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WWF, ConsenSys launch Impactio: Ethereum-based blockchain impact investment platform

Posted: 27 September 2019 6:00 pm
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Impactio is what you get when you try to solve the world's biggest problems.

Kavita Prakash-Mani, the World Wide Fund for Nature (WWF) director of conservation, and Joseph Lubin, co-creator of Ethereum and founder of ConsenSys, jointly unveiled the Impactio platform at the Concordia summit, during the week of the 74th United Nations General Assembly.

Impactio is an Ethereum-based blockchain-powered impact investment platform, built around the United Nations 17 sustainable development goals (SDGs).

These modest goals include ending poverty and inequality, solving climate change and making sure the entire world has clean water and enough food.

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UN SDGs

Impactio is where ConsenSys and WWF ended up after sitting down and thinking about how to actually solve those problems.

Solving humanity's most unassailable challenges for dummies

The main obstacle to solving problems like poverty and inequality is the fact that these problems are really big and complicated, explains Reece Proudfoot, WWF innovation strategist and one of the minds behind Impactio.

"The problem is that the issues we face globally are not getting smaller," he says. "They are big, complex issues... we might be winning some battles, but we're not winning the war on some of these issues like climate change, biodiversity loss, inequality, and poverty. So clearly, we need to be thinking differently about how we're solving these problems."

Here, "thinking differently" starts by looking at impact investment in addition to more traditional philanthropy.

Impact investing

As defined by the UN, impact investing is essentially a hybrid of philanthropy and investment, in that:

  • Impact investors have an expectation of a positive financial return on their investment, in contrast to traditional philanthropy.
  • Impact investors have an expectation of a positive social or environmental return from their investments, in contrast to traditional investing.

When you want to incrementally solve immense, complex problems at their root level, impact investing may be the best framework.

The profitability of these investments helps keep a steady flow of capital coming in, and financially self-sustaining projects can continue having a positive impact for years on end, which gives them time to keep chipping away at those massive global problems. And by treating projects as investments to generate a return, you're also inherently selecting ideas which work in the real world, and which won't suddenly disappear and leave gaps when their funding dries up.

Besides, when you follow problems to their root you'll tend to find economic problems, Proudfoot observes.

"Ultimately, most of the issues that we face - the major social and environmental issues that we face, our economic issues - they are born out of a model of an unequal economic system that results in negative externalised impacts, whether that's climate change, or whether that's health impacts or other negative externalities."

"We believe that that economics in the market has a really crucial role to play, but that we need to be encouraging positive social impact through directing and channeling funds towards impact, in addition to just standard growth and GDP."

There are obviously certain areas where straightforward donations are better than impact investing. An impact investing framework probably wouldn't work if you're trying to quickly provide disaster relief, for example.

But when you have a finite amount of money, and the UN SDGs in your crosshair, using an impact investing framework to select only projects which are profitable in addition to being socially or environmentally beneficial, means impact investments may naturally deliver better bang for buck, in terms of positive social impacts, than straightforward charitable donations would.

Optimising impact

So as you boil down those seemingly insurmountable SDGs, you come to a single question: how do you get more money into impact investing?

"We're at a really exciting moment in time, where these powerful new emerging technologies are offering impact on a scale that we just haven't been able to consider before," Proudfoot says. "And so the question that ConsenSys and WWF have been asking ourselves is, how do we leverage the power of emerging technologies - in this case blockchain - to bend the curve on some of these issues that we are facing? So ConsenSys and WWF have spent the last two years going through quite an in-depth experimentation and iteration process to build Impactio to help solve this one big problem, which is how do you increase the amount of impact funds available to projects?"

Unusually, it's not simply a matter of getting more money. There are actually plenty of wealthy individuals and funds ready to pour money into impact investments. The problem is connecting those investors with the right projects, and ensuring that the projects which receive funding can deliver the intended social or environmental benefits.

"It's a supply and demand scenario," Proudfoot explains. "So there is actually plenty of demand [for projects], but there currently isn't a process for matching high-impact, robust projects with the capital that's available. There is plenty of capital out there. What we need is a marketplace for matching our projects with available funds."

Where the magic happens

When you break down that matchmaking problem further, you'll find the current bottleneck in the impact investment ecosystem; the process of verifying a project's positive impacts is extremely inefficient, and the results often aren't great.

"The impact investing sector, and the impact funding sector in general, is highly capable in identifying projects with robust return on investment," Proudfoot points out. "So, you know, business model is not an area that needs support. Where the gap is, is identifying projects with robust impact credentials."

