Extreme poverty remains one of the biggest problems of our time. A 2022 estimate by the World Bank put the total number of people living on less than $2.15 per day at 712 million - a 23-million increase from 2019.

Government-funded Universal Basic Income (UBI) has been theorised and tested as a potential solution. Results are generally positive at small scale, however political resistance and concerns around cost prevent UBI from seeing the light of day to any great degree.

In response, the UBI concept has since evolved to include privately funded programs targetting specific groups. They have been met with their own problems, however, namely around funding, implementation, and impact measurement. Web3 has been touted as a solution to some of these issues, with a handful of projects offering a glimpse of what Web3-powered private UBI looks like. For now, though, the impact has been rather small in scale.

With this article, the question I intend to answer is: To what extent can Web3-powered private UBI programs play a role in materially reducing extreme poverty?

Private UBI as a tool to address extreme poverty

Private UBI programs, those which are not run by a government, are based on the theory that it's better to give money directly to those in need than to provide food and other forms of aid. Often operated by NGOs, they provide relatively small groups of people with a pre-determined amount of money. It's rarely anywhere close to a living wage, but can have a big impact on those living at or near the extreme poverty line.

Funding

Funding for these programs typically flows from foreign donors to international or local NGOs. For a private UBI program to put a meaningful dent in the number of people living in extreme poverty, huge costs are involved. Even paying 100,000 people $2/day for a year would cost US$73 million, not including expenses. Since private UBI programs typically rely on donations and grants for funding, raising tens of millions of dollars, let alone hundreds, is nearly impossible. Even if a year of funding could be secured, there is the issue of long-term sustainability.

Implementation

Implementation includes everything from recipient selection to distribution of funds. The program administrator decides who is eligible for funding, whether it be through an application process or on-ground identification. Money is then paid out via bank transfer, mobile money, or cash. Deciding who should get an income is not easy, however, because unconditional giving can create more income inequality than it solves (UBI's equivalent of leakage). There's also the inaccessibility of banking services (it's saddening that 1.4 billion adults are still unbanked) and cost of cross-border transactions to consider.

Impact measurement

There are many ways to evaluate the impact of a private UBI program. Among others, we can look for an increase in economic activity within the target group, examine physical health indicators, measure overall happiness. The challenge is that there isn't really a universally accepted set of metrics with which we can use to judge success. It means that whatever metrics we do choose are subjective at best. There's also the issue of the evaluation process itself. For example, targetting specific demographics can introduce selection bias, making it hard to isolate actual impact from pre-existing differences between participants and the general population.

Where does Web3 come in?

Web3 is by no means a magic bullet for private UBI programs or extreme poverty. It isn't going to manifest the billions needed to materially reduce extreme poverty. It does, however, offer more hope than we've seen in quite some time. And while the current scale may be small, it's a window into the future of private UBI.

Funding

Web3 provides two solutions for funding: staking revenues and program-specific tokens.

Similar to a time deposit, staking is a concept where locking crypto assets into a protocol generates interest that can be used to fund a private UBI program. The crypto assets can come from the community or the program administrator. A wealthy philanthropist, for example, could decide to stake their ETH holdings and allocate a portion of the interest to UBI, or a fiat-backed stablecoin could use the interest generated from its fiat reserves (Glo Dollar's initial model).

GoodDollar uses this model. Community members lock their crypto assets into trusted DeFi protocols via the GoodDollar trust. The interest generated by these assets gets transferred to the GoodDollar reserve, which is used to back the minting of G$ for UBI distribution. So far, GoodDollar has distributed G$3.5 billion (US$186,000) to more than 780,000 unique users since March 2023.

The issue, of course, is scale. To generate the kind of interest that would materially impact extreme poverty requires billions of dollars in staked assets. Short of that, administrators need to decide whether to distribute a small amount to a large group of people or a larger amount to a smaller group of people. GoodDollar, for one, has chosen the former.

