How a startup aims to keep ICO blues away

dubai - It intends to do due diligence and KYC checks around the issuers of ICOs

HI-TRAC: The author's shorthand for Happiness Index, Infrastructure, Talent, Regulations, Access and Capital. The six pillars that make the UAE a great place for a startup. This week's article is about Infrastructure, Regulations and Access.

Occasionally, this column departs from startups that are in production and instead highlights a business at the concept stage. This variance is usually because the concept is new and quite often put together by very young people who are banking on talent and raw energy. The intention to put the concept out there and gauge interest from the wider investor, mentor and SME universe.

CallowBlue, incubated at startAD, has been put together by a team of bright and ambitious NYUAD students. The concept and the company showcases why the UAE has done well to bring in globally renowned high calibre universities into the country. The focus of this article is less about the company itself and more about how startups happen when the ecosystem is right.

Tarmo Korela is an NYUAD student of Estonian origin. In a previous life, he had been a forex trader and had also interned in the Central Bank of Estonia. His internship brought him close to cryptocurrencies. This generated an interest in the latter, leading to a watershed moment for him. Korela invested in and lost money to an ICO scam. The pain of this loss led him to study cryptocurrencies in more detail while in university.

Korela began tracking or auditing these assets, especially the movement around Bitcoin pricing. This, in turn, sparked an idea. Would it be possible to bring about the same level of due diligence and KYC checks around the issuers of ICOs (initial coin offerings), similar to what is done for IPOs (initial public offerings)? In fact, the thought was that this could be scaled into something much bigger, where the entire network related to the cryptocurrency is audited, enabling the sniffing out of suspicious activity and price manipulation.

Two more of his fellow students, Himal and David, joined on board as co-founders. As self-styled blockchain specialists, the team began figuring out the applicability to multiple domains. With the validation of cryptocurrency issuers at the core of the offering, several asset classes came up for consideration. The team narrowed down their focus to real estate, commodities and remittances.

In the real estate domain, the team intends to apply the same logic as what is used for the validation of a cryptocurrency issuer. CallowBlue can theoretically validate the authenticity of property. Property unit value can be further subdivided into lower denomination tokens. This opens up the market for non-traditional investment in a capital-intensive industry that is usually dominated by big players. Another advantage of tokenisation is the ease with which investors can enter or exit a property-linked token, without having to pay all the fees and commissions usually associated with such transactions. Regulators look positively at mechanisms that leave no doubt about who the owner or promoters of the property are.

Commodities are another asset class that is tradeable but requires high levels of monitoring. Take coffee, for instance. We often buy coffee that's supposedly traded or bought fairly. However, the mechanism required by small coffee farmers to meet the standards for such certifications is out of reach for them. Hence, the larger players tend to continue to benefit. The team at CallowBlue would like to create mechanisms that allow for investment in coffee assets based on validation of the farmers and their produce. This, in turn, unleashes investment for the industry's growth.

A third and equally engaging concept is the applicability of tradable assets in the form of tokens to remittances, domestic or cross-border. In form, this is similar to hawala or hundi but the big difference is that the senders and recipients are uniquely identified and validated via blockchain technology. A sender can buy a tradable asset and transfer its ownership to recipient. On the premise that the tokens are issued on underlying assets such as commodities, the value will remain relatively stable over a short time-period.

Whatever be the outcome, this initiative is another example of how the startAD ecosystem is encouraging cutting-edge entrepreneurship and risk-taking.

The writer is founding partner at Bridge DFS, a bespoke financial advisory firm (www.bridgeto.us). Views expressed are his own and do not reflect the newspaper's policy. He can be contacted at sanjiv@bridgeto.us.