WASHINGTON, D.C – The Atlantic Council published a report titled Designing Decentralized Finance For Financial Inclusion. They specifically note how DeFi projects need to expand their reach to mobile users and improve internet access to achieve financial inclusion. According to their report 90 percent of people who access the internet do it through their smartphone. They note how public private partnerships are essential to this process. Celo’s approach with mobile-first technology, and embedding itself in governmental, corporate and social organizations follows the recommendations the Atlantic Council set out.
Blockchain UBI – How it Works
First, they bring people into the social impact digital economy in the name of humanitarian aid, then lead them to financial applications where all their digital data, linked to their blockchain identity, is used to build credit profiles. Credit profiles and digital twins are synonymous. We tend to think of digital twins as avatars, but at their core they depend on digital identifiers attached to data in a standardized format.
The most successful attempt at building digital twins at Celo occurs though Impact Markets, a private Universal Basic Income initiative targeting the poor. Their stated goal is to eradicate extreme poverty by 2030. Obviously, blockchain UBI did not suddenly give humanity the ability to take care of each other, however blockchain UBI makes it profitable to give people money and provides momentum to the inclusive open air prison.
Impact Markets operates as a ‘DAO’ controlled by the PACT token. DAO is a euphemism for Digital Organization; the decentralized part of the acronym means nothing. A small concentration of token holders, or influence networks, control most significant Digital Organizations.
To receive UBI through Impact Market, an approved community manager from a ‘reputable’ social organization, has to get their community approved by the Digital Organization. Then that manager can add or remove UBI beneficiaries from their community. Each community is approved with different parameters controlling how much and how often communities/beneficiaries can claim from the treasury.
Voters control the network and UBI, including any upgrades or changes to the smart contracts. Voters also control when communities receive donations from the reserves. The following formula determines how much cUSD (celo stablecoin) a community will receive.
cUSD amount per community = number of beneficiaries * UBI allowance / (Total amount already sent by the DAO to that community / Total raised so far to that community)
In the case of Impact Markets, their governance system is especially centralized. To submit a proposal and reach the threshold to pass a proposal, a user needs 100 million PACT tokens. Only 10 addresses, including three which appear to be non voting smart contracts, hold over 100 million PACT. Every proposal I saw passed through the vote of a single token holder.
On the ground ‘Ambassadors’ based in a country, cultivate community managers and identify areas of potential. They plan to create a sub committee of ambassadors which will handle community on/off boarding in a more scalable way. Since they aim to reach a million people by 2022, and eradicate extreme poverty by 2030, continuous expansion is essential.
To actually create the communities, and access the UBI, people have to connect the Valora mobile app to the Impact Market app. As a reminder, the Valora app is connected to people’s phone numbers and is the primary interface to interact with Celo on a phone.
Donors also receive the PACT token. A recently launched initiative called impact farming allows PACT holders to stake the token in order to earn more PACT rewards when they donate. Marco Barbosa, founder and CEO of Impact Market, describes their tokenomics as aligning incentives in a way that the PACT token appreciates in price as Impact Makerks reaches more people.
In September of 2020 Impact Markets began operations in Brazil. Within their first year they onboarded over 12,000 people.
Impact… It’s in the Name
An impact measurement framework was created to communicate their social impact success to their ‘stakeholders’, which includes:
Self-reporting from beneficiaries through regular specific surveys that measure life quality improvement and progress on several verticals of their life, including health, education, impact on their children, security, happiness, nutrition, etc.
Identify merchants, key intermediaries, and influencers. Attach content to transactions.
Data analysis on-chain to understand, on a deeper level, economic development, activity, growth, and behavior. Cross public information and benchmark different approaches.
Predictive analytics to forecast potential outcomes when kickstarting new communities.
They use the usual suspects of the cybernetic social impact appertatus, predictive profiling, social analysis, quality of life metrics and incentivizing people to make their lives as machine-readable as possible.
UBI is great to drive adoption and Retention and to incentivize people to use that money, because most of the people we are supporting this is the only income they have. But eventually on top of that give access to other financial services, tap into other defi protocols on Celo…. Give access to microcredit and let people get paid for specific tasks [microwork].
The easiest way to get people to use crypto is to give them crypto.
