Crypto skeptics have repeatedly suggested that cryptocurrencies are vaporware, meaning tech without a purpose, or a solution in search of a problem. This pretense that crypto is aimless has always seemed disingenuous, since Bitcoin’s creator, in the very first line of its whitepaper, states unequivocally that:
“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”
With Ethereum, the premise, again, is no secret: a decentralized network on which to build decentralized applications. Between them, the respective goals of Bitcoin and Ethereum, digitally decentralized money, applications and networks, underpin the vast majority of serious blockchain ventures.
However, as crypto expands and new blockchains gain traction, there will be novel adoptions that do not always cleave precisely to every aspect of the crypto ethos. For a concrete example of crypto utility combined with traditional finance, which takes some aspects of blockchain technology and uses them for a specific purpose, then it’s worth looking at the US investment firm, KKR and the ways that it is utilizing the Avalanche network.
How Is KKR Using Avalanche?
KKR is a renowned global investment firm, and is now opening up access to part of one its private equity funds, the Health Care Strategic Growth Fund II, which had previously only been available to institutional investors and high-net-worth individuals who could invest in the millions.
The new scheme allows individual investors to gain exposure to the fund from a minimum investment of $100,000. The relationship with crypto is that access is being provided through digital tokens on the Avalanche blockchain, in collaboration with Securitize, a digital asset securities firm.
Purchase of the tokens requires completion of a KYC process through Securitize. This type of process will be familiar to users of large crypto exchanges who link up their bank accounts and credit cards, but are at odds with the crypto philosophy at its purest, which believes in ungated self-custody and bypassing central authorities.
As such, what we see is crypto, or Avalanche, specifically, being put to use in a manner that retains some core benefits of blockchain tech, digitization, optimized liquidity and speedy trading, but position these factors within an orthodox centralized framework.
What Are the Implications?
One of the promises made by crypto is that it can democratize finance, but up to now, the implication has been that this would occur through the creation of parallel systems operating alongside (or perhaps one day replacing) the established mainstream.
However, in KKR’s plan, we see how cryptocurrency networks can assist in bringing about a particular type of financial democratization within a specific sector, by connecting up and working together with traditional financial entities.
What’s more, this kind of hybridization works both ways. In addition to introducing previously inaccessible financial opportunities to a wider pool of users, including those experienced with crypto, it introduces crypto technology to traditional investors in easily understood ways that seem trustworthy and beneficial.
In this way, to those of a cautiously conservative financial mindset, crypto starts to look like a tool worth paying attention to, which can be given defined utility and can be applied flexibly depending on individual requirements.
Whether or not crypto purists will welcome these developments, remains to be seen. As noted, crypto in this case is being slotted into a familiar institutional context. What this perhaps underlines is the neutrality of crypto: it is a mechanism that can be used by many people in many ways, and there are multiple blockchains working in various directions.
What Is the Outlook for Avalanche?
Throughout 2021, a key crypto narrative was that of the so-called Ethereum killers, meaning alternative layer-1 blockchains that would do everything Ethereum could but faster and without the sky-high transaction costs.
Solana and Cardano are perhaps the two most well-known competitors to Ethereum, but Avalanche, technically at least, has the potential to outstrip them all as a cheap flexible network with the capacity to finalize transactions almost instantly.
That said, in crypto, it is developer activity and tangible network use that often count for the most, and in these regards, Ethereum dominates through its overwhelmingly strong first-mover advantage.
As such, the decision by KKR to utilize Avalanche counts significantly in the upcoming blockchain’s favor, signaling that it is secure and fit for purpose in real-life settings where significant amounts of capital are in play.
Will Other Firms Follow KKR?
While DeFi platforms are hacked and exploited, CeFi structures implode, and media hype is heavily focused. To the bewilderment of many observers on million-dollar JPEGs, it becomes easy for critics to dismiss crypto and its excesses.
However, many of the early blockchain experiments occurring within the DeFi and NFT sub-sectors have been just that: trials at the edges, some of which will stick around and build out long-lasting and valuable platforms, while the majority fall by the wayside.
Inevitably though, these early ventures will be followed by refinements, lessons learned, and, as the tech strengthens and the market streamlines, reliable fully-functioning applications adopted by well-run organizations.
If KKR’s strategy unfolds smoothly and is picked up on by investors, then expect Avalanche and other blockchains to be further incorporated by traditional financial firms, thereby reshaping methods of investment, while emphasizing crypto’s open-ended and ready potential.
