CrowdFund NFT: Fixing The Fundraising Industry With Web3 Solutions
Why Does The Fundraising Industry Need Web3 Solutions?
One primary issue that prevents successful entrepreneurship, healthy SMEs, and a strong creator economy from growing is the funding gap and issues around funding platforms. For example, TradFi funding is difficult because there are countless regulations, obstacles, and biases within the system that scare away people who don’t want to deal with the bureaucracy of raising money.
So instead of bank loans or equity finance, entrepreneurs and business owners have attempted to seek alternative sources of finance to fund their new projects. As a result, since around 2009 crowdfunding has emerged as a popular and novel way for entrepreneurial ventures to secure funds without having to seek out venture capital or other traditional sources of venture investment.
Crowdfunding is a great way to get investment and support for a business endeavor, creative idea, event, charity, or project that serves a positive purpose. Crowdfunding is essentially the use of a crowd to raise funds via an online platform. Usually, the backers of the project can choose to pledge even just a dollar to support certain projects, which makes it easy to fundraise with small dollar amounts.
Because crowdfunding is a great way to raise money, the market has grown fast with companies such as Kickstarter (for overall), GoFundMe (for individuals), Indiegogo (for entrepreneurs), SeedInvest Technology (for startups), Mightycause (for Nonprofits), StartEngine (for investing), and Patreon (for creative professionals) rising to the scenes.
So despite there being different purposes, crowdfunding can essentially be broken down into equity-based crowdfunding, donation-based crowdfunding, and prepayment (where the person donates money in return for a reward, service, or product). Equity-based and donation-based crowdfunding are self-explanatory.
What’s The Market For Crowdfunding?
The crowdfunding market is a growing one with the largest geographic segments being North America and Asia. The global crowdfunding market currently stands at $14 billion dollars. However, it’s projected to grow at least twice fold to almost $30 billion by 2028, which equals a yearly growth rate of 11%. This statistic alone shows how the fundraising industry for individuals, creators, entrepreneurs, and for nonprofits is expected to grow.
To show this growth at a glance, on Kickstarter alone, there are over 560,000 launched projects. However, adoption is still quite low. For example, approximately 36% of US consumers don’t even know what crowdfunding is. So imagine a world where more individuals had awareness of the industry, what they can do to support it, and how they can use it to launch their own ideas and projects. This would take that 500,000+ number on Kickstarter and easily grow it by 25% to 30%. This means more platforms are needed to be able to take in this demand.
But before growing the industry and doubling activity on these platforms, the world needs to address its shortcomings and think about how to create more reliable, trustworthy, vetted, and efficient ways to allocate capital and resources.
What Are The Problems With Web2 Crowdfunding?
One of the main problems with crowdfunding platforms is their centralized nature and high fees. For example, the platform SeedInvest Technology, which has strengths in doing due diligence into businesses, requires projects that close their rounds to pay a 7.5% placement fee and a 5% equity fee. Another platform called Mightycause has a subscription/plan model as well as processing fees and transaction fees. Others such as GoFundMe and Patreon have similar fees.
Essentially, one way for these companies to stay afloat and profitable is to charge fees, after all, they do need to have a cash flow to keep the service alive. So no platform will be fee-less.
There are also general logistical problems with crowdfunding that aren’t user-friendly such as choosing the best platform, how to describe and value your product, pricing, donation strategies, funding requirements, and helping investors to understand your project. For example, it might be difficult for people to understand ownership, part-ownership, shares, return, and the specifics of what they receive out of providing funding.
The last problem is centralization and accountability. Earlier this year in February 2022, GoFundMe was caught in the heat because it bowed to the Canadian government and froze the Freedom Convoy 2022 fundraiser that supported Canadian truckers in not being required to have Covid-19 vaccines in order to do their work.
In the middle of the scandal, GoFundMe froze and seized the assets raised for the fundraiser and distributed around $9 million dollars to credible and established charities. This brought to the foreground a huge crisis of trust where a centralized platform such as GoFundMe found itself engaging in the theft of donators’ money and seizing it for their own judgment and purpose.
As a result, even the likes of Elon Musk got involved and showed his support for the people and for them to be able to have their money go to the right cause. This final problem is why the crowdfunding industry needs a Web3 solution.
