Blockchain startup Newrl eyes 10% tokenisation market share by 2023

A public blockchain for decentralised finance, Newrl has developed tokenisation-based equity solutions for unlisted companies offering ESOPs

Newrl, a public blockchain for decentralised finance (DeFi) founded in 2019 by Swapnil Pawar, aims to bring blockchain into mainstream finance. It has come up with tokenisation-based equity solutions for unlisted companies.

In 2021, startups bought back took ESOPs worth Rs 3,000 crore. Despite the existence of over 100 unicorns in India, trading in unlisted equity mostly happens when a company floats an initial public offering (IPO).

Employee stock ownership plans or ESOPs are a way for companies to motivate employees and retain quality talent. But while employees get rewarded for their contributions, they cannot cash out these ESOPs until they are vested, or quit. This poses a major problem for startups and unlisted companies.

Newrl's platform has come up with a solution that brings liquidity to ESOPs in a process that benefits employees, fosters greater transparency in companies and makes their ESOPs more lucrative. Newrl claims to have 11 clients so far, but did not disclose any names.

“Unlike listed stocks, there is no liquidity in the case of unlisted equities. Since they are hardly bought and sold, there is essentially no mechanism to transfer them. This is one of the reasons employees also don’t value ESOPs of smaller startups,” said Swapnil Pawar, co-founder, Newrl. The company is eyeing 10 per cent of the tokenisation market share by 2023. It aims to use blockchain technology to create liquidity worth $500 million in unlisted stocks.

The idea of tokenisation of ESOPs is to make them more tradable. The employees who want to cash out, can do so and those who want to buy shares of an unlisted company can buy these options from those who want to sell. This creates a marketplace for unlisted companies.

“Tokenisation of ESOPs are nothing but smart contracts, and underlying the smart contract is the tokenised equity of the company. We convert bilateral contracts between companies and employees into extremely transparent, governance-high contract,” said Pawar.

The Information Technology Act and the Indian Contracts Act recognise smart contracts. Since tokenised ESOPs are considered as smart contracts, they are legally tenable.

Newrl will implement smart contracts on blockchain by decentralising the process of managing ESOPs. It aims at simplifying the process with just a few clicks. Once created, these contracts are under the control of neither the employee nor the company, and all the details are embedded in the contract, thus making them completely transparent.

Companies that sign up for this service can prune their cash outflow and use ESOP grants to remunerate advisors and directors, make acquisitions among other things. “So, the greater ability to raise money, pay employees, get collaborations like advisors, all becomes far more versatile for an unlisted company or a startup,” Pawar explained. “Even though we are in the blockchain system, the underlying assets in this smart contract are the shares of a company. They are taxed like any other capital gain that any company makes,” he added.

Newrl tokens

Every blockchain has its own currency to pay with and these are digital assets. The Newrl tokens that the company offers are its currency for its users to trade in its ecosystem. “Newrl token are our own governance tokens. They are a currency in the Newrl ecosystem which our application partners can use to pay for using the network,” he said.

Each of the nodes that use the Newrl ecosystem will be incentivised to create a block, and validate and maintain it through the Newrl tokens. The users of the Newrl blockchain pay using either Newrl tokens or dollars.

Nodes are the key participants of a blockchain. They are connected to each other and constantly exchange the latest blockchain data. “Either way, there is a fee for participating in the Newrl blockchain, which helps in supporting the Newrl token price. These tokens are not going to be launched publicly anytime soon, as we want enough transactions on the blockchain so that there is an economic rationale for using it,” he said.

Newrl aims to break into multiple sectors as for securitisation and tokenisation solutions.