Introduction
Despite globalization over the past 30 years bringing nations economically closer and creating logistical chains that stretch across continents, the finance and investment space has largely remained national in almost all major economies around the world.
Although US investors can technically access companies and projects in Europe, Asia, and the Middle East, the process by which a typical investor allocates capital to a real estate project overseas involves complications and additional steps compared to domestic investments. Not only are there foreign exchange considerations, but the number of third parties needed in a single overseas investment — such as transfer partners, custodians, and lawyers — makes the whole process significantly more costly than a domestic investment. This, in turn, reduces the prospective rate of return for the investor, and thus the attractiveness of an overseas investment. When you introduce the increased risk of investing in an overseas project brought on in part by the geographic distance, but also by the web of varying legal systems used globally, investing overseas becomes even more fraught with risk.
This situation is broadly reflective of most major economies, where intensely domestic capital investment limits overseas investing opportunities primarily to Ultra-High-Net-Worth (UHNW) individuals, billionaires, and institutional investors. Studies show that cross-border investments are complicated by compliance with multiple tax jurisdictions, managing foreign exchange risks, and handling different legal systems, which increases costs and risks compared to domestic investments (KPMG, Deloitte). As a result, the majority of investors miss out on broader diversification opportunities, and projects seeking capital must choose between a small domestic pool or a more complex and expensive international pool. This separation of nations through the medium of finance serves only to keep people separated and reduce opportunities for everyone globally.
Enter Blockchain
Blockchain technology offers specific solutions to many of these cross-border issues by facilitating reduced friction and providing seamless, borderless investment opportunities. Blockchain minimizes the need for intermediaries by reducing reliance on transfer partners, banks, and custodians, leading to lower transaction costs and increased efficiency. Studies from the Corporate Finance Institute and McKinsey demonstrate how blockchain technology enables direct transactions, significantly cutting down intermediary involvement and associated costs. It lowers the contract risk for overseas counterparties by introducing smart-contract technologies and reduces the need for direct relationships and sales by lowering access costs and broadening the scope of prospective investors in any given project.
The purpose of this whitepaper is to explore how blockchain can transform the international financial and investment landscape, making it more accessible, efficient, and truly global. It will assess what has been tried up to this point and the promise of the technology for future applications.
The Promise of Blockchain in Finance
Background
At its core, blockchain is a decentralized ledger that records transactions across multiple nodes, ensuring that each transaction is secure, transparent, and immutable. This decentralization and automated execution significantly reduce the need for centralized intermediaries such as banks, brokers, and custodians, which traditionally act as gatekeepers and facilitators for specific financial transactions.
Before blockchain, institutions like banks and brokers were essential for record-keeping, dispute resolution, transaction execution, cross-border currency conversions, and other services necessary for managing financial activities across multiple currencies and jurisdictions, even for domestic transactions. However, with the advent of blockchain in the 2010s, it became possible for two independent parties to directly transact with each other through a system where ledger entries were automatically created and openly validated by users of the system, and where transactions took place entirely online (i.e., without a third-party record keeper).
This development later evolved into decentralized finance (DeFi), leading to the emergence of decentralized versions of classical financial models necessary to support the financial system, such as market-making systems that automatically pair transactions, liquidity provision, decentralized custody, and communal investing or financial management.
Although not yet as sophisticated as existing global financial systems, these early experiments have demonstrated that by eliminating financial intermediaries, blockchain creates a financial ecosystem where transactions can occur directly between parties, regardless of geographical location. This often involves transacting in a common currency, without losing the enforceability of transactions, increasing the transparency of the entire system, and most importantly, improving access, lowering costs across the board, and allowing anyone with an internet connection to participate.
Crossing Borders with Blockchain
Blockchain creates an ecosystem that closely mimics a traditional financial system. It maintains common currencies and exchanges, enforces rules that apply equally to all participants, and adheres to fundamental financial principles such as profit and loss, debt and equity, and the importance of system liquidity. While many problems of the traditional financial system are present in the blockchain system, the removal of numerous intermediaries often makes blockchain solutions cheaper and simpler. This “first principles” approach directly addresses core problems rather than creating multiple layers of complex solutions to solve them. As complexity typically increases with additional layers (such as international transactions), blockchain’s simplicity scales up, providing exponentially more value where traditional methods would introduce more complexity.
Traditional finance heavily relies on national currencies and corresponding forex markets, which are both costly and time-consuming. Each transaction involving currency conversion incurs fees and requires time to settle, often leading to delays and reduced profitability for investors. Blockchain circumvents these issues by utilizing cryptocurrencies, which can be transferred globally in real-time with minimal fees. This capability is particularly valuable for international investments, where speed and cost-efficiency are crucial. For example, an investor in Europe can invest in a US-based project using stablecoins — cryptocurrencies pegged to a stable asset like the US dollar — without worrying about exchange rates or international transfer fees because both the investor and the project are using the same currency, despite their international separation; a situation that would be physically impossible in the current traditional system.