Marco also spoke on a dynamic where local businesses start accepting the crypto on their own because otherwise people will spend their free money elsewhere. Injecting crypto in areas without much money to begin with, forces businesses, who had no interest in crypto, to accept it. Targeting vulnerable populations enhances this spillover effect.
Who are their stakeholders? Certainly the team and donors, in a 2021 slide deck Microsoft, WEF, Facebook, Unicef Human Rights Watch, and the WHO all are listed under “team”.
Digital Identity as a NFT – Social Graph
Identity is one of Impact Markets main challenges, according to Barbosa. He outlines attack vectors where people create multiple wallets, community managers act as corrupt gatekeepers.
He boils the problem down to determining who is a unique person. To solve this they introduce a type of collective punishment where people need to vouch for each other, and if ‘fraud’ is discovered the community is punished.
The thing we want to make sure is that first, individuals, a human being, is in need and should get priority and access to a basic income. So the way we are looking to design this is a kind of social conesus mechanism where people vouch for each other, but if something bad happens, there’s a collateral effect where people in the same community can lose money or be affected as well. So there’s a social pressure… we don’t need your name or an ID, just make sure that you are an individual, you are unique, and you should get priority to access this.
Increasingly, identity on the blockchain is being tied to larger webs of relationships rather than limiting itself to individuals. A parallel and converging trend is identity asa NFT,
A DeFi platform Goldfinch, which provides cryptocurrency loans to regular businesses, created what they call a Unique ID (UID). A UID is a NFT linked to your KYC information that’s held off chain. The UID then serves as an interoperable KYC token that people could use on any DeFi platform that does not want to do KYC themselves. As a non transferable NFT it is an early application of a Soulbound token.
Persona, a billion dollar identification services firm, handles the KYC process and data security. Their clients include Robinhood, Coursera, Doordash, and Square (now Block). The three sectors they appear to focus on are, digital health, e-learning, FinTech and cryptocurrency.
For example, in the online education space Persona helped Preply automate verification of tutors’ credentials. While I could not find reference to any of the international Verifiable Credential standards such as the W3C, they are in effect building their own standards and automating the verification process. Persona also enables data analytics on all of the profiles.
In the crypto space their customers include one of the largest finance companies BlockFi valued at 3 billion. The Founders Fund led Persona’s latest series c fundraising round valuing the company at 1.5 billion dollars. Rick Song, the co-founder, worked at Square (now Block) for several years.
Credit For Your Digital Twin – Make All Data Available to the Machine
Data purely from the blockchain doesn’t provide enough information for lenders. In addition, without stronger identity solutions, which offer traditional legal recourse, there’s no way to enforce repayment on the loan. Finance on the blockchain has largely been limited to overcollateralized lending for these reasons.
In a nutshell, connecting off chain data to the blockchain is essential for building real lending markets. Without strong lending markets for unsecured (no collateral) loans, the digital economy will be stunted. A handful of projects on Celo, as well as many others throughout the web3 universe, are working on this ‘problem’. Celo’s mobile-first and social impact imperative focuses on cultivating the data streams on the unbanked, and distressed populations.
Taking a step back, in order to understand the penetration of digital technologies into Africa, we need to understand an infrastructure called USSD (Unstructured Supplementary Service Data). USSD allows regular, non smart phones to query the mobile network itself. By texting a certain code people interface with USSD to prepay minutes, check balances and receive location based notifications. At first this tool had limited uses and was primarily used by network providers in resolving internal issues.
However as the Internet took off they realized that USSD could allow people to access internet applications through the network provider’s computers. This allows mobile banking and other things we would normally associate with smartphone applications. USSD plays a major role in many international ‘aid’ and ‘development’ programs.
M-pesa, the mobile money system run on USSD was launched by Safricom in 2007 and now has over 30 million active users. Today the largest shareholders of Safaricom are the Kenyan government and Vodafone group, which each own 35% respectively. Vodafone is a multinational telecom firm based in the UK. Safaricom’s historical ownership, as well as other telecommunication companies, can be traced back to Europe (UK and France generally).