"So how do you identify projects that are going to have impact in the future? This is currently highly subjective, and the way that these projects are decided on is based on the opinion of one person over another. And it's also massively inefficient. Sometimes in this process you'll have a thousand applications needing to be evaluated, and they might only have one person who's able to do it."

"So, what Impactio does is, first of all, makes that project's curation process a lot more efficient. Second of all, it makes it a lot more trustworthy because the whole process is essentially outsourced to global subject matter experts who are taking on the curation process."

Now you have a platform which brings in experts from different fields to assess prospective investments, specifically for their social or environmental impact, for the benefit of investors. Consequently, there's now a need for blockchain-grade levels of transparency and trust.

"Because it's being run on a platform that's enabled by blockchain, the whole process is transparent," Proudfoot says. "So what this means is that it provides much greater trust for funders, that the projects they're selecting have robust impact credentials. And in increasing this trust, what we are aiming to do with Impactio is increase the potential pool of funding available for impact projects globally, thereby increasing the amount of impact."

To recap:

  1. You want to solve all the world's problems.
  2. You identify impact investing as the best avenue.
  3. You identify the need to better connect investors and projects.
  4. You identify verifying impact credentials as the main bottleneck in the space.

There have been many other efforts to bolster impact investing, but in many cases they only get as far as step 3, and just end up being lightly-vetted registries of projects that want funding, where investors still need to do the legwork themselves. But step 4 is where the magic happens, and where you may be able to start moving the needle on the UN sustainable development goals.

Bringing in the experts

This is what Impactio means when it calls itself a "project curation" platform. Rather than just listing projects, it actively curates them through a network of experts.

"There are lots of people around the world, incredibly smart people that are very well experienced," Proudfoot says. "They have a lot of experience in their subject area. [But] there isn't an easy way for these people to apply their knowledge and their expertise in a way that is low friction, and meets their needs and their timeframe."

"And so, what Impactio does is identify these people... part of the benefit of Impactio being built by a global NGO (WWF) is that we have a very big network globally, of people who are very experienced in how to solve big complex problems like climate change, food security and inequality, but also people with experience in how to create a solid business model, how to create investment-ready projects, marketing experience."

"We've pulled together quite a powerful, global peer review network to act as our curators... We ask the subject matter experts to apply through the platform. We screen their applications and make sure that their reputation and their capabilities match the needs of the platform. And then they are onboarded onto the platform as a curator."

This system could have a substantial carry-on effect on the entire impact investment sector.

"In theory, Impactio could revolutionise the way that impact projects are, are supported and are funded. I think what we're talking about is a paradigm shift in the way that impact projects are selected and funded... the process is currently largely manual, pretty inefficient and based on subjective decision making," Proudfoot says. "A really key requirement of the platform is making sure that the projects are the best they can possibly be before they are put in front of funders. Our subject matter experts, who act as the curators, are playing a really key role in that."

The result is that on the surface you have a registry of projects, sortable for easy browsing, with the UN SDGs acting as a reference point throughout.


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Impactio


And once you drill down into the project details, you'll find that each has a history. Curators have publicly discussed it, endorsed it, challenged it and reached consensus on it, with tokens adding weight to the system throughout.

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Impactio


Nuts and bolts

WWF's expertise was necessary to identify the nature of the problem which needs to be solved, while ConsenSys' experience helped design a system which could assemble the necessary moving parts.

In this case, those moving parts are people. The funders are looking for projects to invest in, while the project founders are seeking investment. And then you have the curators.

The curators are the magic ingredient. They're the experts who collectively guide projects through their early days, and ensure they're as polished, vetted and impactful as possible before appearing in front of investors. This network of curators is intended to solve the current impact investing bottleneck.

From one angle, the whole point of the Impactio platform is to give curators a place and a reason to be subject matter experts.

"Effectively, Impactio and its design was inspired by the work of ConsenSys, and the wider ecosystem working on token-curated registries and decentralised autonomous organisations," explained Claudio Lisco, ConsenSys' strategic initiatives lead and one of the architects of Impactio.

TCRs and DAOs in plain English

A token-curated registry (TCR) is a way of using a blockchain token to assign different weights to different items on a list, while a decentralised autonomous organisation (DAO) is an organisation governed by rules programmed into a computer.

Put the two together, and you have a transparent, tamper-proof system where people (the curators in this case) can organically debate, discuss and reach a group agreement on whether a project is viable, and when it's ready to seek investment.

The tokens act as a finite resource, letting curators put tangible weight to their words, limiting the risk of manipulation, favouritism, corruption and so on, and creating a framework for the Impactio platform itself to automatically enforce the system's rules.