Moreover, blockchain’s transparency and security features provide a level of trust and reliability that is often lacking in traditional finance, especially when transactions are conducted overseas. Every blockchain transaction is automatically recorded by the chain and can be audited and executed in real-time, ensuring that all parties have access to the same information simultaneously, and that each member to a transaction can hold their counterparty accountable, reducing the likelihood of disputes and increasing the ease with which disputes can be resolved and injured parties compensated. Compare this to a traditional international transaction where a small army of lawyers, custodians, and escrow agents would be needed (and paid) to achieve the same level of trust.
This is particularly beneficial when dealing with specific ownership stake issues where the owner of an entity in Country A is in Country B, and selling to someone in Country C. In a traditional scenario, three record keepers in three countries need to agree and maintain the same records, not to mention the additional complexity of national currencies. In the blockchain version of this scenario, the currency and record-keeping system are unified for all three participants: the buyer, the seller, and the asset issuer. As a result, cross-border transactions utilizing blockchain resemble a single domestic interaction more closely than traditional international transactions.
Existing Examples of Internationalism through Blockchain-Based Decentralization
In the past decade, blockchain technology has facilitated several cross-border financial projects, showcasing its potential to create a more interconnected global financial system. Here, we explore two significant examples: Decentralized Autonomous Organizations (DAOs) and Decentralized Exchanges (DEXs), with real-world case studies that illustrate their impact and tie them directly to the theme of this paper.
Decentralized Autonomous Organizations (DAOs)
Decentralized Autonomous Organizations (DAOs) exemplify the power of blockchain in creating global, decentralized governance structures. These organizations allow participants from different countries to engage in financial activities without centralized control. For example, DAOs such as MakerDAO and Gitcoin have demonstrated significant global participation and have been pivotal in enabling decentralized decision-making processes. According to the Belfer Center, there are an estimated 6,000 DAOs with a combined treasury value of around $25 billion, showcasing their expansive reach and the diverse involvement of contributors worldwide. Additionally, platforms like Snapshot enable efficient and scalable governance by allowing off-chain voting, which has been utilized in over 8,000 protocols, recording more than 8.5 million votes. These organizations operate on blockchain protocols, enabling members globally to participate — often anonymously — in decision-making processes concerning management, finances, investments, and code upgrades. Ownership and voting rights in a DAO are typically represented by tokens, which can be easily traded and transferred globally.
Case Study: MakerDAO
MakerDAO is one of the most prominent examples of a DAO. It manages the DAI stablecoin, which is pegged to the US dollar and backed by a variety of cryptocurrencies. The governance of MakerDAO is carried out by MKR token holders, who vote on key decisions such as adjusting stability fees or modifying collateralization rates. This governance model enables truly global participation, with stakeholders from various countries influencing the project’s direction. MakerDAO’s token holders vote as a collective, similar to company shareholders, deciding on everything from code changes to investments made by the DAO itself.
MakerDAO’s impact includes providing financial services in a decentralized manner, allowing users to access stablecoin-backed financial tools without relying on traditional banking systems. For instance, individuals in countries with unstable currencies can use DAI to protect their wealth against inflation. Moreover, businesses worldwide can access decentralized loans without relying on traditional banking systems, which may be limited by local regulations and intermediary fees. This decentralization aligns with the theme of creating a more accessible and efficient global financial system, reducing reliance on national financial institutions.
Decentralized Exchanges (DEXs)
DEXs are another critical component of the decentralized financial ecosystem. Unlike traditional exchanges, which require a centralized authority to facilitate trading, DEXs operate on blockchain networks, allowing users to trade directly with each other. This peer-to-peer model eliminates the need for intermediaries, reducing trading fees and enhancing privacy and security while allowing for international trade at no extra cost than national.
Case Study: Uniswap
Uniswap exemplifies a DEX model that facilitates global asset trading directly between users, leveraging an automated market-making system. It utilizes an automated market-making (AMM) system where liquidity providers contribute to pools, and traders can swap tokens directly from these pools. This model democratizes access to trading and liquidity provision, allowing anyone with an internet connection to participate.
Uniswap’s success can be seen in its trading volumes and the diversity of its user base. It facilitates billions of dollars in transactions daily and supports a wide range of tokens, including those from projects based in different countries. This accessibility lowers barriers to entry for individual investors and enhances market liquidity and efficiency. Furthermore, by reducing reliance on centralized exchanges, Uniswap helps mitigate issues related to regulatory compliance and centralized control, which often hinder cross-border investments.
Why is this Important?
