Meet Pledgecamp: The Blockchain Platform That’s Coming for Kickstarter

When cryptocurrency first exploded into the “mainstream” financial and technological worlds in 2017, something strange started to happen.

Suddenly, companies who had nothing to do with finance or technology began tacking the word “blockchain” onto their websites and slogans; in some cases, companies even changed their names.

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However, it quickly became clear that simply adding the concept of blockchain to a platform wasn’t always wise, or even useful on a cursory level; as the industry has matured, many of these companies have dropped their extraneous affiliations with blockchain.

However, another result of the maturation of the blockchain space has been the emergence of a culture of thoughtfulness when comes to blockchain implementation: as the technology becomes more familiar (and more advanced), people have become more aware of its strengths–and its shortcomings.

Recently, Finance Magnates spoke to Eddie Lee, president of Pledgecamp, about how his company is working to create a blockchain-based crowdfunding platform that uses a series of financial incentives in an attempt to create a more secure and innovative crowdfunding culture. Similar to Kickstarter, Pledgecamp offers entrepreneurs the opportunity to build direct relationships with their buyers; these relationships are maintained through a series of blockchain-powered escrow contracts.

 

The project boasts an impressive list of advisors, including Randi Zuckerberg, Matt Curcio (VP of Data, Ripple), Keith Teare (Founding Shareholder, TechCrunch), Prince Abdullah (Saudi Royal Family), and others.

This is an excerpt. To hear Finance Magnates‘ full interview with Eddie Lee, visit us on Soundcloud or Youtube.

“Blockchain is the means to an end.”

Eddie told us that instead of simply tacking on blockchain as a bells-and-whistles appendix, ‘blockchain needs to be used in a very specific way,” Eddie explained. “You can’t just throw a blockchain at things.”

“There’s a balance, because blockchain community is very passionate, as you know,” he said. “A lot of people believe in the power of blockchain to fundamentally change the tools and services that we use, so when a company is a tool or service using blockchain, we don’t want to hide it–we also want to say, ‘hey, guys, this is blockchain in an actual, real-world application that you can get behind.”

“So, we’re not hiding that, and we want to celebrate that,” he said. “But we’re also conscious of the fact that blockchain is a tool, and the means to an end.”

Indeed, “at the end of the day, it’s always about people and what value you are providing to them: you’re not providing blockchain to people,” he said; blockchain is simply a part of the whole.

Still, blockchain plays an incredibly important role on Pledgecamp’s platform.

At the core, “what blockchain does really well is simple financial transactions,” he went on, “because it’s very clearly defined–I’m sending you this, and you’re sending me that; certain conditions where you and I are entering into a ‘contract.’”

However, “we don’t have to hire lawyers, we don’t have to hire mediators,” he continued. “No one has to be a custodian of funds; we don’t have to put our money in a bank, and all of those costs and logistics. And it’s very simple that two people are on the same page, and they know that the agreement between them is going to be enforced.”

Why does this kind of model make sense for crowdfunding? In a crowdfunding setting, the role that blockchain can play has to do with what Eddie described as “an agreement between two strangers.”

These “two strangers” are “the creator, who’s taking the money, and the backer, who’s supplying the money and wants something in return.”

“So, you can employ very simple [blockchain] contracts” in a crowdfunding setting, Eddie explained. “In our case, we’re using escrow, which is not a new invention–but what we’re doing is introducing escrow into crowdfunding in a decentralized way that uses blockchain, and that needs blockchain.”

Eddie explained that this provides a pathway for crowdfunding participants to have “set financial assurances for themselves.”

Using blockchain to create financial incentives

The Pledgecamp platform also includes PLG tokens, which can be used to back sales on the platform. However, it’s not a necessity: “you can use PLG tokens–and we hope that in the long run, with the adoption of crypto-that that’s the direction people are headed in.”

However, “in the short run, it’s very important that [the platform] achieves mainstream acceptance, and so you need credit cards. The main thing is not about us creating a new cryptocurrency–you’re not bound by this or that currency,” he said.

Rather, “we’re using the token to change the financial incentives in the system.”

“So, right now, a creator on Kickstarter will receive 100 percent of what they raise upfront; they have maybe a month to raise as much as possible, and they take it all.”

However, “then, after that, the platform can’t enforce anything on them–they can’t enforce refunds if they fall. The relationship [between Kickstarter and the backers] sort of ends.”

Eddie explained that Pledgecamp’s system allows backers the ability to create escrow systems that may help backers trust creators more–and may also help the platform hold the creators accountable to their goals.

