% YoY to protect its 10% market share. In addition, it is equally important for super app companies to execute effective monetization strategies. To illustrate, Gojek monetizes its ride-hailing services by charging partners in exchange for advertisements on riders’ vehicles. This helps Gojek generate additional revenue with little to no additional cost by leveraging existing assets in the ecosystem. Lower cost, higher revenue, and greater customer loyalty will pave the way for higher margin and profitability, which only then can super app companies grow sustainably.

How the Rise of Super Apps Could Affect Financial Institutions (“FIs”)? 

Since the emergence of the internet, technology startups have disrupted one industry after another. The rise of super app startups is no different. As the industries covered by super apps expand, user expectations are also turning towards the desire to perform almost all possible activities, including financial activities through these super apps. Super apps respond to offer financial products not only as a means to provide seamless customer’s experience, but they are also incentivized by potential significant revenue growth from additional product offerings. Super apps offer more and more financial services from e-wallet to full digital banking. Though most financial activities currently performed through super apps require integration with FIs, certain super apps like Grab, Gojek, Kakao and WeChat (with banking license) can now operate a full digital bank with little to no dependence or assistance from FIs. Hence, FIs should pay special attention to the development of super apps and carefully evaluate potential risks and opportunities to take appropriate actions going forward.

Assessing the level of risk by considering the comprehensiveness of product offerings

The more comprehensiveness of financial offerings a super app provides, the higher the risks to FIs. High level of risk is from those that offer a fully comprehensive suite of financial products/services, such as Korea’s Kakao and India’s PayTM. Though there are only a handful of them, the number is increasing at an astounding rate. There may be some barriers to entry, such as requirements for banking licenses to offer banking services in most countries. Still, some super apps have already proved that they can find ways to either obtain or bypass those regulatory hurdles. A medium level of risk is found in super apps that offer limited financial services such as payment and money transfer, but lack some important banking services such as lending. Lastly, super apps that are low risk to FIs are the ones that do not offer their own financial products/services and just connect to other payment providers to offer in-app payment services.

Low-and-medium risk-level super apps today can become a high-risk super app tomorrow because super apps are equipped with data analytics knowhow and expertise and thus can quickly leverage their vast wealth of data to deliver better financial products/ services. Additionally, super apps have been building their brand reputations in financial services by exposing their massive user base with their offerings and partnering with reputable companies to assimilate super app’s branding with that of their partners’. As more financial products and services are being served and purchased through super apps, they are gradually disintermediating FIs from their customers.

Possible actions for FIs to ride with the trend of super apps

Closing Thoughts

Majority of super apps are struggling to become profitable due to price war from increased competition. Super app companies trade off their profitability to maintain and grow their market share through aggressive price discounts. Prioritization of customer’s satisfaction and company’s profitability should be the key focus to a sustainable future in the long term.

FIs may feel threatened by the potential of super apps because of the possibility that users may reduce their usage on offline branches and traditional banking apps and start using super apps instead. However, what could be viewed as a threat could also be an opportunity since FIs can consider partnering or providing backend infrastructure to super apps to expand their revenue stream in the short term.

Going forward, the financial industry will continue to change and evolve and there will be new ways that super apps and FIs can collaborate and leverage the capabilities from both sides. All in all, FIs should proactively assess risks and consider both external and internal factors in order to take appropriate action that would strengthen and leverage their differentiated strong suit in an effective and timely manner to remain a stronghold through this ever-changing future.

Author: Premika Bhongsudhep (Prink)

Editors: Panuchanad Phunkitjakran (Pook), Wanwares Boonkong (Pin) and Warittha Chalanonniwat (Paeng)

Finding funding to start new ventures has long been a difficult task for entrepreneurs, even those with great business ideas, as the traditional fundraising process requires significantly more effort, time, and money. Cryptocurrency fundraising offers an alternative that is best suited for blockchain-related projects. This article will walk through the emergence of various forms of cryptocurrency fundraising, how the fundraising landscape may continue to evolve, and the role financial institutions can play in this area.

The Past Experience of Traditional Fundraising

In the traditional finance textbook, there are two primary sources of funding: debt and equity. Companies can raise debt funding by asking a bank for a loan or issuing corporate bonds. Equity fundraising offers a different set of options. Companies can bootstrap, ask friends and family for small investments, or raise funding from private investors. Startups are typically tech-heavy and require time to generate a positive bottom line, and therefore may require multiple private equity funding rounds over several years before they can access equity funding from public market investors via an Initial Public Offering (IPO).

