Funding scientific economies

Following up on our last post on “asset-backed tokens for science”, we at Boundary have more broadly explored the use of blockchains and tokens/cryptocurrencies for science. This has led us to re-think our investment thesis.

We are excited to announce that Boundary Impact Ventures is going to be shifting its focus towards investing in “scientific economies”. Scientific economies are globally distributed protocols for transacting in scientific goods and services, powered by the blockchain, and governed through the use of tokens (or cryptocurrencies) that incentivize positive emergent behaviors across the scientific community.

Our thesis on scientific economies holistically brings together many of the ideas that we’ve been debating and discussing since the fund’s inception 3 years ago.

How We Got Here: The Science Stack

Science, by all measures, is a public good or infrastructure that exists across borders. As a close friend noted recently to us: “cancer doesn’t care where you live”. Yet, the way that most science-focused funds are set up, we implicitly evaluate investments in scientific technologies and marketplaces based on geographical (and sometimes political) boundaries. In fact, the scientific economy works best when there is frictionless collaboration across borders and fair attribution of contribution across the globe.

We touched upon some of these ideas when we published our first post “Science startups, and our future” almost 3 years ago. In that post we highlighted how scientific platforms that facilitate collaboration and efficiency would need to mature before breakthrough technologies could become capital efficient investments for VCs. We looked at different layers of the science stack — from the information layer (intellectual property management, scientific publishing), the operating layer (laboratory robotics and automation, outsourcing), to the funding layer (platforms to fund basic and commercializeable research).

We then followed that up by closely looking at supply-side dynamics and how we could “blend public and private capital” to address structural market failures that we saw in funding long-dated scientific risks.

In hindsight, thinking about science this way, was a prelude to thinking about science as an economic system. Each layer of the science stack could be described as a “feature” or “application”. However, no matter how hard we looked across the various pockets of opportunity, we constantly found ourselves challenged by constraints of the existing setup of the system. What was missing, was a way to unite efforts across the stack to encourage collaboration— especially as these companies were often trying to tap into the same network effects.

The old way of funding science startup along the stack

Where We’re Going: Scientific Economies and Protocols

As we’ve learnt more about blockchain, and importantly crypto-economics, we believe that for the first time in history, we have the tools to (re)build an economic system from scratch from the bottom-up. More importantly, blockchains have provided a new mode of thinking to imagine how end-to-end scientific value can be created, scaled, and distributed by uniting the scientific stack through careful incentive design and engineering.

At Boundary we think of such opportunities as investing in “horizontal economies”. Horizontal economies are economic systems that facilitate transactions for a narrowly defined set of goods and services. These goods and services can be transacted across borders, and generally benefit from the removal of frictions and duplicated work from legacy centralized setups.

Different than investing in companies, horizontal economies don’t have the concept of equity or debt — or at least not yet. The only way to fund a new economy is to fund the point system under which value is recorded and transacted — otherwise known as cryptocurrencies or tokens. By investing in and holding tokens, Boundary becomes a part of the economic network (or protocol). As an investor, we will not only be looking at token values/prices, but also will participate as members of the network’s governance through token ownership

Simply put, investments in tokens means that we are not “shareholders”, but rather “stakeholders” in the protocols we believe in.

Investment Opportunities

In the past few months, our fund has met a number of teams that share our passion and vision. These organizations are building blockchain-based economic systems that re-think how science can be done beyond borders.

These economies leverage the blockchain to create common protocols for everything from: results sharing, peer-review, publishing, basic research funding, commercialization, and scientific property rights. So far, these teams have sprouted up across the globe from America, Europe to Asia, and truly live by the mantra that “cancer doesn’t care where you live”, so science shouldn’t either.

Making and Managing Investments

From an investment management standpoint, managing crypto-assets will require the fund to evolve its approach to risk management and underwriting.

We view crypto-assets (tokens) as a new type of asset that mixes features of conventional assets today. Depending on the token design, it will exhibit a blend of being a currency, commodity and security. To properly manage our risk, we will be expanding our investment framework to also consider factors of:

  • Fungability: Crypto-assets are digital and thus, more fungibile across borders
  • Liquidity: Crypto-assets tap into global supply-demand pools, and as such are priced on a more continuous basis compared to conventional private equity
  • Supply-demand factors: Crypto-assets will be subject to volatility driven by new patterns of supply-demand, given its global nature
  • Regulation: Crypto-asset regulation is dynamic and evolving constantly, with different jurisdictions taking different views

Generally speaking, we believe that such factors can be technically baked into a pricing and risk framework based on “monetary supply/velocity”. Fine-tuning of our existing models will help us have a quantitative basis to inform but not dictate funding decisions. To get this right, we will be carefully incorporating concepts from computer science, political science, behavioral economics and financial theory.

In conclusion

We are very excited to be shifting our focus to more holistically funding the next generation of scientific infrastructure. By using blockchains, we see an immense potential to advance the way that scientific ideas are conceived, developed, funded, and commercialized. We look forward to working with others in the community who share this passion.

This post was originally published on Medium by Andrew Wong in April 2018.

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