Philanthropy, the Democratisation of Finance and Capitalism Reimagined

This paper explores ideas at the intersection of three topics : philanthropy in the developing world; the democratisation of corporate finance; and capitalism (reimagined) as a political and economic system to increase inclusion and equality.

Philanthropy in the Developing World

The Mandalay Projects

For more than 15 years The Mandalay Projects has been helping children in need in Myanmar. Our work started with a project as simple as providing some equipment and training for a sewing room in an all girl orphanage in Mandalay. Our purpose was simply to help, in a practical and sustainable way, those in need.

Over the years our projects stayed simple, but after witnessing widespread child trafficking our purpose morphed into the prevention of child trafficking. In doing this work we adopted two principles: our projects have to have a clear beginning and end; our projects must not create a dependence. We have stuck to these principles and as a result we have been able to work in many different locations and undertake hundreds of projects. Our work has benefited thousands of at risk children.

We have learnt a lot about how to be effective in helping those in need. We know the donee’s limitations and have a good idea about what will benefit them most and also what type of projects are doomed to fail.

However, there are two fundamental problems with the way we operate. Firstly, the model is not easily scalable and secondly it is hard to create a succession plan. We have always taken the view that by not trying to ‘boil the ocean’ we can take satisfaction from the work we do without becoming despondent about the small scale of our operations. We also don’t let the lack of a succession plan get to us on the basis that we have done all we can, we have led by example, it’s up to others to do their own thing or not as they see fit once our projects are finished.

The Military Coup in Myanmar which commenced on 1 February 2021 was and continues to be devastating for the people of Myanmar and it made our work there impossible. Our volunteers are struggling to protect their own families. When they are not avoiding being murdered by the military they are trying to avoid COVID which has been deliberately spread by the military. This situation is dire to say the least. We have had very little feedback on the situation in the orphanages we work, they may be surviving or they may have been overrun and decimated by the military we simply do not know. It is sad, but the truth of the matter is that even the work we did to protect those at risk may in the end amount to nothing long lasting and we feel terrible that we can no longer help even in the small way that we did before.

Yet there is hope. In a bizarre way, the work I am doing in blockchain technology has the ability to help in a very real and practical way. Even more hopefully this technology can help in ways that are scalable and sustainable.

Blockchain as a Self-Help Enabling Technology

In October 2021, when my friends in Myanmar were experiencing the loss of their freedom, the collapse of their economy and societal infrastructure, I was entering the world of blockchain gaming and the phenomenon of the ‘Play-To-Earn’ (P2E) computer games space. Inspired by a documentary on a P2E game (Axie Infinity) being played in the Philippines, I immediately contacted the sons of one of my Burmese friends to see if they played computer games.

These two brothers, who we nicknamed years ago as ‘Shine’ and ‘Aussie’ jumped at the chance. They both play computer games, usually role play games, but they had no experience with crypto at all. Over the course of a few hours and 4 emails they set-up Metamask Wallets, passed me their ethereum address (I then sent them some Ether), made backups of their wallets and purchased some Axie’s on Opensea.io By the end of the next day they were playing Axie and made recording of their game play on Twitch. They were earning $15.00/day, the normal daily in Myanmar being circa $2.50/day.

A week later I checked in on them via a zoom call. By now they had created spreadsheets of their potential breeding program and game tactics, they had also recruited about a dozen other people to play. They had also started to translate the game rules and cards into the Burmese language.

Philanthropic projects in the developing world are always more impactful if the donor is empowered to lift themselves out of poverty, a hand up instead of a hand out is the catch phrase. Muhammad Yunus, the founder of Grameen micro-finance bank put forward the idea that micro loans can spark the personal initiative and enterprise of individuals who can then lift themselves out of property. Peruvian economist and author of The Mystery of Capitalism Hernando de Soto put forward the idea that a robust asset title system, particularly for land, is the foundation of a free and prosperous economy.

Both of these ideas played out in my small experiment with Shine and Aussie. I lent them a small amount of money (micro-finance), they then used their initiative and enterprise to develop the skills they needed to play the game and they became the owners (with good title) to the assets they earned in the game. And the best part of this? It is scalable and self sustaining.

Shine and Aussie have now repaid the initial loan and joined Crypto Gaming United where they are now the leading games influencers in Myanmar. I hope their horrible government will not be able to stop them from developing themselves and their wealth outside the control of their government. The below letter I received from my friends gives me great hope and it’s a live example of exactly how this technology can help people in need, the technology for good idea it is not just a narrative, it is helping people at a micro level day by day.

Dear Mr Ian

Greetings from me and Aussie.

Soon, we will meet the new year. First, let me give a very big thank you for introducing us to crypto and for letting us be part of CGU this year. We now have 60+ scholars and really hope it doubles and triple next year.

It’s undeniable that you and CGU have helped jobless young people in Burma who lost hope due to covid and coup crisis. For some, it is for their food, for some, it’s for their house rental fee and for some, it’s for their education. And we are truly thankful for this.

I am excited about the future of crypto, metaverse etc. I am also learning more and want to share my knowledge with the community. We also bought a few CGU tokens each and more of the other tokens.