Following the development of blockchain technology in the late 2000s, Decentralized Applications (dApps), which are web services that use blockchain as a base infrastructure, gained popularity in recent years. The most widely mentioned use for dApps is financial services, referred as Decentralized Finance (Defi). In normal cases, the trustworthiness of the dApp project (also referred to as dApp protocols) will depend heavily on the project roadmap in the white paper, the code presented, and the owners’ background. However, dApp projects do not need to be a registered company and the project owners can be anonymous.

As traditional fundraising can be slow and costly, particularly for entrepreneurs without existing investor networks, an alternative source of funding for dApps has emerged: Cryptocurrency Fundraising (also known as Token Fundraising), where the project owners offer its dApp project’s tokens to interested investors at a relatively discounted price in order to raise funds to run their business. This fundraising method has rapidly gained its popularity due to its benefits relative to traditional fundraising especially for fundraisers, which will be discussed later in this article.

Image source: Maketecheasier – Decentralized Applications (dApps) are digital applications or programs that exist and run on a blockchain or peer-to-peer (P2P) network of computers instead of a single computer. dApps are outside the purview and control of a single authority.

Types of Cryptocurrency Fundraising

There are several ways people categorize the types of token fundraising. One of the easiest ways to understand cryptocurrency fundraising is to break it into Private Placements and Public Offerings. Please note that each country’s regulations might have an effect on the nature of fundraising.

Private Placement

A project owner may decide to conduct a Private Placement in which tokens are offered to a select group of investors prior to a public offering. This is known as a “token presale,” where the startup or project sells tokens while the project is still being developed. The goal of the token presale is to either raise funds for the project’s early development, or for business growth accretion that will eventually lead up to the Initial Coin Offering (ICO) launch. Since token presales are highly risky and investors may lose their entire investment if the project fails to deliver the intended outcome, tokens are usually sold at a huge discount compared to their expected exchange listing price. However, given the cheap price, if the project succeeds, investors will be rewarded with a huge profit. Due to the high risk/high return tradeoff, token presales have gradually become the main event before a new protocol’s public offering as speculators gamble on being rewarded with a satisfying profit.

Public Offerings

There have been three main types of public offerings.

Initial Coin Offering (ICO):

By definition, an ICO refers to the first time when a project raises funds by selling its token to public investors. However, over time the word has taken on another meaning, and now typically refers to any token offering where the project has organized the sale of its tokens by itself. The majority of tokens raised via ICOs are utility tokens. These are tokens that can be used to access and obtain services and products within the protocol. The project may also issue governance tokens in an ICO, which represent the right to vote for the project’s direction. For avoidance of doubt, a token can have both utility and governance features. Unlike an IPO where all fundraising documents are submitted to and evaluated by the Securities and Exchange Commission (SEC) before the company is allowed to issue shares to public investors, in an ICO, the project owner creates a whitepaper which covers all the details of the project. The purpose of the whitepaper is to provide enough details to obtain investor trust, as there is no regulator responsible for verification. One of the most well-known ICO projects was the launch of Ethereum in 2014.

Data source: Coinschedule – According to January 2021 ICO market report, there have been 5,728 ICO projects launched in total. These projects had acquired a market value of $ 27 Billion.

That said, due to the lack of regulation, many projects raised funds but never developed the project promised in the whitepaper. Many of these projects turned out to be scams created by anonymous project owners who ran away with investors’ money, which caused ICOs to lose popularity. Consequently, the undesirable image became one of the major downfalls of this method, along with the need to conduct its own marketing expense to raise funding awareness into investors’ ears. In Thailand, government regulators have stepped in to mitigate some of the trust issues in the ICO market, but two other token fundraising options have also arisen as an alternative to ICOs: IEO and IDO.

