VYSYN Ventures Weekly Insight #88: Overcoming ESG concerns may drive institutional DeFi adoption
Throughout its history, the digital asset industry has been heavily criticized for its excessive energy consumption. In May 2021, Tesla’s concerns over Bitcoin’s ESG credentials induced a massive crash in the crypto market. With blockchain technology and several projects built upon it being accused of “melting the earth”, different decentralized projects have sought ways to reduce their carbon footprint.
In the latest VYSYN Release, we will highlight how ESG is becoming more important than ever amid changing global economic conditions and the emergence of ESG-oriented protocols in the decentralized finance (DeFi) space. We will also consider how a new protocol is reimagining ESG to become an innovative eco-friendly paradigm in the DeFi space.
ESG in finance more important than ever
The COVID-19 pandemic has disrupted every aspect of our daily lives and exposed several shortcomings in the current global economic and social systems. It has highlighted the growing need for solutions that can effect positive change. There is now a heightened sense of urgency to combat social inequality and deteriorating climate change across the globe.
The pandemic has also increased ESG awareness as a way for investors to make social and environmental impacts while benefiting from their investments. ESG initiatives measure the ethical impact and sustainability of investment in a project.
With the rapidly growing demand for ESG products, several large corporations, including financial services institutions are striving to become compliant. There has also been a massive surge in the value of ESG assets in the global financial market, with the launch of several ESG bonds, exchange-traded funds (ETFs), and more.
According to a report by analysts from Bloomberg Intelligence (BI), ESG assets rose to over $35 trillion in 2020. They speculated that the rapidly growing asset class is on track to exceed $50 trillion by 2025, representing more than a third of the projected $140.5 trillion in total global assets under management (AUM)
(Source: Bloomberg Intelligence)
While ESG investing is becoming increasingly popular for making a positive social and environmental impact, the DeFi space is gaining traction for eliminating the need for intermediaries in financial transactions. Thanks to trustless smart contracts, DeFi protocols are establishing direct contact between transaction participants and drastically reducing the exorbitant fees charged by traditional financial services providers.
The DeFi industry is looking to go mainstream and attracting institutional investment will effectively mark the maturity of the industry. For instance, institutional adoption of bitcoin signaled the cryptocurrency’s mainstream arrival. However, with energy concerns still a problem within DeFi, institutional investors are hesitant to come on board. The emergence of ESG-oriented protocols are thus set to open a whole new world of opportunities for the DeFi industry.
Popcorn Network pioneers the ESG DeFi trend
Popcorn Network is bringing ESG to the DeFi space. It has created a slew of products that allow users to earn a high yield on their digital assets while simultaneously contributing to social impact beneficiaries at no extra cost. The protocol offers multi-chain curated pools of various DeFi strategies that allow users to generate yield using unique automated techniques such as staking, claiming, re-supplying, leveraging, and swapping digital assets.
Popcorn intends to achieve social impact goals using community-led initiatives powered by DeFi and Web3. Via its innovative solutions, protocol fees are directed toward creating real-world impact by funding environmental, open-source software, education, inequality, and free press initiatives. As users extract value from the protocol, a portion of the fees, up to 50%, is redirected towards institutions striving for social impact.
For its environmental goals, Popcorn is working hard to ensure eco-friendly performance by offsetting its carbon footprint. It has been able to achieve this goal through its partnership with Patch, an API-first platform focused on removing carbon emissions and neutralizing them via high-impact carbon removal projects. Popcorn has also partnered with several eco-conscious organizations, including the Crypto Climate Accord.
Popcorn utilizes the decentralized autonomous organization (DAO) model to address governance issues. The Popcorn community has the power to decide which beneficiaries receive a percentage of protocol fees monthly, quarterly, and annually, the majority vote wins. In the PopcornDAO, POP holders can also vote on various proposals that influence the parameters of the protocol’s smart contracts. These features help to eliminate the degree of centralized influence from decision-making, establishing the core principles of decentralization.
Popcorn intends to kickstart its vision with the launch of its first ESG DeFi product, Butter. This product is a basket of wrapped interest-bearing stablecoins, estimated to generate a 20% annual percentage yield (APY) on USDT, USDC, DAI, or 3CRV. The first of its kind, Butter, will enable users to create social impact by simply holding the stablecoins.
Mainstream, institutional DeFi?
With the current state of the DeFi space, it is difficult to imagine that the market came into existence just three years ago. With a TVL of over $204 billion, the DeFi market is on track to become a trillion-dollar industry by the end of 2022.
The digital asset industry’s shortcomings in the environmental aspect are often highlighted, thanks to the impact of mining activities. The emergence of new ESG-oriented DeFi protocols is set to improve the reputation of the industry, and reinforce the ESG narrative in the digital asset space.
As more of these products emerge, institutional investors become more attracted to the DeFi market, leading to massive inflows. The DeFi space is always teeming with trends and products. The ESG-DeFi trend may fuel the next wave of its development.
About VYSYN Ventures
VYSYN Ventures is a longstanding venture capital company that specializes in funding and supporting disruptive startups in the blockchain and cryptocurrency industry. We have provided early-stage support to several projects that have grown USD market capitalizations of hundreds of millions and even billions. Our incubation program focuses on providing capital allocation, versatile marketing support, and tech assistance.