“We can’t force people to be successful.”

“We’re introducing an escrow system where the creator can say, ‘hey, after the project is over, I’m going to put a percentage of what I made into escrow–let’s say 20 to 40 percent–and over time, before I take anybody’s money, I’ve made these promises: in 6 months, I’ve projected that I will have X.’”

Then, when that 6-month mark comes, “if the backers haven’t revolted and voted to refund the escrow, the next ‘traunch’ of money is released [to the creator] and they keep that amount.”

However, Eddie was careful to explain that the system isn’t based on “threatening refunds” for backers who don’t make their goals. “It’s about incentives,” he said. “We can’t force people to be successful, but we’re telling creators, ‘hey, before you take any money, you need to know what your timeline is, and you need to what kind of promises you’re going to make, because your money is actually on the line for the first time.”

“That sounds like a big burden on the creators–and it is, partially,” Eddie continued. However, “a good creator should have an idea of when they’re gonna deliver [their goals] and a budget. So, it shouldn’t be an added pain, but it’s slightly more friction than what they would have on Kickstarter.”

Therefore, “what we offer to change the incentives is that the more a creator offers into escrow, the lower the platform fee is–and it’s win-win,” he said. “Kickstarter takes their 5 percent fee no matter what happens, so they’re encouraging raising as much as possible.”

However, Eddie explained that Pledgecamp “wants to get paid with good outcomes.”

“[…] We’re hoping that changing these levers [of incentive] will result in better outcomes.”

“Blockchain fails when you try to impose use cases… [that] need real-world data to operate.”

Part of the reason for this incentive-based (rather than punishment-based) model is because of the nature of blockchain technology, Eddie explained.

“The way blockchain fails is when you try to impose use cases on it where the blockchain needs real-world data to operate,” he said. “And there’s always some human connection there.”

Eddie explained that an incentive-based model requires fewer points of input for “real-world data.”

If the system was used to impose punishments, “that’s like saying that we are absolutely knowledgable about this campaign,” he said.

However, the nature of crowdfunding platforms is that projects are diverse; therefore, it isn’t realistically possible for a platform to be absolutely knowledgeable about every campaign that takes place. “Maybe it’s something that you have no idea about,” Eddie said.

“This is why Kickstarter doesn’t have more security,” he continued. “It’s because they can’t–no platform can be an arbiter of every single project and say, ‘this is objectively wrong, and this is objectively right. There’s always disagreements, and people have different opinions.”

“So, instead of us taking on the roles of judge, jury, and executioner, we don’t have any control over this escrow wallet,” Eddie explained.

Instead, the backers are ultimately the ones who will decide the fate of the project as it continues to move along: “the only way that it doesn’t go to the creator on the schedule that’s defined is if the majority [51%] of backers of the project themselves vote that they have lost confidence in the creator.”

“Then, at the next ‘traunch’, instead of going to the creator, the funding returns to the backers.”

“It’s all about the creator-backer relationship.”

Because continuing levels of backer support are so important to the success of a project on Pledgecamp, Eddie explained that creators also have the opportunity to track their supporters’ sentiments about the project.

“Voting is a problem of blockchain too,” he said. Eddie explained that therefore, voting on Pledgecamp “isn’t like ‘we’re going to have a shareholder vote on Saturday at 9 PM and everyone’s gotta be there,’ and then no one is gonna show up.”

Instead, “it’s more like a status–like a lightswitch: ‘am I good to go on this project, or am I not good to go?’ When things go wrong, more and more backers are going to switch to ‘no.’”

“Creators can track that in their dashboard,” he continued. “They can see the confidence levels of their backers slipping, and that tells them: ‘hey, maybe I should give a better update, maybe I should have a better plan for how I’m gonna mitigate this risk; I’m delayed one week, but I have a good plan, and I can keep that confidence up.’”

“Just because you miss a deadline doesn’t mean it’s game over,” he said. “It’s all about the creator-backer relationship; that’s really the most important thing here.”

Of course, “we’re not kidding ourselves to say that this is a perfect system, and that you’re never going to lose your money,” Eddie continued. “Failure is a part of entrepreneurship forever–it’s gonna happen. That’s why people like you and I back projects–we want to be a part of that journey.”

However, Pledgecamp hopes that “this system encourages [growth] even in times of hardship for the creators, and incentivizes them to be more communicative, and maintain a relationship [with their supporters].”

 

This is an excerpt. To hear Finance Magnates’ full interview with Eddie Lee, visit us on Soundcloud or Youtube.

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