Program-specific tokens are another possible funding option. It involves issuing and distributing tokens within a target community. Recipients use their tokens to buy daily necessities and pay for services. Depending on how the program is structured, merchants can either redeem their accumulated tokens for fiat currency, trade them on the open market, or use them for their own purchases. The problem is that program-specific tokens have no utility outside the target community. If no redemption option is provided, merchants risk losing money over the long-term trying to sell on the open market.

It may not be the perfect perfect solution, but it's inexpensive to set up and operate. and can be easily automated. If anything, it's a valuable tool for testing the viability of Web3 for private UBI programs. Administrators can track things like recipient expenditure, savings rates, and generally look at how many flows through the community economy. Learnings can then be applied to the design of programs with more robust funding models.

Implementation

Current UBI distribution methods are riddled with inefficiency, vulnerable to misuse, and subject to inflation. Web3 is a superior alternative because it makes distribution cheap and easy, reduces the risk of misuse, and supports the use of fiat-backed stablecoins to limit the impact of inflation.

Take the Bmuko UBI community in Abuja, Nigeria as an example. It currently distributes US$0.05 daily to 2,150 beneficiaries. The community smart contract runs on Celo and automatically distributes cUSD (a stablecoin pegged to the US dollar) daily to recipients who claim it. Wallets like Valora enable easy off-ramping from cUSD to NGN for daily usage. Without Web3, the cost of implementation would outweigh the amount distributed and lessen the overall impact.

To address the issue of recipient selection, GoodDollar integrated the first Web3-based approach known as "Proof of Need." Part of the project's distribution mechanism, it requires recipients to claim their UBI once every 24 hours and frequently revalidate their identity. The thinking is that those not in need are less likely to exert the time and effort required for regular G$ claims. Zero-knowledge proofs are also being explored to help recipients prove that they meet eligibility requirements without revealing details about their economic situation.

Furthermore, Web3 offers a level of transparency and accountability that current private UBI programs can't match. With on-chain analysis and auditing, it makes it easier to uncover cases of fraud perpetrated by project administrators and removes much of the investigative bureaucracy. It also makes distribution data publicly available, meaning that there is little incentive to try to game the system.

The one specific area where Web3 lags behind is asset security. It's not uncommon to hear stories about people losing funds held in their wallet or losing access to the wallet entirely. This highlights the value of integrating with fintech solutions and more familiar payment rails, such as mobile money, when designing a Web3-powered UBI program.

Impact measurement

Impact measurement is the area where Web3 has the least potential for improvement. It won't, for example, build consensus around success metrics or meaningfully reduce selection bias. Tracking, at least to some degree, may become more efficient, but won't be able to include off-chain activity.

One area where it can help is incentivising survey participation. We know that anonymous surveys are a reliable way to gather data about the results of a UBI program. It can, however, be time-consuming to get enough responses. For instance, GoodDollar carried out a survey in January which got just over 5,000 responses from 105,200 monthly active users (a mere 4.7% participation). Token incentivisation could triple or even quadruple that amount. Such incentivisation schemes still need to be accompanied by clearly defined success metrics, though, and Web3 tools such as self-sovereign identity (SSI) can be used to ensure survey participants remain anonymous.

Conclusion

Can Web3-powered private UBI have a material impact on extreme poverty? Maybe.

The challenges faced by private UBI programs are clear: insufficient funding, inefficient implementation, and uncertain impact measurement. Web3 has solutions that can, at the very least, make it easier for administrators to get money into the hands of the people who really need it. But these solutions can introduce more problems. Staking doesn't produce enough revenue, Web3 wallets present asset security issues, and blockchain won't come up with success metrics on its own.

But that doesn't mean there aren't glimpses of hope. GoodDollar, Glo Dollar, and Circles are live demonstrations of what Web3 models can and can't do. It'll be important to keep a close eye on the growth of these projects to better understand how Web3 and private UBI are impacting extreme poverty.



This article represents the opinion of the author and does not necessarily reflect the editorial stance of CARBON Copy.