How Can Web3 Solve The Problems Of Web2 Crowdfunding?
The ways Web3 can be a solution to crowdfunding are via blockchain technology, decentralized platforms, and NFTs. These three technologies taken together specifically solve the last problem of centralization and frauding of donated money. This is because the blockchain provides a source and final destination record for all funds and donations, as well as a trackable ‘database’ to account for transparency and trust. Therefore, all information is stored on the blockchain and can be accessed by anyone — thus making a trustworthy protocol and project. Here, in this example, blockchain and NFTs work together to provide this solution.
Moreover, blockchain platforms can be made to be decentralized, especially in their governance and decision-making processes, thus bringing a Web3 business model based on decentralization and community governance into the crowdfunding industry. In this way, donators and business owners can collaborate directly with the community and work with them, instead of being above them like in centralized/Web2 crowdfunding platforms.
One particular project working on the above solutions to the previously mentioned problems with Web2 crowdfunding is an Internet Computer platform called CrowdFund NFT.
What Is CrowdFund NFT?
CrowdFund NFT is an alternative to Kickstarter, GoFundMe, and other crowdfunding platforms. It employs an innovative approach in its fundraising strategy by using blockchain technology and NFTs to provide fundraisers with proof of participation in supported projects.
CrowdFund NFT was a winner in the Internet Computer’s June Hackathon event for Public Good/Social Impact. CrowdFund NFT is built on the Internet Computer tech stack and blockchain.
What’s Innovative About CrowdFund NFT’s Approach Towards Crowdfunding?
First, CrowdFund NFT provides a safer approach toward Web3 crowdfunding by implementing a ‘controller less’ canister system, which means all parts of fund collection, management, and disbursements are run on open source and verifiable smart contracts. This aspect provides safety because users know the blockchain and funds are tamperproof.
This particular technological feature is meant to prevent the situation that unfolded when GoFundMe took control of the Canadian Truckers’ fundraiser. This can’t happen on CrowdFund NFT because there’s an escrow canister that has no controlling person, it’s open source, and verifiable on the blockchain — which prevents any team or person from tampering with the smart contract to alter the fund disbursement and potential fraud.
Second, CrowdFund NFT provides a cheaper and more value-driven approach for participants and users of the platform by being a rewards-based crowdfunding service. What rewards-based means is that the project creator commits to delivering rewards for people participating and contributing to their crowdfunding round (similar to the above-mentioned repayment model). In the blockchain circumstance, these rewards will generally be airdrops, access to whitelists and premium products, gaming rewards, and most importantly, NFTs.
Here CrowdFund NFT is paving a new path forward with the use of NFTs that are distributed to participants which will be their access token to redeem the stated rewards. What’s interesting about this model is that these NFTs can also be traded on secondary marketplaces, thus giving them an economic utility that can be sold to others who may have an interest in the NFT-attached reward.
For the project creators, this is also preferred versus the Web2 method of finding a platform because the NFT sales give the creators a 2.5% cut of the deal, which greater incentives them to create more valuable NFTs and to engage in the NFT economy. This will also help the project in the long term as it can keep benefitting from NFT sales that happen down the line.
Secondly, for the project creators, the NFT model is cheaper than the Web2 model with regard to fees. CrowdFund NFT only charges 5% for successfully funded projects, and retains a 2.5% fee on NFT resales. So this is certainly below the fees charged to projects (successful and non-successful) on Web2 crowdfunding platforms like Kickstarter.
Third, CrowdFund NFT provides a platform accessible to users in all geographic locations, thus making it global in nature because of its cryptocurrency compatibility (ICP token). This gives it a leg up in attracting business and talent in locations outside of those allowed fiat currencies on platforms stuck in certain localities such as the United States, UK, or Europe. The ability for people in all locations to purchase ICP tokens that they can put to crowdfunding significantly opens the door for more projects to be created and for more funds to be raised.
How’s It Going For CrowdFund NFT & What’s The Future?
So far, CrowdFund NFT has begun listing projects, successfully funding projects, and has built the secondary marketplace. However, it’s still in its early days. What’s next is going to take the platform to the next level. In particular, integrating BTC into the crowdfunding rounds, integrating with other blockchain networks, marketing, gaining market share from Web2 crowd funders, and integrating stablecoins and on-fiat ramps to onboard more users.