Problem: Developed countries have many financial advantages over the rest of the world. From fintech programs to money market accounts, the opportunity to control personal finances and participate in the best investment opportunities is heavily skewed in favor of first-world countries. This means there is a massive number of people in developing economies who need systems that allow them to connect and invest anywhere in the world. This problem is intensified by currency instability that is so often seen in developing countries, leading to high inflation and trade disadvantages.
Solution: Karsa solves this problem by empowering anyone in the world with a digital wallet that allows them to hold stablecoins in proven currencies, especially USD. The strength of Karsa rests in the way it handles stablecoin transactions. Karsa developed a ‘hybrid-defi’ model that situates Karsa as the middleman to a peer-to-peer (P2P) transaction system. Here's how it works:
A Karsa user in a developing country goes to Karsa with the intent to purchase stablecoin.
The user acts as if it is normally depositing their local currency, as any traditional banking app would work.
Karsa connects the depositors' funds with a verified stablecoin seller anywhere in the world.
The user’s local currency is paid to the stablecoin seller, and in return, the user receives stablecoin.
*The beauty of this system lies in its familiarity and ease of use for the user because the interface and user actions look and feel like those of a traditional bank.
I call Karsa’s platform ‘hybrid-defi’ because while it is acting as a middleman to this P2P system and therefore not fully decentralized, it does not hold any excess liquidity as a regular bank would. Instead of bank reserves, Karsa’s liquidity comes from the network of traders that it leverages. Beyond simply holding stablecoins, Karsa offers the ability to invest the stablecoins in US treasuries and earn a 4-5% APY, much higher than a lot of emerging economy banks can offer. Furthermore, Karsa is developing physical cards, like a debit card, to spend crypto and systems that streamline how freelancers get paid.
Founders: Shahryar Hasnani and Dale Wilson founded Karsa. Both are young developers with Shahryar graduating from Northwestern and Dale from the University of Virginia, and both of them have a couple of years of good work experience. Importantly, Karsa is a Y Combinator-backed startup that is perfect for young, ambitious founders who can leverage Y Combinator for its network, expertise, and guidance.
Implications: Karsa is performing a function that is incredibly valuable to so many people in the world. A lot of startups are aimed towards empowering individuals to create, build, and found new and exciting companies in efficient and effective ways. However, it is often overlooked that people in developing economies often are not able to take the risks they want to take because of fundamental financial insecurity, not because they lack the capabilities to found great companies. By spreading financial security all through the world, more people can take the risks required of a founder. Karsa is also representative of a pivotal banking model change. The ‘hybrid-defi’ model seems to be a very promising compromise between traditional banking and decentralized banking that might make officials even more likely to promote crypto regulation and adoption. It also makes one curious as to how the entire banking sector will change, as companies can rely on network liquidity instead of reserves to provide their customers with their savings. This brings up the problem of possible network liquidity dry-ups and who, in that scenario, will buy these stablecoins back from savers. This might prove to be a great opportunity for new companies that can act as a liquidity provider. For example, if a network slows and no one is buying back stable coins, a separate institution with cash reserves might be able to come in, provide liquidity by buying users’ stablecoins, and in it receive loan-like interest payments from Karsa as a reward for “bailing out” their neobank. Obviously, Karsa itself can hold liquid reserves, but then at what point does it become a fully centralized bank again? It seems the greatest strength of Karsa lies in its ability to provide emerging economy users with new banking opportunities like US treasuries and USD stability while still presenting itself as an easy-to-use bank.
Conclusion: Karsa’s technologies are groundbreaking in a lot of ways. For a lot of people, getting access to stable currency and very low-risk yields adds huge value to personal finances and community economics. To be sure, Karsa is an exciting company seeking to solve great problems and has built a network and application to allow them to do that.