Masa Finance, a finance application on Celo, was founded by Breandon Playford, the current CEO at Pngme. Pngme aggregates previously disparate data for financial firms in Africa. Pngme integrates USSD and other data sources, creating credit profiles with machine learning and data modeling. In a case study for Nigerian FinTech company they boast:
Within days of integration, Pngme has provided a Nigerian fintech with a wide range of data points previously inaccessible to data/fintech incumbents and traditional credit bureaus. The volume of actionable, labeled data just 3 days post-integration into their mobile application showcases the power of Pngme’s user permissioned workflows:
- 6.875 Million SMS records
- 6875 smartphone users
- 1.875 Million records of debit/credit transactions
- 150,000 alert-worthy labeled events (late payment, default loan, insufficient fund alert)
Prior to receiving this data, lending decisions were made based on cash flow and single account information. The influx of data across multiple accounts provides visibility into higher fidelity cash flow calculation, as Pngme captures a larger breadth of depository account behavior.
With Masa, Plaford is building “decentralized credit profiles”, integrating traditional financial information into the DeFi uniserve in the form of a NFT. Pngme and other companies are providing the data.
The Masa protocol is a standalone blockchain designed to interoperate with Etherum and Celo initially. The network is in closed beta currently and was expected to launch in April 2022. Through Zero Knowledge cryptography they allow private transactions and smart contracts. The nodes on the network stake the CORN token and also serve as the “oracles”, which bridge the data from offchain to onchain. Playford outlines the system:
So what we do, is we bring together different sources of data offchain to allow users to who have been traditionally credit indivisible, to build some kind of credit identity, and then using Celo/blockchain as an intermediary layer it aligns incentives with liquidity providers or capital providers who want to target those segments, which isn’t traditionally the way with banks and financial institutions who serve those people.
Masa uses data permissioned by the user to build Machine Learning models. In exchange, they build the users ‘decentralized’ credit score and give them token rewards. They encrypt the data so only the user and data scientists can access it, and call this privacy.
Data oracles send the traditional financial information, modeled by the algorithms, to automated “liquidity pools” that provide capital for the undercollateralized lending. The idea is to provide real time smart contract based risk adjustments based on the streams of financial data coming from the borrowers who connect their traditional financial information.
Alliance for Prosperity Meets Defi For the People
Moola Markets, more or less a Celo based “fork” or copy of one of the largest DeFi protocols Aave. Aave allows borrowers to take out over collateralized loans, and lenders to earn passive interest on their crypto. The interest borrowers pay on their over-collateralized loan pays the lenders who front their crypto assets. There are other features and complexities, but that’s the general idea.
Patrick Baron of Moola bashes the moral failings of traditional credit agencies then offers us the digital panopticon credit agency:
“Yeah, on-chain credit score is one thing I’m very excited about because we have the opportunity to take back the reins from these morally bankrupt corporations that gave us FICO, and do something much better. We have incredible rich data on chain in terms of like how long has a wallet existed, what is the balance over time, what kind of throughput does that wallet have, has it borrowed, has it repaid, all these types of events and then you layer on an ability to do things like run igan trust algorithms on top of that, and see ‘Okay, I trust this wallet, because Previen owns this wallet’, so I can infer the trustworthiness of the wallets that have interacted with that wallet, then eventually your able to map out his entire social graph.
Attachment to ‘doing good’ leads to all sorts of distortions. Especially in a world dominated by a ‘civilization’ with an ill soul, the confused energy of young web3 enthusiasts is laid bare in statements like this. Notably,Seb Kamavar – Celos co-founder –, created the Igan Trust algorithm, which Google incorporated. Patrick goes on:
Combine that with the identity protocol that Celo supports, you’re giving people an identity, you’re giving them the ability to create a credit history, where all they need is a mobile device to start that.
We are also working on a pilot with our friend Katoni Pay along with the Celo foundation on an employer based lending model, which is locking a lending model on unsecured loans between employers and employees.
Kotani pay enables USSD functionality for Celo transactions, meaning anyone with a feature phone (non smartphone) could participate. He argues that employers have special insight to their workers so are in a better position to lend to them compared to a bank.
This in unique in that the Employer has a very unique insight in terms of underwriting about the risk of who they are giving a line of credit to because they know how much they earn they know where they live they know what kind of skill set this employee has, how long whether or not anticipate how long they will work for them.