Best regards

Shine

Crypto Projects and the Developing World

From the very beginning blockchain technology generally and Bitcoin in particular have been seen as technology that can ‘bank the unbanked’ and provide identity for those with no official documents. Projects such as Humaniq, Giveth, Civic and World Identity Network are just a few of the many aimed at helping people in the developing world.

However, none of these seem to have the transformative potential of the P2E gaming space. P2E does not even feel like a philanthropic project. In the end people are simply playing computer games and getting paid to do so, it does not have the look and feel of typical philanthropic projects. Yet the impact is the same as if the players were given fishing poles or land for agriculture or livestock to tend. It also does not feel like philanthropy because the guilds, like Crypto Games United, who provide loans (in the form of game assets) and services to the players, are essentially paid a fee from the revenue of the players.

A critic could view the relationship between players and guilds as a form of crypto colonialism whereby the game creators and protocols are the colonialist and the players are the colonised. However, this view is fundamentally flawed because the players are free to come and go as they please and whilst the guilds are rewarded for the work done by the players, the players are also rewarded, it is a symbiotic voluntary relationship with a positive feedback loop.

Is P2E the future of philanthropy in the developing world? Is it possible to use P2E computer games as a way to fund projects in the developing world? We are at the first bounce of the first quarter of the season, it is impossible to say how this will develop, but if my little experiment with Shine, Aussie Mo, Axie Infinity and Crypto Games United is anything to go by, it is definitely worth exploring and indeed I feel that we may start to do this with The Mandalay Projects.

Democratisation of Capital

Bitcoin is referred to as the democratisation of money because it is not controlled by a central government, the miners who run nodes are the voters and the users of the system are the constituents.

The democratisation of capital is the next level and it is enabled by general purpose public blockchains like Ethereum and decentralised finance protocols. But what do we mean by the democratisation of capital. For this we need to consider the current capital formation model.

Capital Formation Model — Traditional Markets

The traditional method for capital formation is through venture capital/private equity structures until the point the project is ready for listing on a public exchange. The traditional method generally excludes ‘retail’ level investors, this reduces their risk but also excludes them from early stage investment exposure to growing enterprises.

By the time an enterprise is able to comply with the good practices and listing standards, a lot of the value has already been captured by the wholesale investors. Indeed at the time of listing it is not unusual for early stage investors to (subject to vesting schedules) exit part or all of the investment.

It is fair criticism of the existing system that it is not inclusive. The opportunity for retail investors to participate in early stage capital opportunities (for example to invest early in a Facebook of the future) is limited. Generally only closed groups of people with the right contacts and access to large amounts of capital can participate. This has contributed to wealth inequality.

Capital Formation Model — Crypto Markets

It has been recognised that blockchain technology provides open access to investment opportunities regardless of where people sit within the social structure and regardless of their wealth. We witnessed this with the creation of the Initial Coin Offering (ICO) market. For the first time in history retail level investors can for as little as $100 make an investment in a start-up project, they could do this without obtaining permission and if they did not like the investment they could subsequently liquidate it via one of the hundreds of markets that formed around ICO’s and these projects. This technology allows anyone on the planet with a smart phone to invest in any asset, from fine art to gold to currencies and stocks. There is a plethora of research into the ‘democratisation of capital’ and how blockchain technology and the ICO/crypto markets are reducing wealth inequality.

This is not just theoretical. Most of the investment in the crypto space to date has come from the retail sector and this investment has funded a cambrian explosion of new projects and innovations that collectively are valued by the market at over $ 3 trillion. This happened mainly through the three year period 2017–2020, yet still today many new projects are being developed. This is the free market at work.

Traditional institutional investors have largely been absent from this market mainly because of regulatory restraints. For the first time in the history of finance, retail investors have had access to high risk high return assets before the wealthy and connected incumbents. This is a wonderful thing.

With technical barriers to early stage investment removed (thanks to blockchain technology) there is really now a moral question around, to what extent should regulators exclude retail investors from the very same opportunities that have previously only been open to the wealthy and well connected? Or perhaps the better question is how can regulators fulfil their consumer protection mandate without denying retail investors the opportunity for wealth betterment and reduced wealth inequality for society as a whole?

Capitalism (reimagined) as a political and economic system

Introduction

Capitalism is coming under increasingly justified criticism. Social in-justice, inequality of opportunity, extreme centralisation of profits, lack of competition, socialisation of environmental costs, surveillance capitalism, the wealth gap and so it goes on, yet capitalism remains the best system we have for developing a free and flourishing society.

Whilst capitalistic systems are the least centralised of the ‘isms’ there is an inevitable pull towards centralisation of power at corporate and state level. The checks and balances we have are becoming weaker and the calls for more direct intervention from governments are getting stronger.

Some say it’s time to move on from thinking about ‘isms’ (capitalism v socialism etc) and instead think about a new paradigm where public assets/goods are owned directly by the public and the users of service and products are the direct owners of the providers of those products. A paradigm where there is no separation of capital and labour. These notions sound like some form of utopian quasi socialistic or capitalistic dream world, but it is becoming possible to imagine how to achieve some of the best parts of both systems.

