Exploring the Digital Asset Ecosystem
The digital asset sector has undergone a rapid expansion over the past couple of years, growing in value and functionality.
Beyond the price growth of popular cryptocurrencies, digital assets are powering innovative applications that enable value transfer beyond just payments. From tokens that grant dividend-like revenue to holders, to tokens backed by other digital and physical assets, the digital asset ecosystem is redefining asset and financial structures before our very eyes.
The Functions and Types of Digital Assets
Digital assets can be broken down into three different types of assets that fulfill three primary functions. The first two functions of digital assets, store of value and medium of exchange, are well established functions of digital and traditional assets.
However, a third functionality of being able to pass through values to holders has emerged, with benefits like discounted application fees, governance voting rights, and monetary rewards passed onto token holders.
These functions are fulfilled by three main types of digital assets:
- Currency: tokens that are a unit of account and medium of exchange
- Asset-backed tokens: tokens backed by hard assets like equity, debt, or physical assets
- Pass through tokens: tokens that grant revenues, rewards, and network benefits to holders
Many know of Bitcoin, the founding cryptocurrency that functions as a digital currency today. Along with this, tokens whose value is backed by other assets like Arca Lab’s ArCoin (Ticker: RCOIN) are also straightforward in nature and functionality.
Pass through tokens are where digital assets explore innovative concepts and structures unique to the blockchain networks that underpin the assets.
For example, cryptocurrency exchange FTX issued an exchange token (FTT) at launch, which provides holders with reduced trading fees on the platform. FTT holders can also stake, or lock up, their tokens to receive increased referral rebates, more votes in FTX polls, and more airdrop rewards (tokens exclusively given out to holders or stakers of another token).
Classifying Governance and Decentralization
Along with token types and their functionality, it’s important to understand the governing bodies and governance structures behind digital assets.
The governing body is the entity that issues and controls the function of a digital asset, ultimately defining the purpose and proposed value of a digital asset. These range from centralized governments and organizations, like the government of the Bahamas (issuer of the CBDC, the Bahamian Sand Dollar) to Decentralized Autonomous Organizations and blockchain protocols like Ethereum (ETH) and Solana (SOL).
|Governing Body||Governance Structure|
|Decentralized Autonomous Organizations (DAOs)||Decentralized|
|Protocols, Platforms, and Dapps||Typically decentralized|
Governance structures define the framework and procedures which decide and implement changes for a digital asset. These changes can be about anything, like the digital asset’s tokenomics, pass through values, or future development goals.
While some governing bodies like governments and organizations have centralized governance structures, centralization and decentralization isn’t all or nothing and can be seen as more of a spectrum.
Certain DAOs or protocols might have a core team of developers that propose certain features, which are then voted on and ultimately decided by the holders of the digital asset.
The Future of Traditional Assets in a Digital Framework
With an established taxonomy of digital assets, we can start to map out how traditional assets fit into this framework.
From tokenizing real estate and commodities for easier digital exchange and settlement to equity-like tokens issued by companies that provide holders with voting rights or non-financial rewards, digital assets will reshape the traditional asset structures of today.
By providing unbound and transparent asset structures, digital assets are providing people around the world with more freedom in storing, transferring, and accruing value.
Go to Ar.ca to learn more about digital assets today.
Ocean Economy: The Next Wave of Sustainable Innovation
This graphic explores how the $1.5 trillion ocean economy can help fight against some of the toughest challenges facing the world today.
Ocean Economy: The Next Wave of Sustainable Innovation
Roughly 21–37% of total greenhouse gas (GHG) emissions are attributable to our current food system, which includes conventional agriculture and land use according to the latest IPCC report.
With the global population rising and more mouths to feed, now is the time to reconsider how we can tap into our global resources to build a more sustainable food system.
This infographic from Billy Goat Brands (CSE: GOAT) (“GOAT”) explores how the ocean economy—also referred to as the blue economy—plays a vital role in our fight against climate change and other environmental challenges facing the world today.
What is the Ocean Economy?
The ocean economy is described as the sustainable use of the ocean and its resources for economic development and ocean ecosystem health.
The global economic output of the ocean economy is $1.5 trillion each year. Here is an example of some of the activities and sectors that make up the ocean economy today:
|Harvesting of living marine resources||Fisheries
|Harvesting of non-living marine resources ||Marine biology
Oil & Gas
|Transport and trade||Tourism
Shipping and shipbuilding
|Renewable energy||Renewables (wind, wave, tidal energy)|
|Indirect economic activities||Carbon sequestration
Financing ocean-related economic activities will ensure the future sustainability of this vital resource, and help combat threats that pose a risk to humanity, such as overfishing, pollution, and habitat destruction.
However, some experts say that there is insufficient private and public investment in sustainable ocean economy activities.
The Investment Opportunity
Investors have a unique opportunity to drive change through companies innovating in the ocean economy and be part of the solution.
- The ocean could provide six times more food than it does today.
- Seafood continues to be the fastest growing sector by 2030 with only 60% of fish available for consumption.
- The ocean economy provides a smaller carbon footprint compared to conventional agriculture.
The potential for economic growth will only continue to grow, presenting investors and institutions with a chance to add value at this crucial stage of development while making a real and tangible impact.
In fact, investing $1 in key ocean activities can yield at least $5 in global benefits—a number that will continue to rise over the next 30 years according to a World Resources Institute report.
