Nico Willis, CEO of NetWorth Services, and Kyle Walker, co-founder and CEO of NewGen Worldwide, joined forces to create a new FinTech company in the blockchain technology sphere.
Willis and Walker are co-founders and managing directors of Agora AltX, a new financial services company offering Pathchain, a blockchain system that “provides immutable, verifiable, and complete digital records of transactions, transaction participants, and supporting documentation” for real estate investments, according to the company’s website.
“I’ve lived the pain of fund administration and the record keeping behind that,” Walker said. “Both of us were studying and following blockchain closely, and we really saw how blockchain could uniquely address the problems that we both understood well in the alternative investment space.”
The alternative investments — an investment other than cash, stocks or bonds — Walker refers to in this case are opportunity zones (OZs), location-based real estate investments with government incentives attached to encourage investors to buy and develop land in struggling areas.
“This is a place-based incentive that is trying to address some disadvantaged areas, and, because of the way the program was structured, we saw transaction costs being high, potentially leading that capital away from maybe some of the projects that were really in need in this area,” Walker said.
Public markets carry a high level of accountability with regard to the way regulators oversee transactions, but that is not the case in the private sector, Willis said.
“There’s a great deal of faith-based initiatives when making these transactions that, as they get more complicated, are a little bit more problematic in terms of accountability and transparency,” he said. “We recognize that blockchain provides those attributes, however, it needed a significant amount of customization, and that, specifically, led us to Pathchain.”
In order for private transactions to adhere to the same best practices and standards that the public market has seen using blockchain, Willis and Walker had to figure out how to “marry” the participant in the transaction with the transaction itself and all supporting documentation under a single record, Willis said.
Keeping the records to the “path of funds” as money moves between control accounts — keeping the records of supporting documentation showing transaction conditions were met, transactions were authorized, and everything else involved — takes a lot of back-office support and personnel at significant cost to fund managers, Walker said.
“In the alt-space that’s all under one roof, so there’s also the problem of potential fraud,” Walker said. “That’s another place where the blockchain — and its immutable and verifiable record — truly provides a unique differentiator in this path-of-funds record keeping. And prior to blockchain, it really wasn’t technically possible to do something like that.”
Many people associate blockchain with cryptocurrency, Walker said. But part of what makes Pathchain unique is that, through a partnership with a large traditional banking institution Walker and Willis abstained from disclosing, the system allows blockchain to work with fiat currency — regular U.S. dollars.
“We are really focused on blockchain as a FinTech solution for dollars and cents moving,” Walker said. “We are very much grounded in the old world of banking, so to say, and trying to bring this new technology to the forefront [of] alternative investment.”
Willis and Walker’s backgrounds in automated cost basis accounting and the administrative costs funds encounter in the OZ space created the “perfect ingredients” to focus on OZs first, Walker said.
“We wanted to be very focused in that first industry we launched into and be able to approach it in a very comprehensive way and have a very strong value proposition,” he said. “Outside of what our technology is doing and where we can save those back-office costs, we have put together a very disruptive pricing model that allows for an opportunity zone fund to use this platform at low to no cost.”
Here is how the system works at its most basic level: An interested party reaches out to Agora AltX once its attorneys have begun establishing offering documents for an OZ property, and Agora AltX sets up an OZ fund- or OZ business-level account through its partner banking institution, which is a co-participant in the blockchain and the depository institution for the actual money. Agora AltX acts as fund administrator, facilitating transactions initiated by funds, providing disbursement requests and managing the records of transactions between accounts.
“Opportunity zones have specific rules, specific guidelines that need to be adhered to in the blockchain, in the overall ecosystem of the Agora AltX, but for us to be able to account for having the flexibility to move into a broader market such as private placement [investments] or alternatives overall is part of our vision that allows us to be flexible in those markets without having to develop or redevelop the application in a different way,” Willis said.
The capacity OZ investments have to reinvigorate areas in need also made it an attractive starting point.
“One of the other benefits to this program as a policy trying to create an economic impact in these areas is that when you decrease transaction costs you can allow capital to flow to maybe some projects that have a greater need but couldn’t deliver as high of a return,” Walker said.
Walker and Willis have roots in Arizona, but many reasons made the state an attractive headquarters for Agora AltX.
“Big cities are very expensive when it comes to tech talent, and more and more and more you see Phoenix showing on the lists of great quality of life with a well-educated population and good tech talent,” Walker said.
In addition, a lot of designated OZ land in the Phoenix area are in economically advantageous locations.
“They’re along our transportation corridors, they’re in Tempe by the university, our downtown is littered with them,” Walker said. “I mean, it’s probably harder to find a downtown Phoenix site that’s not an opportunity zone than to find an opportunity zone.”
Arizona is one of the first blockchain territories and one of the more comprehensive ones, Willis said, and Gov. Doug Ducey’s endorsement of blockchain technology has set up Arizona to be a leader in the FinTech industry.
“We think, if you’re going to start in an opportunity zone, Phoenix has already gotten a lot of the legwork out of the way to open up opportunities, investment opportunities in the state as one of the forefront movements in the opportunity zone area,” Willis said.