Algo’s Republic: The Democratization of Venture Capital

The Algorand Foundation plays the long game. They play to win with strategic Defi partnerships that drive lucrative use cases and disrupt long-standing industries.

This article begins a series of pieces that will explore possible futures for Algorand and Republic, critical organizations in the decentralization of finance.

Intro to Algo:

Founded in 2017 by the prolific Silvio Micali, Algorand purports to solve the cryptocurrency trilemma of security, scalability, and decentralization with its cryptocurrency Algo. Silvio is an MIT professor and Turing Award winner. He started at MIT in 1983, and he has developed zero-knowledge proofs over his tenure, a critical component of Algorand’s structure today. These proofs enable pure proof-of-stake and secure the blockchain. Algorand Inc. is a for-profit company led by Silvio and other scientists that created the Algo. The Algorand Foundation is the entity that provides initial governance and drives investment in the blockchain.

Algorand maintains a professional image and can potentially enable developers to create lucrative solutions to many problems using blockchain technologies. Holding Algorand in a supported wallet allows automated staking. For example, Coinbase pays out 4% staking rewards to exchange users who hodl Algo in their accounts. These facts are easily found and reported by entities such as Coin Bureau and others. But, is there a deeper-level value that few are talking about?

The State of Play:

Cryptocurrencies are under surveillance by the Securities and Exchange Commission (SEC), headed by Gary Gensler at the time of publication. Legacy media outlets often report that “regulation is coming.” Undoubtedly the state of play will continue to rapidly evolve, and regulation will too. There is a critical fact, however, that sets Algorand apart when regulation happens.

Gary also taught at MIT. He was a professor at the Sloan School of Management, which published his 2018 lectures through an MIT OpenCourseWare offering titled “Blockchain and Money.” I cannot say whether Silvio and Gary are friends. I can say that both men worked in the same culture at the same educational institution. If that does not give Algorand an edge in understanding what is coming, I would be shocked. Combine this cultural understanding with a business-friendly, transparent organization, and Algorand should weather the storm.

The Republic Connection

Republic is a crowdfunding investment platform. Start-ups employ it to raise money from the masses instead of going to banks. The investor receives a Crowd SAFE (Simple Agreement for Future Equity) or other assets (such as a token). Each asset has potential future payouts whenever the underlying company is acquired, goes public, or other eligible exit event occurs for an investor. Crowdfunding allows founders the opportunity to raise money with fewer strings attached and spreads shareholder power over more nodes, increasing founder control of their company. Republic is operated by OpenDeal Inc. and takes a cut of the equity in each deal. When a company in Republic’s portfolio is acquired, goes public or has a liquidity event, Republic profits.

Republic conducted a $16 million equity raise in 2020 through the initial coin offering (ICO) of the Republic Note profit-sharing token. The Republic Note is an Algorand Standard Asset (ASA), the NFT of the Algorand blockchain. In the future, the Republic Note will be supported by Algorand Wallets, though the exact date of availability is not currently published. Republic will pay holders of their token in stablecoins as dividends when realized gains  from their portfolio of companies exceed a set threshold. Republic currently advertises that those distributions will be made every time cumulative profits exceed $2 million. Due to the token’s design, these payouts will be instant and pass directly from Republic to their token holders. Instant settlement and profit-sharing on the Algorand blockchain using the crucial features of smart contracts and ASAs enable Republic to build a new financial ecosystem. This unique ecosystem will reduce the number of layers between owners of equities and the underlying company by decentralizing how equity is packaged, held, and rewarded. In the future, an entire stock portfolio could be stored in a crypto wallet in tokens. Companies could then buy back tokens and distribute dividends, directly interacting with their stakeholders.

Automated Market Makers

IDEX is a decentralized exchange under development that utilizes the Algorand blockchain to exchange digital assets. IDEX will have more functionality than this pertaining to complex smart contracts, but we will leave that topic for another time. IDEX is important because it is a clearinghouse that will provide ordered, close-to-instantaneous settlement of transactions. Currently, if you sell public equity on public markets, settlement takes multiple days. If multiple-day settlement windows are compressed to seconds, equity markets can reach ludicrous speed. Think liquidity and timeliness.

The Vision

With these three components, Algorand, Republic, and IDEX, there is the potential to tokenize venture capital markets and eventually private equity markets. SAFEs would become more easily exchangeable and provide liquidity to shareholders much earlier than they would typically expect. Algorand provides the structure, Republic onboards the assets, and IDEX provides the secondary marketplace. Is this revolutionary? Maybe in time. In that case, it could disrupt capital markets around the globe, even reaching public markets. Instant and transparent settlement would remove the legacy market makers of Wall Street and level the playing field for all.

What do you think?

If you want to go long on this thesis, you could buy Algos and use Republic’s investing platform.

If you want to short this thesis, then you can short cryptocurrency on Kraken and other exchanges. Algos are not yet available to short, but you may soon be able to at the pace the space is changing.

Full disclosure. We received no compensation from Republic, Algorand, or IDEX. We wrote this article because we found the topic interesting and wanted to inform the public. We are long Algo. You can read more Algorand analysis here.

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I am not a financial advisor. This article is for educational purposes only. You should do your own independent research before making any investment decisions.

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