Can Blockchain Help Deliver Universal Basic Income?

Can Blockchain Help Deliver Universal Basic Income?

Estimated Reading Time: 7 minutes

• Blockchain technology offers novel solutions for UBI implementation, addressing issues of transparency, efficiency, and funding.
• Decentralized finance (DeFi) protocols can generate from investments, providing a potential source for UBI funding.
• The creation of and new paradigms for wealth redistribution, such as Harberger taxation, could ensure UBI maintains its purchasing power and fairness.
• Increased accessibility of DeFi products to everyday users, facilitated by social and keyless wallets, has the potential to .
• Realizing blockchain-backed UBI requires a multi-pronged approach: educating oneself on DeFi, engaging with existing blockchain UBI initiatives, and advocating for blockchain integration in economic policy.

• Exploring Blockchain’s Potential for UBI Delivery
• Towards Universal Basic Income: Research Insights
• Pathways to Implementation: Actionable Steps
• Conclusion
• Frequently Asked Questions

Universal Basic Income (UBI) is a concept gaining increasing traction, proposing a regular, unconditional income paid to all citizens, regardless of their work status or wealth. As societies grapple with automation, economic inequality, and the future of work, UBI offers a potential safety net and a pathway to greater economic stability. While traditional economic models often face challenges in funding and implementation, the advent of blockchain technology introduces novel possibilities for delivering UBI more efficiently, transparently, and equitably. This article explores how decentralized finance (DeFi) and other blockchain innovations could underpin a viable UBI system, drawing insights from recent research.

Exploring Blockchain’s Potential for UBI Delivery

The following section, derived directly from academic research, delves into the technical and economic mechanisms by which blockchain, particularly through decentralized finance protocols and innovative taxation models, could contribute to making Universal Basic Income a reality. It considers the accessibility of high-yield investments, the creation of inflation-resistant currencies, and new paradigms for wealth redistribution, offering a comprehensive look at the opportunities and challenges.

Table of Links
Abstract and 1. Introduction
Stablecoins and Lending Markets
Fixed-Rate Lending Protocols and Derivatives
Staking Derivatives
Staking Fees as Stable Interest
Stabilization Mechanisms
Some Caveats
Diversification, Interest Rates Swaps, and Tranching
Towards Universal Basic Income
Closing Remarks
Acknowledgements and References
9 Towards Universal Basic Income

Towards Universal Basic Income: Research Insights

We started by considering the high stable interests of decentralized finance protocols from the perspective of common household savers. Currently, few of them have access to investment opportunities with such stable high yield. However, the availability of these products will naturally also be accessible by the wealthier, seasoned investors too. Therefore, the question arises: are they actually going to help the common household savers, or are they just going to make the rich richer still?

There are perhaps reasons to be optimistic (from an egalitarian perspective). The first is that even if these products do allow the wealthier to benefit, the margin of this benefit is unlikely to be as high as that for the common savers. That is because currently the savvy and capital-rich investors already have access to various high return investment options, including high-entry, actively managed hedge funds.

Secondly, with social and keyless wallets [54], one ultimate goal is to allow everyday smartphone users to be able to access decentralized finance applications securely with ease. For many of these new adopters, having access to such high stable return investment options will likely help .

However, we must also acknowledge that it is not easy to foresee a future where such high-yield, low-risk products will become commonplace. The impact of this for traditional financial products will lead to a chain of consequences that would ultimately depend on relatively unpredictable factors, including possible governmental intervention. Accordingly, we cannot expect that the lofty vision of universal basic income will naturally materialize out of market forces. Rather, we should see the availability of these new decentralized finance products as providing opportunities for such an agenda.

For example, there are already projects in the cryptocurrency space which aim at providing universal basic income to those who can prove their identity [55]. Capitalizing on the high yield generated by the Anchor, the Angel protocol [56] also allows charity donations to become virtually perpetual (as supported by the future yields). These may provide the platform for some universal basic income schemes to be implemented.

As a longer-term vision, radical markets [57] on blockchain can also help to enforce overall fairness.

Because of the permanent and immutable nature of transaction records in cryptocurrency ecosystems, taxation will eventually become automatically enforced, with evasion becoming extremely difficult. Importantly this can also open up venues for novel and interesting ways of redistributing wealth. For example, under a Harberger taxation scheme [57], the value of a property can be self-assessed, i.e., determined by the owner. The owner may be incentivized not to overvalue the property, in order to minimize taxation. At the same time, transaction of the ownership can be made mandatory if any buyer offers a price above the self-assessed value. Therefore, the owner should also not undervalue the property. With a well-defined true value to the owner, properties can be fluidly and fairly transferred. Economic analyses have shown that this can motivate and orchestrate the entire community into maximizing common good, while maintaining market efficiency. Similar mechanisms can also be implemented to implement highly progressive and quadratic wealth redistribution.

Importantly, even in the shorter-term, there is also an argument to be made that allowing the rich to become richer should not always be a concern, even for egalitarian purposes. An individual’s fixed or basic income may be dwarfed by the wealth of others, if such income is paid in a currency that is subject to inflation. If the rich can offer higher prices for goods, amid competition there may be a concern that one’s income may lose purchasing power. However, this would not be an issue if the basic income is to be paid out in a currency that is truly resistant to inflation. The US dollar is supposedly (loosely) pegged to the prices of goods. However, there has been criticism that the consumer price index (CPI) provided by the government is biased towards goods that do not truly reflect the quality of life of an average individual [58]. Currently, there are projects such as Frax’s stable peg and index [59, 60, 61] which aim to rectify this situation, to create a stable currency in decentralized finance pegged not to the inflation-prone US dollar, but to a more meaningful representation of the true cost of living.

Imagine if a stable yield of as high as over is to be paid out in this inflation-resistant currency. With such a product, to support the universal basic income for a person’s lifetime, one would need a few times the individual’s annual living cost, as a one-time endowment. This is regardless of the future conditions of the economy, or how the wealthy may become richer – if the currency truly reflects the cost of living at the moment, in a stable peg. This could be the basis on which a .

Pathways to Implementation: Actionable Steps

Understanding the theoretical possibilities is the first step. For those interested in seeing blockchain-backed UBI materialize, here are three actionable steps:

Conclusion

The vision of Universal Basic Income is an ambitious one, but blockchain technology offers compelling new avenues for its practical implementation. From leveraging high stable yields in decentralized finance to creating inflation-resistant currencies and enforcing fair taxation through radical market designs, the potential is vast. While challenges remain, the innovative nature of blockchain provides a powerful toolkit for reimagining how societies can provide a fundamental economic safety net for all.

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Frequently Asked Questions