Initial Exchange Offering (IEO):

IEO is an improved version of ICO created to address the problems found in the ICO market. An IEO is an ICO where the projects are thoroughly screened and analyzed before tokens are sold on a cryptocurrency exchange. The exchange is responsible for evaluating the credibility of the project, and therefore will need to thoroughly verify the token issuers in order to maintain the credibility and trustworthiness of the exchange. As a result, cryptocurrency exchanges can prevent scams and suspicious projects from raising funds through IEOs. Further, as exchanges act as mediators, projects can get significantly more exposure, interest, and credibility. After a successful IEO, the token issuers pay a listing fee to the exchange, along with a pre-determined amount of tokens for the use of the exchange’s platform services. IEOs gave birth to some of the most well-known blockchain projects of today including Polygon and Elrond. In Thailand, as of March 2022, there is no authorized digital asset exchange which is granted permission to conduct an IEO.

Initial Decentralized Exchange Offering (IDO):

While IEOs solved some of the problems which existed in the ICO market, proponents of dApps faced a dilemma, as the IEO process is a centralized process, relying on a centralized exchange such as Binance or FTX. Proponents of dApps claimed that decentralization could remove human fraud and error, speed up the process, and lower fundraising fees. Consequently, they needed to find an alternative to IEOs.

IDOs, which are a decentralized version of IEOs, originated in 2019 when Decentralized Exchanges (DEXs), a blockchain-based peer-to-peer exchange where transactions occur directly between crypto traders, gained popularity. IDOs use a DEX to facilitate the token sale via the DEX’s IDO launchpad. IDO launchpads are fully automated and run on blockchains using smart contracts. The most popular ones include BSC Pad, Polkastarter, DAO Maker, and Solanium. In order to raise funds, a fundraising project is submitted to an IDO launchpad. If the project meets the launchpad’s standards (as assessed by the community, the launchpad team, or the 3^rd party auditor), the project owner(s) are permitted to issue their tokens on the DEX. These assessment processes usually cover only the project code and whitepaper, and do not require disclosing the identity of the project owner, making the process substantially less strict than the IEO process.

Image source: NGRAVE – The Crypto Funding Hype Cycle. From the first ICO in 2013 to the first IDO in 2019. Crypto funding models are continuously evolving to improve upon inherent pitfalls. Initially introduced by Ruben Merre in a 2019 article.

One of the most successful IDO fundraising cases conducted by a Thai dApp is GuildFi project. GuildFi is a Play-to-Earn (P2E) Game-Finance (GameFi) community where players, NFT owners, and game developers are connected. As GameFi requires a player to own NFTs to play games, GuildFi helps players who don’t own an NFT to borrow it from NFT owners. After a player earns income from the game, the income will be shared between players, NFT owners, and the platform. GuildFi also acts as a venture builder and invests in high potential GameFi projects before uploading the game to its platform community to bring traffic into the new game.

Apart from ICO, IEO, and IDO, where the majority of tokens raised are utility tokens, the fall of ICO also created another form of regulated fundraising method: Security Token Offering (STO). STO is an issuance of securities in the form of digital tokens on blockchain, backed by a real-world asset such as stocks, bonds, REITs, or commodities. Such digital tokens are called security tokens, and are a digital representation of the asset to the holder. Since security tokens need to be backed by real-world assets, they are deemed to be a security and are highly regulated by the SEC in many countries. The STO market is therefore relatively small and less liquid compared to ICO, IEO, and IDO markets. In Thailand, STO and security tokens are governed under a Securities and Exchange Act and regulators are in the process of developing the necessary infrastructure to support STO activity.

What Type of Fundraising Method is Suitable for Startups?

Blockchain startups and projects should perform token fundraising via private placement since the companies can gain instant funding and other benefits from investors without giving up ownership or voting rights. The token fundraising process is also substantially more efficient in terms of cost and time since the companies do not need to pay for investment bankers fee or spend time restructuring the organization and preparing tremendous documentation as required for the traditional IPO. The company or project owner can approach several angel investors or institutional investors to gain advantages such as increasing the project’s credibility, providing operational support, or helping the company grow its network and ultimately developing a concrete protocol. By taking these actions in the private placement stage, the company or project owner can later execute an IEO/IDO at a higher price compared to presale round, or raise funds via traditional debt or equity as needed. In general, it is still not recommended for dApp startups to execute an ICO, as ICOs are less credible and more costly compared to IEO/IDO. Low credibility and lack of investor awareness could prevent startups from raising sufficient funding. Thus, ICOs require the projects to pay a significantly large sum of marketing budget to build their trustworthiness and raise funding awareness, whereas IEO/IDO can utilize their own credibility and existing customer base nearly at no cost. Nevertheless, this is subject to each country’s regulations. For instance, in Thailand, as of March 2022, there is currently no digital asset exchange that is permitted by the SEC to perform an IEO and most of the tokens must be raised via authorized ICO Portal.

