Tokenizing Access to Public Services Pt. 1 by Robert Greenfield

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Society’s punishments are small compared to the wounds we inflict on our soul when we look the other way. — Martin Luther King, Jr.

Social services in the United States like assisted housing and supplemental nutrition assistance aid over 45 million people a year. These programs help combat homelessness, food insecurity, and the many systemic factors that stem from a lack of stable housing and a reliable source of nutrition.

Yet still, many under resourced communities continue to suffer from a lack of access to these services due to woefully inadequate federal funding and terribly long waiting lists. Even when the impoverished do have temporary access to programatic benefits like housing vouchers, they are still affected by systematic discrimination, particularly if they’re people of color. The latter sometimes invalidates the benefit of the service itself, forcing the poor into a vicious cycle of false opportunity, where, although their cost of living is subsidized, their access to social mobility, due to where they live and the education they have access to, is non-existent.

So how does the current chaos of tokens relate to aiding the impoverished? Tokenized models, when engineered correctly, can exponentially optimize the traditional system of social services, making them incredibly more liquid, frictionless, and accountable.

The purpose of this brief is to propose a token model that brings increased liquidity to non-fungible markets within the public sector and demonstrate how partially non-fungible tokens, or ‘refungible tokens,’ can make this model work.

What are Refungible Tokens?

The idea of ‘refungible tokens’ was first proposed by billy rennekamp, prompting the following question:

What would happen if an ERC721 NFT (non fungible token) were owned by the address of an ERC20 Bonded Curve/Liquid Token?

Rennekamp’s proposal investigated a model in which you could have a non-fungible asset tied to fungible liquidity — enabling that asset to ‘ become fungible again.’ Simply put, instead of having some unique asset like a CryptoKitty, whose value is completely speculative based on the audience that is engaging with that type of non-fungible asset, we’d have cryptokitties that, although they themselves represent non-fungible tokens (ERC721), those tokens are tied with more liquid, fungible assets (most notably, ERC20 tokens).

Refungible Tokens for Good

The proposed token model is a variant of Rennekamp’s architecture and is more akin to the Bancor Smart Token. The Smart Token is a ERC20 (fungible) token that is connected to another, more liquid ERC20 token. For example, say we create a token called Impact Coin, but it has no liquidity because no one owns it yet. In order to create automatic liquidity, we make it a ‘Smart Token’ and connect its volume to a more liquid token like DAI, making the conversion ration between the two 1:1. Now, when someone wants to mint an Impact Coin to use, they simply sell 1 DAI to the Impact Coin contract, and, in exchange, receive 1 Impact Coin in return. As more Impact Coins are minted, its price steadily increases and vice versa.

A ‘Refungible Service Token’ (RFST) model, takes this approach, but instead it connects ERC721 tokens (non fungible tokens) to more liquid ERC20 tokens in a way where the price point per non fungible asset is dependent on certain independent parameters of its recipient, not the total volume of non fungible tokens minted.

The price of any RFST would be based on parameters common to social service ecosystems, which frequently rely on the service recipient’s income, rent, number of dependents, age, and or disability status. Each RSFT would represent a monthly payment in aid and there can only be as many minted RSFT’s as the token’s backed liquidity can support. Each recipient’s RSFT would be uniquely valued based on the following parameters:

  • Recipient’s Monthly Income (given that all recipients live at or below the poverty line, which is often the case)

  • Recipient’s Rent (given a Max Rent cap per month for all recipients)

Veteran and disability status could provide additional subsidies (i.e. more tokens) via the traditional means of applying to the program(s). Each social service would serve as its own category of RFST and RFSTs from different service categories would not be exchangeable. The price point of RSFTs would be determined by that social service’s benefits formula, which determines how much aid is disbursed based on the aforementioned parameters. For example:

  1. Robby applies for housing assistance, where the Tenant Rent Payment = Monthly Income X 30% and the Assistance Amount = Total Rent — Tenant Rent Payment

  2. If Robby’s monthly income is $1,850, he would pay $555 toward the rent ($1,850 X 30%)

  3. If the total rent for the apartment is $850, the assistance will pay $295 to the landlord on Robby’s behalf, meaning that his RFST are worth $295 each

Of course, this initially proposed method of pricing simply abstracts how the traditional, in this case housing, market disburses assistance. Much more dynamic and economically responsive models are definitely viable in the future with more optimization simulation and overall token engineering.

