Can Living Cattle Become Digital Currency?

Brazil Tokenizes Dairy Cows

Brazil has made headlines recently for their attempts to vet the mechanics of tokenizing livestock. Using AI collars to monitor the health and productivity of ten dairy cows, they turned living animals into tradable currency on the Brazilian Stock Exchange, securing $20,000 in credit for owners.  If it can successfully scale, tokenized agriculture could be game changing for small farm holders around the world, essentially allowing farmers to lend money to themselves.  The concept isn’t entirely new and still faces obstacles, but rapid technological advances are moving agriculture from the periphery of dialogue to the focus of digital currency conversations.

Rethinking Farm Collateral

Turning a living animal into digital currency sounds a little bit like a science fiction novel, but it could address a real problem for farmers.  From Nigeria, to India to the United States, accessing credit has been a global challenge for farm owners.  Livestock make for unpredictable assets in every country.  Banks have no way to monitor an animal’s health or production capacity shifts.  And, because these variables change on a daily basis, reconciliation and valuation have been tricky to define.  

Yet, any farm that wants to expand or even get up and running must borrow to build.  Banks are rarely willing, or feasibly able, to finance the amounts needed, putting farmers in a tricky situation.  In places like India and Africa, only about 20% of farmers own land that could be held as collateral when working to secure a bank loan.  As such, only 10% of farm owners have formal bank loans in emerging nations. 

However, as Brazil proved, with the right information linked to the stock exchange, a single animal can become multiple shares purchased by several entities. Artificial intelligence is allowing each animal to be monitored continuously and that data can be valued and traded.  The risky assets are benefiting from the predictability AI offers.

In Brazil, Cowmed AI collars already monitor 100,000 cows.  The company estimates that if 20% are tokenized it could give Brazilian farmers access to $77.6 million in credit.  It’s their own wealth now able to work for them.  Agriculture has relied on subsidies for a long time but, now could be marketable to private entities investing in agricultural development. In turn, Brazilian farmers have the cash flow to expand, update or increase the value of their animals, products or land.  

What Does a Bank Need to Offer an Agricultural Loan?

The problem has never been that farmers don’t possess valuable assets or that livestock isn’t true wealth.  The problem has always been that banks don’t have enough information to offer better deals.  Now they could.  And, now farmers could have year round cash flow.

If we have a system that can create a digital identity, register it, value it so that it can be insured and then connect this information with a lender then livestock and agricultural loans might look very different in the future.  Up until recently, we’ve lacked traceability systems broad enough to generate valuation metrics or a place where lenders can connect with borrowers without expensive middle men.  Even countries that have operated within a system of pledging livestock for a long time don’t always have the infrastructure to close financial gaps enough to solve the credit problem for farms.  

A digital animal, backed by traceable data, might secure a larger loan or lower interest rates.  Digital identities could make it easier to secure insurance and, at the very least, it might allow transactions to happen faster.  All of this reduces financial burden for farmers and frees up cashflow for growth.  

The format still has a few obstacles to overcome.  Artificial intelligence technology still needs to be purchased in order for a farmer to access the blockchain. Even with a digital identity, cows are still animals susceptible to disease, natural disasters and able to wander out of internet range and jeopardize tracking equipment.  What works well in India might not generate the same impact in Nigeria.  Lenders will likely need clarity around safeguards when it comes to protecting this blend of biological and digital and regulatory framework will be necessary for substantial growth.  But, the very fact that Brazil proved the mechanics work on a small scale is promising for agriculture.

Technology just might make the biological world more compatible with the world of digital financing.  And the partnership could be stabilizing for both, particularly when we view the dynamic in terms of generating predictability.  Livestock become a lower risk asset for lenders and credit is more easily secured by farmers.