Although currently used primarily for niche activities directly related to crypto — and thus broadly ignored by the financial establishment — these real-world examples of DAOs and DEXs highlight how blockchain technology has the potential to foster international financial cooperation and streamline cross-border investments. By reducing the need for intermediaries and leveraging decentralized governance and trading models, blockchain can lower the barriers to financial cooperation by cutting costs and removing the financial gatekeepers present in the current financial system.
Entities like MakerDAO and Uniswap have demonstrated that these systems are not only operational but also capable of handling large volumes of transactions and millions of engaged users from hundreds of countries relatively seamlessly. If we overlay these models with traditional financial needs, such as business equity structure, loans, and mortgages, combined with traditional financial modeling and risk management, it quickly becomes clear that we are at the beginning of a transformation. This shift moves from a centralized, national system controlled by a few entities to a distributed and internationalized one where independent actors can engage with each other without needing controlled third parties.
It is feasible that, using the models established by blockchain pioneers, we will soon see crowdsourced mortgage and loan systems, private company equity being quickly purchased by thousands internationally, and a full stock market liquidity system supported by individual investors rather than single broker and market maker institutions.
MakerDAO and Uniswap demonstrate that blockchain-based solutions can overcome traditional financial barriers, offering transparency, security, and accessibility to a global audience. These case studies underscore the potential of blockchain to transform international finance, making it more democratic and cost-effective.
How The Medici Project is Creating Global Investment Access
Medici is harnessing the power of blockchain to offer a more inclusive, efficient, and transparent financial ecosystem. Through our platform, Medici facilitates cross-border investments, significantly reducing costs, increasing transparency, and broadening access to diverse investment opportunities. This approach allows investors from around the world to participate in US-domiciled funds, circumventing the traditional financial intermediaries and the complex web of international regulations.
1. Comprehensive Blockchain Integration:
All Medici Funds are integrated into the blockchain, which means that investments are made, and distributions are handled, in USDC (USD Coin), a stablecoin pegged to the US dollar. This integration is not merely a technical detail but a fundamental shift in how investment funds are managed. By using a stablecoin like USDC, Medici ensures that the principal value of investments remains stable, mitigating the typical volatility of cryptocurrencies and providing a secure environment for both domestic and international investors. This stability is crucial for investor confidence, especially in international transactions where exchange rate fluctuations can be a significant concern.
2. Enhanced Traceability and Immutability:
The blockchain ledger provides a decentralized, immutable record of all transactions, which enhances transparency and trust. Each transaction, including fund inflows, outflows, and management fees, is permanently recorded on the blockchain. This system allows for real-time auditing and verification by investors, regulators, and auditors, ensuring that all financial activities are transparent and traceable. The immutable nature of blockchain records also protects against fraud and unauthorized alterations, providing a secure and reliable “source of truth” framework for investment management.
3. Minimization of Intermediaries and Associated Costs:
Traditional cross-border investments often involve numerous intermediaries — such as banks, brokers, and custodians — each adding layers of complexity and cost. Medici’s blockchain-based model minimizes intermediaries, streamlining the investment process and significantly reducing transaction costs. This is because investors can directly invest with cryptocurrency, facilitating faster and more cost-effective transactions globally. This reduction in intermediaries also accelerates the transaction process, allowing for near-instantaneous transfers and settlements. This speed is particularly beneficial for international investors, who can move their capital more freely and respond more quickly to market opportunities.
4. Global Accessibility and Uniformity:
Using USDC as a common, blockchain-based currency standardizes the investment process across borders, eliminating the need for currency conversions and the complications that come with them. This uniformity simplifies the investment process for investors worldwide, who can transact using the same digital currency, regardless of their location. This model also mitigates the impact of currency exchange rate fluctuations, providing a more predictable and stable investment environment. Additionally, the global nature of blockchain ensures that anyone with internet access can participate in Medici Funds, democratizing access to investment opportunities that were previously restricted to wealthy or institutionally connected investors.
5. Advanced Compliance and Security Measures:
Medici seamlessly integrates KYC (Know Your Customer) and AML (Anti-Money Laundering) protocols using advanced compliance tools, ensuring that all participants meet necessary regulatory standards. These tools ensure that all participants meet necessary regulatory standards, safeguarding against fraud and illegal activities. Blockchain’s transparency further aids in compliance, as all transactions are publicly verifiable, allowing for easier monitoring and reporting.
6. Real-Time Analytics and Investor Insights:
Blockchain technology enables Medici to provide investors with real-time data analytics and insights. This feature allows investors to monitor their investments closely, understand the performance metrics, and make informed decisions based on up-to-date information. The availability of real-time data fosters a more dynamic and responsive investment environment, where investors can quickly adapt their strategies to changing market conditions.