What Does Liquidity Mean in Social Services?

To take a small step back, we have to define what ‘liquidity’ is in the context of social services.

“Traditionally, liquidity describes the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset’s price.” — Investopedia

Though this definition does hold true, particularly for the disbursement of housing vouchers and supplemental assistance credits, prices for RFSTs are relatively fixed to the recipient, unless the recipient indicates their salary has drastically changed. What is not easy in these types of markets is exchangeability between assets. The “buy and sell” aspects of social service markets, whether it is vendors cashing in vouchers from assistance consumers or it is consumers needing to apply the usage of their vouchers in a different locality, these type of assets are rather operationally inefficient and landlocked to their issuing locality — even at the expense of their underlying fiat value. The latter perfectly fits the definition of ‘illiquidity:’

“Illiquid refers to the state of a security or other asset that cannot easily be sold or exchanged for cash without a substantial loss in value.” — Investopedia

Nationally Liquid & Economically Responsive Social Service Markets

Many social service markets are incredibly illiquid because of how non-fungible their services are between different jurisdictions. For housing vouchers, local housing authorities face a litany of problems when attempting to accept vouchers disbursed in different jurisdictions.

Currently, when a family receives its voucher from one housing authority but wants to move to the jurisdiction of a different housing authority, the ‘sending’ housing authority has a choice:

  1. Transfer the family to the new housing authority, which must agree to “absorb” the transfer by issuing one of its own vouchers

  2. Pay the ‘receiving’ housing authority for performing administrative functions such as income certifications, housing inspections, and lease renewals

Many urban housing authorities have agreements with neighboring jurisdictions that they will automatically ‘absorb’ vouchers from each other rather than administering complex billing arrangements. But this arrangement is also undesirable, requiring the ‘receiving’ housing authority to use up a unit of housing assistance that could have served a family on its own waiting list (Margery Austin Turner).

As we can see, the traditional system is exchanging non-fungible assets (vouchers) between jurisdictions at the expense of the value of each of the vouchers, not providing an additional voucher to someone on the waiting list, and the accounting of the transacting housing authorities.

A RFST model makes the exchange of vouchers between jurisdictions fungible and automates cross-jurisdictional accounting between an exponential amount of local housing authorities in contrast to the traditional ecosystem. With increased scalability and the addition of parameters like the consumer price index (CPI), national median monthly income, and even economic indicators from the stock and housing markets, RFST models have the potential to be completely economically responsive in the automation of social services across the country, enabling program recipients to truly live where they want to live, and, thus, take more control over where their family attends school and realizes opportunity.

Radical Transparency & Funding Accountability

Another problem within the traditional social service market is the government’s need to sample test social service programs in various jurisdictions in an attempt to detect fraud and spending discrepancies. These tests are quite costly and more or less randomized given the massive breadth of these programs (active across the country). Since localities usually govern the disbursement of social services to their respective residents, transparent accounting from a federal level is virtually impossible, particularly given housing assistance practices like ‘absorption,’ as described earlier.

The proposed RFST model would automate liquidity calculations between assets of the same service category, which, in turn, would automate the minting and burning of assets to ensure that the maximum number of individuals are supported by the program. In doing so, the federal government could easily audit transactions on-chain and detect anomalies at the jurisdictional level via machine learning. Such practices would exponentially decrease the cost of policing (and the effects of) fraud and serve as a model for radical transparency of public spending.