Naturally, it can also act as an incentive for curators to keep working their magic.

"So, at the core of the Impactio system there is effectively a TCR which is used to enforce the curation process, allowing the subject matter experts to collaborate in reviewing and surfacing the best projects," Lisco says. "The way this works is that the curators and subject matter experts effectively have the ability to see the projects that have been submitted on Impactio."

"First they review them, provide feedback and collaborate with the project owners to further improve the projects. But effectively, once the curation process starts they have the ability to use tokens to signal their endorsement for projects they think should be exposed to funding opportunities."

"In the same way, other subject matter experts can go in and challenge those endorsements by staking an equal amount of tokens to signal their disapproval. And then when that happens the entire curation community - the entire network - is called to resolve the dispute by voting on whether the project should be exposed to the funders or not."

"All of this is coordinated by the TCR system and the token mechanism that underpins Impactio," Lisco says.

"Subject matter experts that participate in the process are also incentivised to do so, because for each of their curation actions they have a chance to get rewarded with additional tokens. Or eventually, if they undertake unsuccessful curation actions on the platform, they can lose their tokens. This creates a powerful mechanism that makes the process very efficient, removes bias and also drives engagement from the subject matter experts."

What to do after saving the world

In its current form, the Impactio tokens are just gamifying the system, rather than presenting curators with a new full-time job. And that may be for the best. If the token were to get some monetary value, that would change the dynamics of the platform. Curators might become more risk-averse, or start taking arbitrary curatorial actions to maximise their earnings.

Of course, it's possible they'd actually make better decisions that way, or that it wouldn't matter at all.

It's probably hypothetical though, because one of the nice things about Ethereum, Lisco says, is that it allows for extremely versatile token models, and there's nothing stopping you from adding a separate monetary value-type token into the system down the line, without needing to adjust the functions of the existing token. Should curators need some more direct support later on, this can be seamlessly built into the system, independent of the existing tokenomics, in any way needed.

In a similar vein, Impactio is still very much a centralised walled garden. Curators are screened manually and projects tend to be small. It remains to be seen how well the ecosystem's logic and game theory will hold up under more serious real world conditions, where the stakes are a lot higher and the total number of participants is much larger.

There's also the factor of time. Perhaps curators will get blasé after a year or two, and there just wasn't enough time in testing to reach that point? At the same time, it's always difficult to account for the organic randomness that comes with any human community. Is there a chance curators will skew towards groupthink down the line? Are people more likely to agree with whatever the first commenter says?

"It's an area we are wary of, and we are putting a lot of thinking and effort in to analyze," Lisco says. "The pilot effectively demonstrated that in many cases, even when we saw the emergence of groupthink around certain projects that seemed to get a lot of support from the community, curators took steps to mitigate that group-thinking and raise questions, and eventually went in to challenge the endorsement for those projects."

The system is designed to reward successfully-argued contrarian viewpoints, Lisco says, which should help keep curators in the right place.

Human nature

Beyond groupthink, will racism, sexism or any other -ism rear its head? What if, somewhere way down the line, statistical analysis shows that the curators unconsciously go easier on founders with Ivy League degrees than those without, or that they have a profound lack of interest in healthcare for aboriginals?

Will there ever be problems if projects become proxies for political issues? What if curators are called to vote on whether to present a euthanasia centre or abortion clinic project to investors?

While these hypotheticals are fun to ponder, they probably don't really matter. A curator's measure of success on Impactio is whether or not their curated projects end up being impactful, according to clear criteria.

This simplicity helps sidestep a lot of those kinds of issues, in a very practical way.

"Ultimately, the curators are going to be rewarded for projects that are impactful," Proudfoot says. "And we don't necessarily believe that there are different grades of impacts. Either a project is impactful, or it's not. The curators are incentivised to act as a team and to call out any projects that are not ready to be funded, and to make sure the projects that are making it through are ready to be funded."

"So if someone is letting the side down, either through groupthink or as an individual, that behavior will be called out because the curators are incentivised to call it out. Ultimately, once we've been through a formal project implementation cycle, and curators are being rewarded for not just curating projects, but projects that are implemented successfully, then you will see a virtuous feedback cycle where curators are strongly incentivised to be making correct and robust decisions on the platform."

So even as the curators hone a constant stream of impact investing projects and teach people how to develop viable and impactful projects, those projects are also honing the curators, showing them how to better recognise those projects, in a self-reinforcing feedback cycle.

It's quite apt, because at the end of the day, what else are the UN SDGs if not a self-improvement project?



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