10 Reasons why you should raise Funds with Decentralized Crowdfunding Platforms
Crowdfunding has significantly benefited from blockchain integration. As many people have pointed out, not only does the blockchain accentuate the positive qualities of the blockchain, but it mitigates the undesirable issues as well. Having said that, creators and backers may still prefer the more traditional crowdfunding approach because accepting change is hard. In this article, we will list out ten advantages of decentralized crowdfunding to show why everyone should start embracing this space.
#1 Zero geographical restrictions
Presently, crowdfunding platforms like Kickstarter and Indiegogo have heavy geographical restrictions and tend to favor western countries. The reasoning behind this is because there is a common assumption that people in western countries have easier access to debit and credit cards. However, as per a study by the World Bank, China will contribute $50 billion to the global crowdfunding industry by 2025. That’s 52% of the total global market! Using a decentralized crowdfunding platform, you tap into these unexplored markets pretty easily without restricting yourselves with needless bureaucracy. If you are a creator and you have a good idea, then you can host your project on the platform.
#2 Lack of Censorship
Centralized platforms like Kickstarter and Indiegogo have full control over the projects that get listed on their platform to cut down on spam. Unfortunately, this also means that a lot of entrepreneurs with really great ideas don’t get their projects listed for violating some vaguely written terms of service. In other words, if your ideals and beliefs differ from theirs, you may get delisted from their platform. Once again, in a decentralized platform, there is no central authority figure laying down the law. As such, there is no chance of censorship via a centralized entity.
#3 Reduced Listing Fees
Both IndieGogo and Kickstarter charge 5% of the funds collected as listing fees. Decentralized platforms like Pledgecamp allow creators to reduce or completely eradicate their listing fees provide they allow high enough backer insurance (more on this later).
#4 Reduced Transaction Fees
Payments in Kickstarter and Indiegogo are made via Stripe. Kickstarter does Stripe credit card processing charges of 3% + $0.20 per transaction, while Indiegogo does 3% + $0.30 per transaction. In a decentralized platform, backers can directly connect with creators and send them tokens directly to their cryptocurrency wallets. This payment is made directly without having to go through payment intermediaries like Stripe.
#5 Increased Transparency
According to a study conducted by Pledgecamp, more than 80% of projects ship late — and some never ship at all. This is a testament to the severe lack of transparency that is infecting this space. Backers can’t tell how the creators are using their pledges in the first place. All these issues have resulted in reduced between backers and creators, which has resulted in lesser projects getting the funding they deserve.
Transparency is one of the core components of blockchain technology and smart contracts. Every single thing that you put inside them can be traced right back to its very origins.
#6 Marketability and Reach
The number of projects vying for attention on these crowdfunding platforms is enormous. If they don’t gain any visibility, then they will simply not survive. This leads to creators overcompensating by focusing full-time on the marketing aspect of their business without actually creating a final product.
A decentralized crowdfunding network can allow creators to directly hire their backers or members from the community to take care of specific marketing requirements. In turn, they can be compensated for their services with the native tokens.
#7 Connecting with the Community
A decentralized crowdfunding platform can take your interaction with your community to a whole new level. To understand this, let’s look at Pledgecamp’s native forum called “Knowledge Center.” The forum allows the community to share their expertise and answer questions that the creators may have posted. Based on their expertise, the community members will receive reputation points in an immutable ranking system. Similarly, vendors can offer their services by showing off their knowledge and earning high reputation scores.
#8 A Highly Active Community
Crowdfunding platforms are known for their highly active communities. However, decentralization can even take that to a whole new level. Community members can stake the native tokens and take on more responsibility within the platform. Pledgecamp allows its members to stake the PLG tokens and become moderators. Moderators can check the projects listed and penalize them if they are spammy. Getting the community members involved in day-to-day operations is a brilliant way of building a highly active ecosystem.
#9 Escrow Funds
The two most significant issues with crowdfunding are – transparency and accountability. By leveraging smart contracts, it will be possible to create an automated escrow contract between the creator and the backer. This contract can have predefined conditions which can do the following:
- Lock up a part of the backer’s investment in an escrow.
- Release the escrow funds only if the creator completes certain milestones.
This will ensure that the backers’ funds are going to be used ethically. If the creator doesn’t fulfill the milestones, then the escrow funds will be refunded to the backer. This simple mechanism, aka “Backer Insurance,” can be game-changing in the crowdfunding space:
- It keeps the creators accountable since they can miss out on a large chunk of their fundings if they don’t deliver results.
- Smart contracts and the blockchain are both transparent. As a result, the backers will be able to keep track of the creator’s progress by themselves.
#10 You remain in full control
Why do so many entrepreneurs prefer the crowdfunding route? The main reason is that it allows them to have full control over their projects. They don’t need to give away stakes to various investors. However, with decentralized crowdfunding, along with all this, you will also have greater control over the funds entering your projects. As we have seen before, in traditional crowdfunding platforms, you need to let go of at least 8% of the fees collected (5% for listing fees and the rest on transaction fees). In decentralized platforms, the transaction fees collected is minimal since the backers directly send the money to the creator’s wallet without having to go through a payment processor.
Let’s re-iterate something that we have already said before. Blockchain integration accentuates the positives of traditional crowdfunding while removing all the negatives. As you may have guessed from the points discussed above, with proper integration and execution, decentralized crowdfunding can make this space even more exciting than it already is.