Future of Public Services on the Blockchain

By increasing liquidity, reducing friction, and emphasizing on-chain accountability, public services potentially have a lot to gain from leveraging crypto-economic assets like RFSTs. Adequate research, token engineering, and user experience development could revolutionize how social services are transacted and disbursed around the world, making it easier to determine how to socially engineer these services to maximize a population’s exit from poverty. Personally, I hope to further develop the model and test it domestically with willing partners to guide more dynamic, and progressive policy development around the use of crypto-economics in America and around the world.

Unbanked for Good: Digital Currency and Self-Sovereign Finance by Robert Greenfield

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In the social impact landscape, “banking the unbanked” has become a popular, if somewhat misguided, refrain. As blockchain technology gains traction globally, and as smartphones reach more and more low-income communities, the horizon of self-sovereign finance is putting pressure on the now commonplace initiative to “bank the unbanked.” Considering that many of the basic services offered by the traditional banking system are opaque, slow, and expensive, the time is ripe for a crypto-economic alternative.

As we look back on the old system and explore the true meaning and the prospect of self-sovereign finance, there are a few key questions to consider:

  • Do we want to expose our most economically vulnerable communities to the risk of operating within the traditional banking system, one that is commonly fraught with incentives to defraud under-resourced populations?

  • Are wide-scale economic monopolies in developing economies a good strategy for economic equality and sustainable development in those regions?

  • Can the cost of being banked be exponentially minimized for current non-consumers, or will this cost simply be levied against the existing consumer base?

  • Can stable token partnerships with incumbent mobile payment networks create a system through which unbanked consumers can establish financial self-sovereignty and control their assets with their phone at any time?

Financial Equality vs. Economic Equality

The definition of “financial equality” is hotly debated in the social impact space, particularly when comparing the developed and underdeveloped worlds. Being “banked” can still be a long way from financial equality, and many draw a hard distinction between financial equality and economic equality––the ability to become socially mobile and enjoy different economic opportunities.

“Financial equality” and “economic equality” are often used interchangeably, which underscores the cultural misunderstanding of both systemic inequality and the subjectivity of need. In an American context, financial equality is more akin to broader access to financial services, rather than economic opportunity. In many westernized countries, bank account creation and yearly income are often used as a financial equality key performance indicator (KPI).

Financial equality, however, is a mere feature of greater economic equality and opportunity, which are oftentimes predetermined by the lottery of birth. Many consumers are born into positions of little or no purchasing power and face discrimination when applying for jobs or loans. They simply cannot afford social mobility.

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In the U.S., approximately 15 percent of consumers — roughly 37 million adults — do not have a bank account (PEW). Many of these unbanked Americans earn less than $25,000 a year. Interestingly, an estimated 21 million of these 37 million had previously held bank accounts, but they exited the banking system because of the high cost of overdraft fees. When asked whether they would like to have a checking or savings account in the future, 77 percent said no. However, without bank accounts, these people are unable to access to lower-cost, mainstream financial services and at a much greater risk of loss or theft of funds.

Cryptocurrencies as a Store of Value

One early and longstanding argument from Wall Street against the viability of bitcoin (BTC) as legal tender is that it is a terrible store of value. A store of value is any form of wealth that maintains its value without depreciating (i.e. gold is a better store of value than milk, which naturally spoils). Of course, if the economic aim of a currency is to preserve value, then many cryptocurrencies fail by that standard. However, the advent of volatility-resistant stable tokens is starting to bring cryptoeconomic-store-of-value alternatives to the forefront.

Initially, Tether (USDT) was the promise child of this effort, but after repeatedclaims of fraud and collusion with the exchange Bitfinex, Tether has effectively disqualified itself from gaining mainstream consideration beyond the cryptocommunity. In theory, Tether receives deposits of US dollars from investors, and then creates an equivalent number of tethers (the platform’s native currency) and gives those tethers to the depositor. These tokens are supposedly backed on a 1:1 basis, but without an audit, it is impossible to know whether the Tether platform has the $2.2B in reserves it claims to have.