Further, startups should be wary of raising funds via both equity and token, since it may create a conflict of interest between equity holders and token holders. This conflict of interest occur since the causes of appreciation of equity and token are completely different. The appreciation of equity value is subject to generated cash flow and expected growth of the company. On the other side, the appreciation of token value is tied to the pure demand of the token. To illustrate, there might be a case where a token holder attempts to convince the company to spend unreasonably expensive investment just to increase the traffic and the demand of the token. Thus, to remove this conflict of interest, a dApp startup should either raise funds via token or equity. Otherwise, it needs to manage majority of the investors to hold equal amounts of tokens and equity.

What Type of Fundraising Method Is Suitable for Investors?

In general, dApp startups want funding from institutional investors, as these investors can offer a business instant credibility, operational support, and extended connections. This equips the institutional investor with high negotiating power. Thus, institutional investors who believe in the roadmap of a project and its team should invest in private placements in order to maximize financial return, as tokens are offered at a discount price. Retail investors are usually unable to access private rounds unless they have a good network with the project owner, but may still find upside in investing via IEOs or IDOs.

Token investments provide a crucial benefit to angels and institutional investors who invested in the private round: the ability to turn over cash flow. Unlike an equity investment, which requires an extensive holding period, token investments allow early-stage investors to exit at a significantly shorter investment horizon, since pushing a project through IEO and IDO, where these investors unload their token to realize their profit, is considerably easier and thus faster than traditional equity IPO. In addition, the token can be staked, during the holding period to gain more return along with, of course, risk. These benefits allow the investors to realize their profit quicker and manage their limited cash flow more flexibly.

Opportunities of Token Fundraising for Financial Institutions

Though equity and token fundraising will continue to co-exist in the future since the causes of capital appreciation are different, token fundraising may still heavily disrupt existing financial institutions’ services, particularly as a lender or underwriter. However, there is room for financial institutions to engage with the token fundraising process.

Loan Provider

In a similar fashion to how financial institutions provide lending to traditional small businesses, financial institutions can provide financing to registered dApp startups or individuals who want to create their dApp projects. Financial institutions have much financial and business expertise where most of the dApp projects are running their business. This could include business loans, project financing, or even sponsorship of activities such as gaming, in exchange for interest and/or other types of dApp incentives.

ICO Portal Provider

One of the major weaknesses of ICO and IDO is the lack of trustworthiness. Financial institutions have credibility in the eyes of consumers and could create their own ICO portal to act as a lead underwriter for any token fundraising projects. In addition, there is a growing trend where regulated firms wish to initiate project financing by raising funds via the token. For example, GDH 559, a leading film studio in Thailand, raised funds by selling utility tokens via Kubix, Kasikornbank’s affiliate which operates an ICO Portal, to fund the movie “Bpoop Phaeh Saniwaat 2”. The utility tokens not only provide monetary return to token holders, but also provide special privileges, such as the right to attend the movie premiere and the right to receive special souvenirs. Another use case is the issuance of investment tokens. For instance, in October 2021, Sansiri, one of the largest real estate developers in Thailand, raised 2400 million Thai Baht by selling Sirihub investment tokens backed by the cash flow generated by its real estate, providing up to 8 percent annual return to the token holders. Unlike security tokens, investment tokens do not provide ownership over the asset, but rather the right to receive the cash flow generated.

In accordance with the Emergency Decree on Digital Asset Businesses B.E. 2561, the Thai SEC currently only regulates raising funds via investment tokens and non-instant utility tokens (utility tokens which investors cannot use immediately), both of which must be raised via authorized ICO Portal only. However, it has not yet regulated fundraising via instant utility tokens (utility tokens which investors can use immediately). As of March 2022, the SEC is considering requiring any fundraisers who want to list instant utility tokens on exchanges to seek SEC approval or use an ICO portal. This potential regulation could create more traffic for ICO portal providers.