They did not announce it in the presentation, but this employer lending model is being piloted in Kenya (where else?) with Mercy Corp Ventures.
With this design, people whose only connection to the internet is through a feature phone, can build a digital identity through a lending program.
Along with Mercy Corp Ventures, Kotani Pay and Moola the pilot centers on a company called Cinch Markets. Cinch leases land from farmers to invest in intensive commercial agricultural practices and developing AgTech. They claim to pay the landowners 300%-600% more than they could earn on their own through the land. Literally, their business model is to take over the land and bring industrial agriculture to small farms.
The pilot tests how Cinch can improve their current system of loans to their employees, and the small landowners who lease their land to Cinch, while also building them digital credit profiles.
Cinch deposits collateral into Moola in the form of the cUSD stablecoin, where it earns yield. As it earns yield, Cinch uses this collateral for salary advances to the land owners as well as Cinches own employees. They delegate collateral to the individuals Kotanti Pay accounts. When they actually request the money, Kotani Pay bridges cUSD to the m-pesa system, allowing the borrower to access the funds through their regular m-pesa account. To pay back the loans, the peoples future wages are garnished or they repay the loan on their own.
USAID invested $200,000 in Cinch through the Power Agriculture Investment Alliance and also awarded the company a $381,000 grant. The two partners in the alliance are Factor(e) and the Alphamundi Group. The latter a preeminent global social impact finance driver. The alliance highlights the special focus on Africa and India for AgTech. Cinch was also selected as one of five startups in the NINJA accelerator.
NINJA Accelerator in Kenya is a 12-week startup acceleration program powered by the Japan International Cooperation Agency (JICA) and implemented by Double Feather Partners, Deloitte Tohmatsu Venture Support, Deloitte Tohmatsu Financial Advisory, and GrowthAfrica.
The JICA support the All Africa Digital Moonshot Project led by the World Bank, which aims “to digitally connect every individual, business and government in Africa by 2030”
This system implements blockchain based income sharing agreements, building ‘decentralized’ digital credit profiles. At the same time supporting the continuing colonial enterprise in agriculture
Universal Service, Making UBI Profitable
Profitability occurs through “network effects”, data capture, and expansion of debt markets. An established principle of valuing telecommunication networks, known as Metcalfe’s Law, states that the value of a communication network is proportional to the square of connected users. Attributed to ethernet founder Robert Metcalf, the idea traces back to Theodore Vail of Bell/AT&T.
In 1908 president of AT&T Theodore Vail declared the company’s goal of Universal Service, which became the key feature of their arguments in making the telecom infrastructure a regulated monopoly. In this period telephone communication was fragmented as independent companies did not connect their services. In other words there was no system interoperability, “one system, one policy, universal service” became the leading slogan Vail created. We find ourselves caught in the same pattern, the present slogans of financial inclusion precisely echo these thoughts directed towards a universal system. Our unique context of evolved digital technology forces us to grapple with Universal Service in a new light.
In the context of planetary and nanoscale digital twinning, the notion of connected users expands to limits of data granularity, but in order for the data to create value it needs to be connected to all the other data.
I keep using the word value, but we could think of ‘value’ in broad physics terms such as momentum, power, energy, or even in esoteric terms such as concentrated light or thought. Understanding ‘value’ in these terms rather than numbers of dollars, provides a less distorted view of the actual dynamics at play.
Just as fragmented telecommunication networks limit their potential energy, fragmented data has a limited reach as well. Financial inclusion involves creating digital twin profiles that connect the data of people and social groups. These profiles, webs of social relationships, and collected data streams did not exist previously, thus their inclusion to the larger system expands the value of the entire network. Lacking proper words for the entire network, we call it the Global Brain, but commonly people call the network the internet.
This capture of new network participants and relationships provides a basis for expanding the debt markets. As the person and network are linked, the data the new user generates both informs the system and human administrators how much capital they can risk on that person and makes the network itself more powerful. This capital will be deployed in a variety of ways, whether they use it for their own expansion through enterprise, or regular expenses. Regardless, the individual is then locked into the digital economy, generating more data, and possibly new concentrations of money.
The idea of debt predates money has been used as a tool enabling imperial expansion, now with interplanetary and nanoscale ambitions. Marrying debt with omnipresent interoperable digital networks is serious business.