Updated: Jul 13, 2021
Cash flow is and will forever remain the lifeblood of any business; regardless of era and tech availability, cash flow represents a principle in business as gravity is a principle on earth. Regardless of who you are, it acts without care or mercy.
Without positive cash flow, regardless of reputation, total assets held, or long history ( see the fall of the 164-year-old Lehman Brothers), every business is doomed to fail. Now, with the internet increasingly penetrating every corner of the earth, coupled with the rise of mobile devices, the nature of business is changing.
We are all on the web - if you can see these words, it is because of the internet being the substrate connecting our minds right now. However, as with all things, the internet is evolving. The current regime of the internet is dominated by centralized servers who control access and will give one reason or another as to why this control is necessary.
As a response to the need for more freedom online, especially in the area of banking and finance, web 3.0 is being developed. Web 3.0 is a scalable but decentralized version of browsing. But before anyone can jump into the next new wave, we must establish how the age-old principle of cash flow can be guaranteed on the web 3.0. You can find out loads more about web 3 on the dWeb Guide; there are also some relevant articles added below to help you.
The concept of getting finance outside of the regulated market is nothing new. Shadow banking is the use of hedge funds, investment banks, and money funds to ensure a regulated institution such as an investment bank could ensure liquidity. It was this shadow banking regime that provided the means for the excesses that lead to the 2008 financial crisis. Since regulated bank's cash flows were not strong or consistent enough to guarantee their operations, regulated institutions used tools such as swaps against their assets to fund their daily operations.
The decentralized system of finance in its current form does not allow for this to happen. A person/ institution either has the asset or does not have the asset - just as with the basic binary coding it’s either 0 (off) or 1 (on).
Therefore, how can and how do businesses on web 3.0 keep afloat?
Currently, many models are based on tokenomics. The ICO boom and resulting crash were hinged on tokens being launched. But no way to get it into the hands of users the value was in the token itself. In most cases how they intend to extract the value that is created was never made clear.
Since then, businesses that provide something useful all have one common principle- generating and sustaining cash flow. Here are some revenue models to look for when considering investing in a crypto-business and by extension any token that represents the business. Simplifying investing is being able to understand how the investment will yield profit. By being able to identify the revenue models, you can track cash flows and project them for the future, ideally over the next twenty years. Think of moving from zero to one in terms of solving a problem.
One of the easiest ways to generate cash flow is to have a monthly or annual charge for any services provided. For any SaaS business, subscriptions are the bedrock of that model. Once the network effect is achieved, this guarantees monthly flows into the business. Crypto-businesses such as Multis have done this by focusing on businesses who want to have customers on the blockchain. Known as blockchain as a service, they have provided a wallet that can host recurring payments based solely on balances on the blockchain. The issue with subscriptions on the blockchain is that it was not automated and each transaction required the authorization of the user via their private key. Until the EIP1337 upgrade on Ethereum, this was not easy for the user to “set and forget”.
The Brave browser is a great example of using advertising to generate cash flow, and unlike most platforms, a part of the revenue is distributed among the user base. Advertisers pay Brave to get access to their eight million engaged users. Then, in turn, Brave uses advanced algorithms to fine-tune who sees what. By showing relevant ads to users who are being paid to view anyway, Brave can continue to improve its web browser until the network effect causes it and by extension the BAT token to explode in price driven by an active user base.
Dragonchain is a great hybrid platform that gives decentralized proofs of transactions while keeping personal customer and business data private. In the real world, how does this help? Heres’ a great example- imagine a luxury brand such as Rolex, Gucci, Coach, etc. They all suffer from a huge black market of sellers claiming original prices for cheap and most times inferior knock-offs. By using the Dragonchain network and assigning a tag on the blockchain at the moment of production, end users can use this data to judge the product being sold.
In the area of blockchain, the idea of finance can be rethought. Currently, there is no feasible way to issue consumer credit at scale. However, finance startups such as Celsius and Compound Finance are using the original idea of banking to share revenue via their platform and tokens.
Before fractional reserve banking, currency on hand determined an institution’s ability to issue a loan. The savings rate was to reflect the bank’s way of encouraging persons to save as the interest collected on loans would be distributed back to the account holders. Most banks offer a whopping 0.6% for saving your money with them.
In contrast, saving in stablecoins can fetch interest of 10% and higher; saving in digital assets gathers 5-7% annually given in the asset being saved. The users of the platform and the token holders get these rates due to the interest being collected from loans originating on the platform.
As more users fill the ranks of crypto enthusiasts, accreditation no longer determines access and value flow is what causes businesses to compete.
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