Morningstar Magazine - February/March 2018 - 62

Investors

for example, there might be 40% interest
on a microfinance loan.
This is where BanQu becomes relevant. People
call us "blockchain as a service." We use
blockchain in a permissioned software-as-a-service
model to create a cloud application where
the farmer, via a basic SMS messaging mechanism,
connects to a permission blockchain ledger-
we use Ethereum. All the intermediaries in that
supply chain can connect to the same application
layer. We run a mobile site that's accessible
from anywhere in the world. The anchor buyer now,
using smart contracts, can see that the
farmer brought her 40 kilos and dropped it off
at this station, and it's moving in the supply chain.
We've used blockchain to connect people,
organizations, and assets. We get paid because
at the end of the day, these large corporations
are realizing the benefits of transparent
supply chains.
Sinegal: Are there critics who say you're really
monetizing the data of this poor farmer?

Gadnis: The best part of our technology is that
we've created a nondatabase data model.
It sounds crazy, but that's part of our patent filings.
From a data security and privacy perspective,
we've flipped the conversation. Using BanQu, that
mother in eastern Congo owns her own data,
and that can be connected to her biometrics. She
can access and monetize her data; she controls
it. There's no way I can see her data.

Because it's a permission trust network, the
data is owned by each of the participants.
Technically, there's no centralized mechanism.
A lot of other blockchain companies will
have a centralized database mechanism, and
they'll hash it to the chain. In that case, if
I get to the database, then you're compromised.
Sinegal: You've also chosen to raise money
using blockchain. Why this path?

Gadnis: We believe that people need to know
more about the blockchain ecosystem outside
of cryptocurrency. BanQu is evolving as a platform,
which means point solutions can connect
to it. If we went the traditional route to raise funds,
investors might pigeonhole us into a particular
point solution.

62

Morningstar February/March 2018

We continue to be the only commercial
blockchain-application-as-a-service that's focused
on the unbanked. Raising money with a
regulated token offering has allowed us to get the
message out to a global audience. There are
people all over the world who want to participate
not just as an investor, but to contribute to that
mother's life.

people to get a secure copy of their health
record, without violating HIPAA regulations.
We are also looking at a use case for the unbanked
or underbanked in the U.S.

A Tremendous Market
Sinegal: Vincent, are there obstacles remaining

Sinegal: What made BanQu interesting as the first

on the regulatory side?

offering over Templum's platform?

Molinari: We thought this was going to be
a multiyear process, but just in the last 30 or 60
days, the number of venture capitalists who
have come in to us and are now amending their
limited partnership agreements to invest in
digitized assets is mind-blowing. The challenge
now is more education to create awareness
of what a digital security can really represent,
versus the froth. If you're in the business of
aggregating capital and distributing securities,
there's a fiduciary responsibility to the investor and
from the issuer. If we embrace that and
collaborate between the technologist and the
securities-market framework, I don't think there's
a lot more work left to be done.

Molinari: Our prior business was impact investing,
and we had a core premise that profit is not a dirty
word. Profit creates sustainability, and that
sustainability creates systemic change. We are
extraordinarily enthusiastic about what BanQu is
doing. To broadcast a story like BanQu to diaspora
communities, fan bases, affinity groups is a
wonderfully efficient methodology for aggregating
capital for good. When you overlay a smart
contract, with immutable information and data on
the pricing and analytics of the good that's
being delivered, you change the perception of
return. It's not just financial return but also
the social/environmental/cause-related good that's
being delivered alongside of it.

Sinegal: What about competitors in the market?
Sinegal: Ashish, you've done a couple of

traditional startups and exits. What is different about
a blockchain-based business?

Gadnis: The challenge is to separate ourselves
from the cryptocurrency mania. People think that
blockchain's application is purely currency.
There are a lot of great companies out there for
settlement and remittance and mobile
money, but people in extreme poverty can't access
cryptocurrency. Another challenge has been
getting people to realize that the traditional
models of microfinance and aid have not
worked. Blockchain, in many ways, disrupts the
traditional model.

There are also use cases in the U.S. One of
the applications that we're working on is to get
homeless people better access to their health
records. Imagine an EMT picks you up in
an emergency and you are treated by a hospital,
and then released. Four days later, you have
a seizure and end up at a second hospital that has
no idea about the previous incident. BanQu
is launching an application that allows homeless

Molinari: This is a tremendous market; it just
surpassed $4 billion in issuances as of this
morning. What we're largely seeing is the closed
crypto community investing and exchanging
bitcoin or Ethereum for ICOs. When you can accept
fiat currency into the system for first-time
purchasers and have a structure that allows ICOs
to be transacted through financial-services firms,
the market will get dramatically larger.

We think it's great to have more folks in the
issuance market. A lot of apparent competitors are
creating software solutions or applications
that create compliance, that create a workflow
around the process. But they themselves are not
regulated entities and can't do the issuance of
those securities. There are one or two others
that have alternative trading systems-and more
connectivity of these systems speaks to better
liquidity and, ultimately, better price discovery.
We're happy about the competition. K
Lawrence Johnson is a senior vice president and head
of fintech engagement with Morningstar.



Table of Contents for the Digital Edition of Morningstar Magazine - February/March 2018

Contents
Morningstar Magazine - February/March 2018 - Cover1
Morningstar Magazine - February/March 2018 - Cover2
Morningstar Magazine - February/March 2018 - 1
Morningstar Magazine - February/March 2018 - 2
Morningstar Magazine - February/March 2018 - Contents
Morningstar Magazine - February/March 2018 - 4
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Morningstar Magazine - February/March 2018 - Cover3
Morningstar Magazine - February/March 2018 - Cover4
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