Universal Basic Equity (UBE)

The notion of UBE builds on the theme I mentioned in the philanthropic world where a person who is empowered to help themselves will be their own agent of change. A person with equity — skin in the game (as Taleb calls it) — will be incentivised to act towards the betterment of the game in which they have skin. Universal Basic Income is good, but UBE is better.

I explain the notion of UBE using three examples: Play-to-Earn Computer Games; Tokenisation of State Assets; and Facebook without Facebook. Of course all of this is enabled by blockchain technology and tokenisation.

Play-to-Earn Computer Games

I summarised the Axie Infinity project here. The interesting aspect of the project from a UBE perspective is the nature of the Axie token. I described the Axie taken as

‘…a governance token which holders can use to vote for different proposals relative to the development of the game and the ecosystem. For example, they can decide how the funds in the Community Treasury should be allocated. AXS is also used to pay a portion of the breeding fees and can be used to buy assets in the marketplace. The third initial utility of AXS is staking (we are currently staking a portion of our AXS tokens and earning 15%pa)…’

To my mind AXS looks and feels a lot like equity and because it is universally available (through playing the game (via SLP conversion to Axie)) and there is no separation of labour and capital, I feel that Axie gives us a glimpse of the future and how a UBE system may just come into existence even if that was not the plan.

Tokenisation of State Assets and Public Goods

Australia’s sovereign wealth fund, The Future Fund (FF), has circa AUD 200b assets under management, it is an incredibly important national asset, yet few Australian’s know much about it and fewer still care. Does it matter? The FF can simply get on with its business regardless of the lack of engagement with the community. This is true, but imagine a situation where every Australian felt they had some direct ownership — some skin in the game — of the FF. Of course it makes sense then that ‘team Australia’ will be a stronger team.

This is just a thought experiment but let’s say 20% of the value of the FF was to be tokenised, with an equal share of tokens distributed to every Australian as a Future Fund Token (FFT). Blockchain technology makes it possible for such tokens to be non-tradable, non-voting, minted on birth and extinguished upon death of the individual or upon their citizenship creation or cancellation. There would be no secondary market for the tokens but they would be valued based on the value of the underlying assets in the FF. From time to time, the FF Board may decide to return funds to FFT holders from, this could easily be accommodated and it could have the added benefit of stimulating economic growth, particularly if it was tax free. A FFT would encourage civic engagement and such engagement makes the community strong and it’s best version of itself. A FFT would be a form of UBE.

Let’s take a more practical example of public assets. Consider the situation of a polluted river. Typically the polluters of the river are centralised parties, but the cost of the clean-up (if there is one) is spread across the public purse.

Under a tokenised model, the government could issue a Clean River Token (CRT). Initially the government could raise say $50m via an initial token offering to users of the river, it may be mandatory for users of the river to pay an river usage fee using the CRT, there would be limited supply of CRT’s so large polluters/users of the river would want to buy a large number of tokens when they are first issued. There would be a whole tokenomics exercise behind this which tied the use of the river with the cost of keeping the river clean.

This is just an example. With tokenisation a user pays principle can now be built into all public goods. There are a number of initiatives seeking to solve the ‘problem of the commons’ issue, but the one that I feel has the most promise at this stage is The Commons Stack, which is the brainchild of Ethereum Programmer and Researcher Griff Green. The Commons Stack is ‘…building commons-based microeconomies to sustain public goods through incentive alignment, continuous funding and community governance.’. Projects such as this give me hope for humanity. If interested there is a great presentation by Griff Green here and a great interview here.

Facebook without Facebook Inc. (now Meta Inc.)

Imagine if Facebook’s 3 billions users were also direct shareholders and that they were granted shares at the time they became users, the earlier they became users the more shares they were given.

Some investors in tech talk about the FANGS and others having impenetrable motes because of their user network, the so-called network effect. They assume that it is impossible to start a new Facebook because the user base is so large and the network effects so strong that it would be impracticable to get users to shift. I feel that this is not a good assumption to make and that all the FANGS will be disrupted by Web 3.0.

Facebook 2.0 will be a decentralised protocol where the users of the protocol are also the owners. Early adopters will be paid to set-up a page and paid again for referring friends. The default privacy settings will ensure the privacy of the user unless, for a nano-fee, the user agrees to open up ‘lids’ to their data. Advertisers and others who want the data will pay for the use as and when it is used in real time using the protocol’s native token. Token holders will be able to propose changes, fee structures and other aspects of the protocol. Some protocols will be censored by the community, some will not, consumers will have a choice of protocols.

This type of project to me is also some form of UBE where again there is no separation of capital and labour and where users are also owners.

There are already alternative for each of the big tech platforms available today, for example :

• Facebook — Minds, Diaspora, MeWe;
• YouTube — Minds, LBRY, D.Tube, PeerTube;
• Reddit — Aether;
• Twitter — Mastodon;
• Instagram — Karma (Mobile-only app); and
• WhatsApp — Signal

There is a great article here setting out the current statues of these projects and some ideas about why they have not yet seen wide adoption.

The future has hope and I for one cannot wait to see what happens next!

Ian Love

CEO — Founder

Blockchain Assets Pty Ltd