So what promising solutions exist beyond Tether? Makerdao’s DAI is proving to be an exceptionally strong alternative and with some of the most mature cryptoeconomic and decentralized structures in place to ensure stability to $1.00 USD. The cryptocurrency maintained a variance of less than 2 percent during the recent January 2018 market downturn. While everything else was losing 30+ percent of its value, DAI leveled out at approximately $0.98. We won’t delve into how DAI maintains stability, but Gregory DiPrisco’s “Maker for Dummies: A Plain English Explanation of the Dai Stablecoin” does an incredible job of decomposing the Maker system.

With continued positive performance, DAI––which is an ERC20 token––could better enable DApps to provide a 1:1 USD pairing for mainstream consumers, making the use of cryptocurrency a backend, operational efficiency mechanism rather than a front-end UX nightmare.

Smartphone Penetration vs. Mobile Payment Growth

Global smartphone penetration has increased steadily year-over-year since the introduction of smartphones to western markets. In fact, about 6 in 10 unbanked consumers in the U.S. have a smartphone. However, despite this increase in access, the use of mobile payments is significantly lower among the unbanked. According to research reports from Pew Charitable Trusts, approximately 39 percent of unbanked smartphone owners have never made a purchase, paid bills, or sent or received funds using mobile payments technology compared with 64 percent of banked smartphone owners. So why is it that unbanked consumers don’t take full advantage of all the features on their smartphones?

A major barrier to entry is the fact that unbanked consumers rely heavily on paper checks and cash for income and expenses, which have limited to no compatibility with mobile payment technologies. Despite the global smartphone penetration, the mobile payment industry is beholden to the constraints of unsustainable bank account expenses (i.e. “the cost of being banked”) and the bank-oriented methods of payment many of these consumers are familiar with. Only by making accounts more affordable and offering easy liquidity for the deposits of cash and paper checks can the mobile payments industry activate unbanked consumers.

A Future of Financial Self-Sovereignty

Establishing liquidity between the traditional banking system and DApps that leverage stable tokens is essential for mainstream adoption of blockchain-based payment technologies.

There exists a “mid-term future” for the prevalence of decentralized technologies where monopolies will play a role in supporting scalability.Blockchain technologists all hope for a universal, trustless environment where we can maximize the ability of under-resourced communities to participate in the global economy, but fierce user experience (UX) constraints must be adequately overcome for under resourced community stakeholders to be able to leverage the advantages of zed technology.

UX obstacles like the complexity of visualizing the use of cryptocurrency for the common consumer––even with something like DAI, which is approximately equal in value to the U.S. dollar––are massive cultural hurdles to mainstream adoption. If credible stable tokens can be backed by traditional banking institutions, so that it’s easy to redeem cash in the real-world and vice versa, the mobile payments industry can leverage a peer-to-peer banking economy where each individual has complete control of their assets in the palm of their hand. Of course, incumbents must be incentivized to provide such liquidity, or entrepreneurs must be clever enough to create ecosystems that can support it. Many banks are fighting to tokenize fiat currencies in an effort to gain the operational benefits of blockchain technology whilst maintaining complete control over the world’s money supply — a world that, ironically, reintroduces the issue of ‘double spending’ via fractional reserve banking. It is doubtful that the traditional banking system would readily empower unbanked communities to become financially self-sovereign.

But we have the technology now to achieve financial self-sovereignty. A decentralized, mobile payment system would ultimately eliminate overdraft fees, because over-drafting funds on the blockchain is impossible. The cost of maintaining a low balance would effectively be zero, and payment for services would be reconciled in an instant. With decentralized models, we can also layer financial products, such as loans, on top of a mobile-forward, self-banked system. We are on the cusp of a future in which we have complete control over our assets, a future in which the speed and cost of transacting is minimal, and in which the freedom and opportunities of true economic equality, and not just financial equality, are guaranteed for everyone.