The report also states that investing between $2 trillion and $3.7 trillion globally across four crucial areas could generate between $8.2 trillion and $22.8 trillion in returns by 2050. These four areas are:
- Restoring mangrove habitats
- Scaling up offshore wind production
- Decarbonizing international shipping
- Increasing the production of sustainably sourced ocean-based proteins
An Ocean of Possibilities on the Horizon
Plant-based alternatives will play an important role in alleviating the pressure on ocean resources, and technological innovation has been pivotal in creating imitation products for the consumer market.
GOAT provides diversified exposure to expansion-stage companies that contribute to the ocean economy through innovative food technologies, functional foods and plant-based alternatives.
“We believe that plant-based seafood alternatives should be available for everyone, everywhere. That’s why we spent years creating a seamless experience that’s nearly indistinguishable from their animal-based counterparts.”
—Mike Woodruff, CEO Sophie’s Kitchen
Sophie’s Kitchen is one of GOAT’s investee companies and a leading California-based manufacturer and distributor of disruptive plant-based seafood alternatives.
Go to billygoatbrands.com to learn more about investing in the ocean economy today.
Impact Investing: Building a Better World
While investors often focus solely on returns, impact investing introduces a way to also tackle global environmental and social problems.
Typically, an investor’s main objective revolves around building wealth and then turning that wealth into an income generator. As a result, financial returns are accepted as the default performance metric.
But what if investing could also address the world’s most pressing social and environmental problems?
More Than Investing
This infographic from BlackRock introduces the concept of impact investing and explains why it can be a force for good.
What Does Positive Impact Look Like?
Impact investing is a sustainable investing approach that combines the intention to generate positive returns with positive, measurable social and environmental outcomes.
To understand what these outcomes actually look like, here are some highlights from the companies that the BlackRock Impact Team invests in.
- 102,000 GWh of renewable energy generated
- 11 million metric tons of food waste mitigated
- 114 million individuals empowered with access to financial services
- 99 million people given access to clean drinking water
- 600,000 families given access to affordable housing
- 1.8 billion patients given access to affordable healthcare
These outcomes were generated in 2020, and help to make our world a better place.
The Three Pillars of Additionality
For impact investing to be an effective strategy, investors must be able to accurately measure the positive outcomes their capital is helping to create. A company may claim to be aligned with the UN Sustainable Development Goals (SDGs), but its actions may not be making a real world difference.
“Alignment to the SDGs is not enough to qualify as impact; we require that companies advance the SDGs by providing a solution that is additional, thereby creating genuine impact.”
-Quyen Tran, Director of Impact Investing at BlackRock
Below is an overview of the three pillars of additionality that BlackRock uses to measure impact. In this context, additionality means an outcome would not have occurred without the company’s contribution.
1. Additionality From the Investee (the company)
A company provides additionality if its products and services address a need that is unlikely to be fulfilled by others. The primary sources of company additionality are:
- The application of leading technologies
- The deployment of innovative business models
- The delivery of products and services to underserved populations
Helping underserved populations is a powerful way to create impact. In 2017, for example, it was estimated that 1.7 billion adults did not have a bank account.
2. Additionality From the Investor
Investors can also provide additionality by empowering businesses to create positive impact. This can be done through five mechanisms:
- Invest with a long-term ownership mindset
- Engage with companies to help enhance their impact outcomes
- Invest capital when an impact company needs to raise more capital
- Bring much-needed visibility to undervalued impact companies
- Create a better marketplace for impact companies looking to go public
The effects of these mechanisms are already being seen worldwide, especially as awareness of environmental, social, and governance (ESG) factors rises. According to a 2020 report by KPMG, 80% of companies now publish sustainability reports.
3. Additionality From the Asset Class
Even with the help of private investments, the world faces a multi-trillion-dollar shortfall in its quest to meet the UN SDGs by 2030. Public equities have the ability to shrink this gap by moving capital towards enterprises that are solving the world’s greatest challenges.
|Private market impact investing||$0.5T|
Source: McKinsey & Co (2019), BlackRock (2020)
At $93 trillion in total value, public equities are roughly 20 times larger than private markets.
Building a Better World
Solving today’s greatest challenges often requires innovative solutions. Consider the fact that many regions suffer from a lack of doctors.
|Region||Density of Physicians|
|Europe||1 for every 293 people|
|Americas||1 for every 417 people|
|Southeast Asia||1 for every 1,239 people|
|Africa||1 for every 3,324 people|
Source: World Health Organization (2021)
An impact investing strategy will seek out companies whose products or services can help to alleviate this shortage. For example, the BlackRock Impact Team has identified a medical software company whose platform lowers administrative costs and increases productivity.
Cybersecurity is another area where investors can help create positive change—according to McAfee, cybercrime has become a $1 trillion drag on the global economy.
This risk disproportionately affects small and mid-sized enterprises (SMEs) because they have limited resources to protect themselves. Cybersecurity companies that specialize in servicing SMEs can help protect this important part of the economy.
The Time is Now
Impact investing is not limited to a single theme. Around the world, various social and environmental issues are capturing the attention of governments and society. Ultimately, what’s needed are innovative solutions.
“If your savings can earn a strong return invested in companies that are doing good for the world, why would you invest any other way?”
—Eric Rice, Head of Active Equities Impact Investing at BlackRock
By directing capital to the right companies, investors have the potential to generate financial return while building a better world.
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