KYC Information Provider

When regulations mature, regulators may begin forcing registered dApp startups to KYC their users. Since financial institutions have extensive customer data and expertise, they can help dApps comply with AML regulations by acting as an information provider or consultant for startups to conduct KYC and onboard customers who want to use dApp service.

Investment

Lastly, financial institutions (FIs) can invest in and support dApp projects by purchasing tokens. dApp and blockchain protocols will contribute a considerable role in financial and other sectors in the future, and financial institutions can capture capital gains by investing in these technologies while they are still in their infancy stage. As providing funding to these startups allows them to kickstart their ideas, FI investments can help shape how this industry develops. In addition, financial institutions can impact the growth of these startups by providing operational support, expertise, insights, and connection to other institutional investors.

Token fundraising will be a large part of company funding and project financing in the future, and financial institutions should take the opportunity to gain knowledge and build up their capabilities in this industry now. This will enable them to better assess the next investment potential in the dApp industry. Perhaps, this could become an origin of a new business model where financial institutions could advise retail investors on investing in dApp startups, or provide tools to help investors evaluate proposed token fundraising deals. By doing so, financial institutions can utilize their credibility and provide other investors with a safer and easier way to invest.

What’s Next?

Token fundraising grants dApp projects, as well as traditional companies, a new source of capital; faster, cheaper, more flexible than ever before. IEOs and IDOs have emerged to mitigate many of the problems seen in the ICO market, and in the future, will co-exist as an alternative funding method alongside traditional fundraising. However, the traditional ICO method will continue to lose popularity and shift to a credibility-upgraded version, the ICO portal. Further, the development of the token fundraising market is not yet mature; new methods may continue to emerge and be further developed, including the use of NFTs for fundraising and the tokenization of real-world assets.

Author: Pobtawan Tachachatwanich (Pob)
Editor: Krongkamol Deleon (Joy), Warittha Chalanonniwat (Paeng)
Special shout-out: Wanwares Boonkong (Pin)

Sources:

• https://app.cbinsights.com/research/report/blockchain-tech-research-reports/
• https://www2.deloitte.com/content/dam/Deloitte/cn/Documents/audit/deloitte-cn-audit-security-token-offering-en-201009.pdf
• https://www.investopedia.com/terms/i/initial-coin-offering-ico.asp
• https://medium.com/@Athenablockchain/how-tokenized-private-placements-of-securities-and-the-development-of-markets-will-create-trading-a3603d30449c
• https://cryptonews.com/guides/what-is-an-initial-exchange-offering.htm
• https://www.gemini.com/cryptopedia/ieo-crypto-ido-crypto-initial-exchange-offering
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• https://www.nfx.com/post/token-investing/
• https://www.ingwb.com/binaries/content/assets/insights/themes/distributed-ledger-technology/defi_white_paper_v2.0.pdf
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This year’s hottest emerging use case of digital assets, particularly in the art and gaming industries, is the use of non-fungible tokens, or NFTs. NFTs as a concept are not something new, but recent explosive popularity in 2021 put the market in awe, from the sale of Jack Dorsey’s first tweet at $2.9M to Beeple’s digital artwork at $69M. In this article, we will take you through the world of NFTs, including current use cases beyond the art and gaming industries, and opportunities and potential to transform the financial sector.

What Exactly is an NFT?

An NFT is a unique digital asset token that represents ownership of digital or physical assets. You can think of NFTs as digital certificates of authenticity and ownership.

Generally, tokens traded on any blockchain fall into two categories, fungible and non-fungible. Fungible tokens, like Bitcoin, are those that can be traded interchangeably. This is similar to trading a one-dollar bill in which all one-dollar bills contain the same nominal value. On the other hand, NFTs fall into the latter category, as each NFT is distinct and therefore not interchangeable – no two NFTs are the same.

Despite the growing hype, NFTs are encountering three key challenges:

• expensive transaction fees stemming from the nature of the blockchain layer used by the NFT project;
• ongoing questions on the legal enforceability of the NFT, such as what the buyer actually owns when they buy an NFT; and
• environmental impact due to high energy consumption in proof-of-work blockchains.

A Quick Overview of NFT Landscape

Sales Volume

NFT sales volume experienced tremendous growth to $2.5B in H1 2021 from $94M in 2020 as more participants such as celebrities, artists, and companies are joining the space. It appears to have potential for future mainstream adoption.

Fundraising Activities