Saturday, September 23, 2023

Putting Crypto to Work for High-Growth Businesses with MoHash

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Arun Devarajan, the founder and CEO of MoHash, thinks his startup investment firm could kill two birds with one stone. And its investors seem to believe in that promise — MoHash announces today that it has closed a $6 million seed funding round led by Quona and Sequoia Capital India.

The first problem, Devarajan says, is that investors have become increasingly disenchanted with yield farming — the practice of depositing cryptocurrencies with a platform that promises to generate attractive income by lending the securities. Investors in several stablecoins – ostensibly a more secure option than other cryptocurrencies – have been promised generous returns that have not always materialized. “The promised yields are not sustainable and could drop to zero at any time,” warns Devarajan.

Problem number two is of a different nature: small and medium-sized companies around the world, but especially in emerging markets, are struggling to secure the capital they need to realize their growth potential, Devarajan says. “Emerging markets are not growing as they should because of this deficit,” he adds.

MoHash therefore wants to tackle these two problems at the same time. It will take stablecoin deposits from investors and lend them to high-growth companies in emerging economies. Devarajan says the platform can generate returns of between 6% and 10% per annum for investors, while providing the capital that companies in the development economy need to thrive.

“MoHash brings global liquidity to non-bank lending in high-growth economies,” added Devarajan. “We believe this is the right rocket fuel to help them double the size of their economies in the coming years.”

It’s an interesting idea. In fact, MoHash offers something akin to the kind of debt fund banks have offered in the past — or even a money market fund. But the deposits needed are in stablecoins rather than fiat currency, and it’s targeting loans to a specific demographic.

What will investors think of this idea? Well, a return of 6-10% is certainly attractive, even in a market environment where interest rates are now rising again. And it is certainly the case that there is a growing disillusionment with many of the products devised by the cryptocurrency market to generate revenue.

Still, MoHash itself is not without risk. It will rely on specialist underwriters in the markets it provides to, Devarajan explains, and these partners will take the first losses on non-performing loans. But that only offers investors some protection against loss.

It should also be noted that this form of investment activity is subject to less regulation than other types of deposit funds. For example, put money in the bank and you will benefit from deposit protection schemes in most markets. Money market funds do not guarantee capital preservation, but they are closely monitored by financial watchdogs. The crypto market is not monitored in the same way.

Nevertheless, Devarajan is confident that investors will embrace the idea. MoHash does not target the retail market, at least not initially. Rather, it will focus on raising money from institutional investors such as family offices and equity funds; the first depositor, a well-known international family office, will come on board in the coming weeks, Devarajan says. Over time, he expects to raise as much as $10 billion from a wide range of investors drawn to the idea of ​​using digital currencies to secure exposure to real-world assets.

That would be an important new source of capital for private companies that are currently hampered by a lack of funding. And if that allows such companies to accelerate, it will bring wider economic benefits in developing countries that desperately need such success stories.

MoHash isn’t an altruistic venture — costing around 1% a year will generate significant revenue if the platform raises as much as Devarajan hopes — but the founder does believe it can have a positive impact. “It’s an example of how financial technology has the potential to do social good,” he says.

The company’s investors are equally enthusiastic. “MoHash brings real assets to decentralized financial users worldwide, delivering sustainable, uncorrelated and hard-to-access returns,” said Shailesh Lakhani, managing director of Sequoia India. Ganesh Rengaswamy, managing partner of Quona added, “The solution has the potential to meaningfully bridge funding gaps around the world.”

That enthusiasm is reflected in the size of MoHash’s funding round – $6 million is a big seed raise. Devarajan says the money will help the company strengthen the company’s infrastructure and build the liquidity it needs to provide investors.

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