7. Ecosystem Integration and Future Expansion:
Medici is not just a standalone platform; it is part of a larger blockchain ecosystem that includes various decentralized financial services. By integrating with other blockchain-based services, such as decentralized exchanges (DEXs) and other DeFi applications, Medici provides its investors with a broader range of financial tools and options. This integration enhances the overall value proposition for investors, offering them more flexibility and control over their financial activities. (to be discussed in future whitepapers).
By leveraging these advanced features and strategies, Medici is setting a new standard in the global investment landscape. The platform not only democratizes access to high-quality investment opportunities but also paves the way for a more interconnected and efficient global financial system. This approach aligns perfectly with the vision of creating a truly globalized financial ecosystem, where barriers to entry are lowered, and financial opportunities are accessible to a wider audience.
Navigating the Regulatory Landscape
In industries such as finance and healthcare, the primary challenge in a financial revolution driven by blockchain is often regulatory rather than technological. Current international regulations, though improving, remain inadequate and restrictive. Companies face complex challenges in ensuring compliance with various international laws, including tax and anti-money laundering regulations. However, blockchain’s transparency can aid in demonstrating compliance, as noted by KPMG and Deloitte. These complexities necessitate careful navigation to avoid legal and financial pitfalls. This makes it difficult to implement many of blockchain’s innovations on a large international scale, even if they are technically feasible in a test capacity.
In the US, this regulatory restrictiveness is compounded by federal agencies’ reluctance to engage with blockchain technology and a patchwork of state-by-state regulations. These state regulations can arbitrarily limit certain investments in one state but not another. As a result, an investment fund could theoretically launch on-chain (as Medici has), but in practice, many potential investors, especially within the US, face stringent onboarding limits that hinder meaningful investments within a reasonable timeframe. Other countries, like India, also impose restrictions to retain as much capital as possible within their borders. This reflects a broader issue of nation-state power in a global internet era, a shift beyond the scope of this whitepaper.
Benefits for US-Based Entities and Investors
Despite these challenges, there are ways for investors, managers, and companies to benefit from blockchain technology if they are willing to navigate the initial hurdles of a nascent technology.
In the USA, investment companies and startups can leverage blockchain to access international investments. Unlike traditional models that make international investing costly and accessible only to the wealthy, blockchain allows projects to seek capital directly from global investors. For US-domiciled entities, this includes the advantage of attracting investors who do not necessarily meet the standards under Regulation D (which applies to US persons only), by issuing securities on-chain to international investors under Regulation S.
By attracting a diverse investor base, companies can enhance their financial stability and growth prospects. Blockchain also provides a means to circumvent some limitations imposed by Regulation D, which restricts the type and amount of investors that can participate in private offerings.
International Access Equals International Problems
While blockchain offers numerous advantages, it also presents regulatory challenges that extend beyond domestic borders. To access global investor capital, companies must ensure compliance not only with domestic regulations but also with complex and varied international laws.
However, the transparency and traceability of blockchain transactions can aid in meeting regulatory requirements, making it easier to demonstrate compliance and build trust with regulators. Additionally, the rise of online service providers has made it easier to find third-party systems that help manage Know Your Customer (KYC) requirements, Anti-Money Laundering (AML) regulations, and varied accounting standards worldwide, providing more stability and reliability.
Conclusion
The transformative potential of blockchain technology in reshaping the global financial landscape is undeniable. By eliminating the need for traditional intermediaries, blockchain paves the way for a more inclusive, efficient, and transparent financial system. Decentralized Autonomous Organizations (DAOs) and Decentralized Exchanges (DEXs) serve as prime examples of how blockchain can democratize financial services and facilitate seamless cross-border transactions.
Entities like MakerDAO and Uniswap have already demonstrated the feasibility and benefits of decentralized models, showcasing their capacity to handle substantial transaction volumes and support a diverse, international user base. Medici is applying these technologies within a more traditional fund framework, aiming to bridge the gap between established financial models and innovative blockchain technology. This approach seeks to create a more distributed and accessible financial system on a global scale, integrating the reliability of traditional finance with the efficiency and inclusivity of blockchain solutions.
Navigating the regulatory landscape remains a significant challenge, but the progress made thus far indicates a promising future. Blockchain’s cross-border operability, combined with its inherent transparency and security features, presents a unique opportunity to rethink and redesign global financial interactions. By leveraging blockchain technology, we can create a financial ecosystem that is not only more accessible and cost-effective but also more resilient to the limitations imposed by national regulations and traditional financial gatekeepers.
As blockchain technology continues to evolve, its adoption will likely drive a profound shift from a centralized, nation-centric financial system to a distributed, globalized one. This transition is poised to enhance financial stability, foster international cooperation, and open new opportunities for investors and businesses worldwide. The concept of a globalized financial system powered by blockchain is increasingly becoming a reality, marking a new phase in financial innovation and inclusivity.
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