Why We Believe In Web3 EXPLORING Real-world use cases for emerging markets with MERCY CORPS VENTURES

1. WHY WEB3 | 2. REAL-WORLD USE CASES | 3. APPENDIX

Preface

As seed and early-stage investors, it’s a core part of our job to assess the most cutting-edge solutions, and Web3 is an emerging tech layer that cross-cuts our thesis areas of adaptive agriculture and food systems, inclusive fintech, and climate-smart technologies.

We see enormous potential in Web3 technologies to enable the accessibility and affordability of financial services for underserved groups, increase earning opportunities, drive transparency and efficiency in supply chains and nature-based solutions, transform how aid is delivered, and build coordination and incentive tools to drive climate action.

Here, we outline why we still believe in Web3 and the real-world use cases we’re excited about.

The Why

A series of negative events over the last 12 months has caused many to lose confidence in the safety and reliability of Web3. Despite it all, we remain optimistic about the next chapter of Web3 and the power these transformative open-source, decentralized technologies have to create revolutionary new pathways for people to fully participate in the global economy and address the climate crisis.

We believe in the potential of Web3.

There are many terms used to describe crypto and blockchain technologies and solutions. Web3 is just one way of describing the space and put simply, is the third iteration of the internet. It refers to an open, decentralized internet based on the blockchain and is one way of explaining what is happening in the crypto and blockchain world (terms we also like and use regularly). With its core properties of decentralization, open-source, transparency, efficiency, and token-based economics, Web3 offers coordination tools and incentive structures to solve the core challenges we focus on as investors - climate disruption and the financial exclusion of underserved communities in emerging markets.

But one thing we’re often asked is “Why?”

Why do we believe in the potential of Web3? And why are we investing in and piloting Web3-enabled solutions?

We recognize and acknowledge that there are over-hyped or speculative elements of the Web3 space. Recent turmoil in the crypto sector and the failure of a number of well-known and systemically important companies has exposed many bad actors and ushered in a bear market. However, this sharp intensification in scrutiny of cryptocurrencies provides the perfect opportunity for developers of practical blockchain solutions with real-world application to highlight how this remarkable technology can help solve some of the world’s most intractable problems. As with all emerging technologies, it is crucial to think critically about the risks, merits, and future applications and, in particular, how they might affect the lives of underserved individuals and communities.

What does Web3 give us that other technology cannot?

Emerging market users face a multitude of barriers to accessing financial services, managing land, optimizing their businesses, and building resilience to a changing climate. For marginalized women, informal retailers, smallholder farmers, migrants and refugees, and rural communities, the existing financial system is fragmented, antiquated, broken, and exclusionary. Alongside this, current food and agricultural systems, supply chains, and land use practices are not incentivized towards sustainability, resilience, or increasing economic value for underserved communities.

The proliferation of Web2-enabled fintech solutions over the past decade has resulted in massive leaps in financial inclusion and access to basic services. Yet, often the innovations have been non-inclusive and extractive (e.g.: Uber, Doordash, Airbnb and other platforms cornering markets and extracting profits from end users through increased prices and low compensation and no benefits for gig workers. Users are also often locked into a singular platform, unable to port their performance and transaction data to competing platforms). There is still a long way to go: 1.4 billion people remain unbanked (the majority of whom are women) and only 39% of adults in low-income countries have access to financial services.

Currently;

• only 3% of smallholder farmers in sub-Saharan Africa have crop insurance coverage;
• the credit gap for small businesses in emerging markets is estimated to be $5 trillion; and
• the global average transaction fee for sending money cross-borders is 6.01%, - even higher for micro-transactions.

These problems remain sticky.

Tech-enabled startups face many barriers to scale when serving underserved communities with tools, products, and services to build their resilience. Solutions can be stifled by admin-intensive operations, slow, paper-based data collection and verification processes, and complex networks of intermediaries along the value chains they operate in. Even at scale, the cost of serving rural or low-income populations is still very high, as utilizing Web2-based digital delivery models for low-value transactions remains uneconomical.

With Web3, there is another way.

What about Web3 makes it different from Web2, and better positioned to address some of the above challenges? Fundamentally, the promise of Web3 is a decentralized internet that allows users to disintermediate legacy players, reducing costs to access financial services (DeFi) and earn a living on digital platforms, and building a new financial system that prioritizes the health of the environment and global community (e.g. regenerative finance - ReFi).

Find citations in Appendix.

Together, Web3 technologies create a better financial system and digital environment for users in emerging markets:

→ self-custodied wallets prevent banks or governments from seizing your assets and empower users to control their own assets and property

→ by eliminating intermediaries, DeFi creates cost efficiencies for serving hard-to-reach customers and reduces the cost of capital

→ blockchain transparency and traceability increases trust, enabling equitable participation for all in the value chain

→ true interoperability unlocks innovation, breaking down walled gardens set up by incumbent centralized institutions

Real-World Use Cases

What are the real-world use cases for Web3 for underserved users?

The properties of Web3 technologies provide a powerful set of tools for evolving the financial services and climate adaptation landscape, and startups are already developing unique value propositions for emerging market users across a variety of sectors. Even non-crypto native innovators are exploring how to integrate Web3 into their current products and services.

These are some of the real-world use cases we’re excited about: