Blockchain Smart Contracts Could Shape Future of Impact Investing

Blockchain smart contracts for funding based on verified social impact could shape the future of impact investing and social impact bonds, according to the founders of a tech company launching an Australian-first smart contracts pilot program.

Socialsuite is a Melbourne-based technology company which offers a platform for NFPs and community organisations to measure and report on the social outcomes of their services.

The company has just announced a partnership with the IXO Foundation – creators of the world’s first blockchain protocol for impact measurement – to deliver blockchain smart contracts for funding based on verified social impact.

Socialsuite managing director and co-founder, Dr Clara Ong, said she was enthusiastic about the new partnership.

“Our entry into the smart contracts space is very exciting, especially if the global trend of new financial instruments based on verified social impact continues to become mainstream. The IXO protocol is backed by a world class team of blockchain experts and we are excited to explore the possibilities that combining our technologies can unlock,” Ong said.

A blockchain smart contract is a coded contract that automatically facilitates the transfer of assets between parties when agreed-upon terms are met.

The contracts are stored on blockchain technology, using a decentralised, public ledger that is a central feature of cryptocurrencies like bitcoin.

Socialsuite co-founder Damian Hajda, told Pro Bono News that blockchain smart contracts were a useful tool for distributing government funding based on social impact.

“Essentially what happens with traditional funding models is a pool of cash will be released by government who say they want the money used for keeping kids out of juvenile detention in Melbourne or inoculating kids in Nairobi for example,” Hajda said.

“With a blockchain smart contract, a pool of cash would create a coded contract that says ‘we are releasing this money if you keep 100 kids out of juvenile detention over a three-year period’ and it’s verified by an independent evaluator, then money is automatically released. We’ll be able to take the information from the kids themselves, from the justice department, their case manager and a third-party evaluator.

“Once all the different parties agree via a distributed ledger that everyone can see, money is automatically released.”

Socialsuite is using their partnership with IXO to conduct a impact verified smart contract pilot in Australia.

Not-for-profit YGAP will be trialing the integrated technology, using blockchain smart contract released funding that is contingent on the achievement of verified social impact.

“We’re teaming up with IXO and using our impact measurement data collection ability, we can code that into a blockchain based smart contract,” Hajda said.

“That is going to allow YGAP to test one of their programs in a very small-scale pilot to start with, using a decentralised contract with transparent, verifiable results that automatically unlocks funding.”

Socialsuite hopes this initiative will “identify gaps in services, spot and scale effective programs, and ensure maximised impact in undertaken projects”.

IXO network lead Anne Connelly, said the blockchain community was deeply committed to achieving social impact.

“There has always been a theme in the blockchain community around the technology’s potential to help the world’s most disadvantaged people,” Connelly said.

“Even the sector’s most basic implementations are poised to have a significant impact on populations that have been chronically underserved by their governments and the private sector.

“But when it comes to true impact work, whether social, environmental, health, or otherwise, complex problems require complex solutions.”

Hajda said blockchain smart contracts could have massive future applications in impact investing, social impact bonds and the general shift to outcomes based funding models.

“Although this is very small-scale pilot, what it has already done is generated interest from much larger pools of capital, like outcomes-based procurement, where they pay only on verified impact achieved. This is only possible using a decentralised ledger with verified impact data being collected,” he said.

“It’s got implications in social impact bonds too… and as the technology becomes more advanced and all the different parties and intermediaries learn more about it, we’re really hoping we will get to work with a social impact bond and with impact investors within the next 12 months in rolling out some pilots.”

Hajda added that this technology could shape the future of social impact measurement.

“Impact measurement is already ripe for a massive paradigm shift, so I think this is the right time, the right technology, and it will be a really exciting next 12 months to see when similar pilots start popping up around the world. We are really proud to be the first one in Australia,” he said.