Arun Devarajan, the founder and CEO of MoHash, thinks his start-up investment business can kill two birds with one stone. And his investors appear to believe in that promise – MoHash is today announcing it has closed a $6 million seed funding round led by Quona and Sequoia Capital India.
The first problem, says Devarajan, is that investors have become increasingly disenchanted with yield farming – the practice of depositing crypto currency with a platform that promises to generate attractive income by lending out the securities. Investors in various stablecoins – supposedly a safer option than other crypto currencies – have been promised generous yields that have not always materialised. “The yields promised are not sustainable and can go down to zero at any time,” Devarajan warns.
Problem number two is of a different nature – small and medium-sized businesses all around the world, but particularly in developing markets, are struggling to secure the capital they need to fulfill their growth potential, says Devarajan. “Developing markets aren’t growing in the way they should because of this shortfall,” he adds.
MoHash, then, aims to confront these two problems simultaneously. It will take stablecoin deposits from investors and lend them out to high-growth businesses in developing economies. Devarajan says the platform can generate yields of between 6% and 10% a year for investors while providing the capital that developing economy businesses require to flourish.
“MoHash is bringing global liquidity to non-bank lending in high growth economies,” Devarajan adds. “We believe it’s the right rocket fuel to help them double the size of their economies in the coming years.”
It’s an interesting idea. In effect, MoHash offers something akin to the kind of debt fund that banks have offered in the past – or, indeed, a money market fund. But the deposits it takes are in stablecoins rather than fiat currency, and it is focused on lending to a specific corporate demographic.
What will investors make of this idea? Well, a yield of 6-10% is certainly attractive, even in a market environment where interest rates are now rising once more. And it’s certainly the case that there is increasing disillusionment with many of the products devised by the cryptocurrency market to generate income.
Still, MoHash is not without risk itself. It will rely on specialist underwriters in the markets to which it lends, Devarajan explains, and these partners will take the first cut of losses on non-performing loans. But that will provide investors with only some protection from loss.
It should also be pointed out that this form of investment activity is subject to less regulation than other types of deposit fund. Put money in the bank, for example, and you’ll benefit from deposit protection schemes in most markets. Money market funds don’t guarantee capital preservation, but they are tightly scrutinised by financial watchdogs. The crypto market is not policed in the same way.
Nevertheless, Devarajan is confident investors will embrace the idea. MoHash isn’t targeting the retail market, at least initially. Rather it will aim to raise money from institutional investors such as family offices and wealth funds; the first depositor, a well-known international family office, is due to come on board in the next few weeks, Devarajan says. In time, he thinks he can raise as much as $10 billion from a broad range of investors attracted to the idea of using digital currency to secure exposure to real-world assets.
That would provide an important new source of capital for privately-owned businesses currently held back by a lack of funding. And if that enables such businesses to accelerate, that will bring broader economic benefits in developing countries that badly need such success stories.
MoHash is not an altruistic endeavour – charges of around 1% a year will bring in sizable revenues if the platform raises as much as Devarajan hopes – but its founder does believe it can drive positive impact. “It is an example of how financial technology has the potential to deliver social good,” he says.
The company’s investors are similarly enthusiastic. “MoHash is bringing real world assets to decentralised finance users globally and providing sustainable, uncorrelated, and hard-to-access yields, says Shailesh Lakhani, managing director of Sequoia India. Ganesh Rengaswamy, managing partner of Quona adds: “The solution has the potential to meaningfully bridge funding gaps across the globe.”
That enthusiasm is reflected in the size of MoHash’s funding round – $6 million is a large seed raise. Devarajan says the money will help it to strengthen the business’s infrastructure and work towards the liquidity it needs to be able to offer investors.