CartaX & Crypto Features Coming Off-Chain

Last week Carta announced CartaX (not “car tax”), a platform designed to provide liquidity for employees of private companies.

Henry Ward, CEO of Carta, wrote,

Startup employees take lower salaries in exchange for equity. Today, the only path to liquidity is IPO or acquisition for which 99% of startup employees never see. For the overwhelming majority of startup employees, the equity lottery ticket is never redeemed and their paper wealth never converts to real wealth.

He is right. Most employees never see a liquidity event. Further, the hopes to realize one often keep them working for a company far longer than they would like.

Cryptocurrencies have many value propositions. Some are purely financial or others are technical in nature. One example is they become liquid very quickly as, after a coin offering or other form of distribution, they are “already public.” While some coins have lockup periods programmed into them, they are often designed by nature to trade in a manner that feels similar to a public security, providing demand beyond the programmatic utility of the coin. Therefore, early coin investors can realize liquidity much faster than an early stage private company investor.

CartaX is an off-chain way to get similar liquidity. Companies allow their employees (and potentially early investors) to sell shares during specific events. While the market is not continuous in nature like crypto, it does provide a new method to realize a return prior to going public. It is a step in providing the a utility embedded into crypto to private shares.

CartaX is not the only crypto feature that has come off-chain. Fractional shares is another and is offered by Robinhood, Stash, SoFi, Schwab, and Fidelity. This feature allows stockholders to own a piece of a share as opposed to needing to own the a full share, allowing them to invest in companies whose stock may trade high enough to price out some retail investors.

Fractional ownership was another crypto value proposition. Users could own a fraction of a coin. Bitcoin, for example, can be divided down to 8 decimal places. 0.00000001 BTC is called a “Satoshi” after the network’s mysterious founder(s). As the supply will stay fixed, this becomes important as a single coin will eventually become (if it has not already) way too expensive for many people to own.

There may become other crypto value propositions to come off-chain. It will be interesting to see how the market accepts these applications as the non-chain versions will be managed by entities as opposed to being distributed in nature. Human nature might lend itself to accepting these off-chain offerings a bit more quickly and accelerate adoption. We trust our brands. And therefore, we will trust their crypto-inspired offerings.