Blockchain Platform Brings the Physical and Digital Worlds Together for Sustainable Infrastructure
September 03, 2020 | Updated at September 03, 2020
- The Sustainable Development Goals and Paris Agreement rely on the world making USD 6 trillion in infrastructure investment every year, funds which are difficult to channel into infrastructure
- High investment sizes, illiquid markets and a complex web of contracts limit infrastructure investment to only the largest institutional investors
- Fasset has launched a blockchain-powered platform to increase liquidity and expand the investor base for infrastructure by digitizing real assets
Infrastructure financing has been a consistent focus with estimates for the need running about USD 90 trillion over 15 years (USD 6 trillion annually) through 2030 globally. This investment is needed to expand, upgrade and modernize the capacity of infrastructure to meet smart development objectives in low-and-middle-income economies as much as in high-income economies. These investments must be made sustainably in line with the Paris Agreement, which require growing capacity and accessibility decoupled from the carbon footprint of economic activities, while also looking to leave no one behind.
This is where Fasset is focused, according to a new RFI podcast with Delfina Lopez Freijido (Senior Consultant on Sustainable Infrastructure) and Aziz Zainuddin (Chief Product Officer). Fasset brings an approach to tokenize infrastructure investments, using blockchain to better organise the web of contracts behind infrastructure projects in a way that provides a door to increase liquidity for project equity investments.
The transparency and traceability of blockchain enable the tokenization of infrastructure project equity to increase liquidity for infrastructure projects and thus broaden the range of investors able to participate -including retail investors, as much as family offices or small funds, besides the big institutional investors already acquainted with the infrastructure space. It also provides a digital investment alternative to sustainable, responsible and impact investors.
The value this brings into the infrastructure market builds from identifying a common market need. The size of investment that is potentially available for sustainable infrastructure is more than sufficient for the world’s needs. However, most of it is looking to finance the debt used in many infrastructure projects, which is reliant on equity financing. Furthermore, in both cases, it is a fairly cumbersome process.
Commonly equity finance is provided by a financial sponsor, an industry sponsor or the public sector. There is a much greater shortage of equity for infrastructure projects than debt, despite low rates that have prevailed since the Global Financial Crisis. Investment in infrastructure assets are illiquid and investment size makes them only accessible to the largest institutional investors.
Fasset works to change the state of the infrastructure finance market by addressing both illiquidity and accessibility for investors into the infrastructure market by focusing on equity, which is the key igniter of new projects. As an example, an asset owner invested in a brownfield infrastructure project with the demonstrated economic viability and looking to liquidate part of that equity, could opt to do so by tokenizing it on Fasset’s platform.
The tokens would be sold to free up liquidity for the project sponsor to begin a new project. The tokenization of these assets would help create a market for income-generating equity as well as freeing up liquidity to ignite new infrastructure investments. An asset owner could even consider tokenizing the equity portion they own and use that as collateral to earn additional yield, without relinquishing ownership.
This is what Fasset refers to when they talk about bringing together the physical and digital worlds by and creating an operating system for the ethical financing of sustainable infrastructure. By fractionalizing infrastructure assets – or pools of smaller project assets – the infrastructure market becomes more accessible, with a larger supply of sustainable assets which have seen demand grow.
Fasset’s platform uses Ethereum because of its wide use and intention to transition to the much more energy-efficient proof-of-stake model. It is the same blockchain used by a wide range of decentralized finance applications, and provides the mechanism for transferring and storing the value represented by the fractionalized share of equity in infrastructure assets. Fasset’s platform provides the network through which stakeholders can communicate to identify, finance and trade infrastructure assets with a diverse network of investors, from large institutions down to retail investors.
The growing liquidity increases the ability to meet the financing objectives needed to make sustainable infrastructure investments that are critical for achieving the Paris Agreement and Sustainable Development Goals. The specific use of blockchain in the process is particularly valuable to promote transparency around any target-based commitments, whether the high-level goals adopted at a global level or those made by particular financial institutions. The information underpinning the investments made into sustainable infrastructure are held securely and publicly on the blockchain, facilitating the matching process to speed up infrastructure investment.
Republished from the RFI Foundation's weekly newsletter.