CUBI: Cardano Universal Basic Income
A universal basic income program built on the Cardano block chain.
This paper is a discussion about a universal basic income system built on the Cardano blockchain for individuals in need of financial help. The examples use publicly available information for Sacramento, California. This is an experimental solution and a new path to potentially overcome social-economic challenges in the modern world.
A Brief Introduction to CUBI
CUBI is the Cardano Universal Basic Income program. Users of the CUBI system will be paid with the return on investment from the delegation of the primary currency in Cardano from dedicated stake pools operated by the CUBI program. The currency given out will be placed into smart contracts that operate as the user's wallet, allowing the purchasing of goods from participating CUBI merchants.
The CUBI program is specifically designed to help those in financial need by providing a cryptographically secure method to purchase goods. A by-product of the UBI system is the increase in cryptocurrency adoption at the merchant level and the creation of a donation system where the wealthy can help without the financial loss of their initially donated funds.
Why a UBI System?
On any given night in Sacramento, California there are more than 6000 unhoused people. Every day lower-income households struggle with rent, bills, and food payments. In the future, many jobs will become automated with machine learning artificial intelligence, leaving behind an entire population of people without a source of income, resulting in the need for that population to receive some form of financial help. The programs that exist today are meant to help and they do help in their own right but none of them create a self-contained income system. A system built to provide the purchasing power required to survive in the social-economic environment of modern life.
The UBI system we need is CUBI. A smart contract-based universal basic income system based on the yearly return on investment from participating in a proof-of-stake blockchain. CUBI serves as the medium for purchasing power while creating a financial ecosystem for everyone to use.
Yield-based UBI Programs
Cryptocurrency-based universal basic incomes already exist in a couple of different forms but none of the current solutions focus on helping an unhoused person get personal funding that is usable in the local economy. The few programs that exist today tried to create a UBI for everyone which slowly failed over time due to the lack of trust, infrastructure, and adoption.
In the cryptocurrency industry, yield-based UBI is usually done with altcoins or tokens on a sidechain. This creates a major issue at the merchant level because accepting any kind of currency that is not USD would mean accepting extensive liabilities in exchange for something that potentially has zero liquidity and no representation of real value.
The CUBI approach is different in the sense that it is directly giving out the primary currency on Cardano. This will help alleviate the liquidity and value issues by utilizing the existent liquidity of a heavily traded coin. This could be expanded further by using an algorithmically backed stable coin to facilitate payments, easing the transition of cryptocurrency to fiat for merchants and users alike.
Real World UBI Programs
The goal of a UBI system is to alleviate the financial struggles of a person or family. In the USA, any variation of a UBI system that either was proposed or implemented typically costs too much money to be run indefinitely. Most of the solutions to provide the required USD tend to focus on cutting back spending in other programs, increasing the taxation of the wealthy class, or creating new USD via bond sales, etc.
The current solutions for UBI either punish other programs that have their funding reduced, punishes people who are wealthy by excessive taxation, or reduces the purchasing power of USD. This creates hesitancy and repulsion towards UBI systems as it is seen as a "steal-from-the-rich-give-to-the-poor" socialist-style solution.
These reactions are not surprising. The USA is a capitalist society and inside that society, there does not exist a monetary incentive to practice having a concern for the happiness of other human beings or other animals. Circumventing the non-altruistic nature of capitalism can be done by creating a program that simultaneously creates a monetary incentive for the wealthy while providing financial aid to those in need.
How it works
The UBI system will be built on the Cardano blockchain. The blockchain's primary currency is called ADA (aye-da). This is a proof-of-stake chain which means that the transaction confirmation scheme is based solely upon the amount of token being delegated to something called a stake pool. A stake pool is either a single entity or multiple groups collectively delegating their ADA in hope of producing the next grouping of confirmed transactions called a block. When a pool is selected to produce a block they will be rewarded additional ADA for their contribution to the continuation of the blockchain. On average, each stake pool makes around a yearly 5% return on investment. The goal of CUBI is to use the ROI from staking ADA to create a UBI system.
Stakepool Details
A stake pool in Cardano can max out their pool delegation at 64,000,000 ADA. This will result in an approximate yield per year of 4.8%. This means that each pool will profit a little bit over 3,000,000 ADA per year. This will allow about 250,000 ADA per pool to be spread out to individuals in the CUBI program every month. The goal for the program will be to run as many stake pools as possible to maximize the number of ADA for the UBI system.
Example Case 1
If each person was issued 250 ADA, a little more than 300 USD a month at the time of this writing, then a single pool can provide assistance for 1000 people, every month, forever. As the price of ADA increases, the total ADA sent out to each person per month could decrease thus allowing more people to participate in the program.
If Sacramento ran 6 stake pools with max delegation then every unhouse person could be in CUBI program with a spending limit of 250 ADA a month.
Example Case 2
On average the city of Sacramento pays about 14,000,000 USD annually to address houselessness. Replacing that cost with a Cardano stake pool solution will require the city to run 4 max delegation stake pools. The initial cost of starting the pools from absolutely nothing would be about 250,000,000 USD.
The cost of paying for all unhoused-related issues in a 15 year period could pay for all unhoused-related issues, forever.
Digital Identities
Each user in the CUBI program will be issued a digital identity that is connected to a smart contract wallet and the blockchain. This allows for unfraudulent use of the CUBI wallets and provides an economic identity to those without one. This does force the CUBI user to have some form of smartphone and/or a debit card that must be kept safe and secure. In many situations, this is actually not possible for someone to do. Accounting for this issue will be required by creating many forms of a DID that are applicable within the smart contract.
The Cardano blockchain already has a DID system in place called Atala Prism. The DID solution is being tested in the real world right now in Ethiopia as the identification system for higher education. This would be a great opportunity for the city of Sacramento to be a pioneer in the USA in transitioning from the classic infrastructure into a blockchain infrastructure. The city would be the first in the USA to have this kind of program.
A blockchain identification solution goes well above just a monetary tracking program. In the current light of the COVID19 crisis, it may be beneficial at the merchant level to provide an unfraudulent way to incorporate vaccine or negative test results. A single system could provide an identification program, COVID vaccine contact tracing, a universal basic income program, an inventory system, and an electronic cash system. All are built on the Cardano blockchain.
Smart Contracts
The smart contract wallets will behave like prepaid debit cards. Periodically, each wallet will be replenished up to some maximal amount of ADA. This will allow the user to purchase food, pay bills, and pay rent. The CUBI user can not horde the ADA for personal wealth. After the end of each period, the remaining ADA is returned to the pool. This creates the incentive to use the ADA within that time period to buy goods. This allows unused or lost wallets to be automatically regained into the stake pools, ensuring individuals will be able to utilize the system and not abuse it for others.
A non-rollover payment system was specifically created to prevent CUBI from becoming a job replacement system. It is designed for those in need of financial assistance and not a quick way to accumulate wealth via holding onto a cryptocurrency for long-term financial gains. The participating CUBI merchants will be able to use their ADA as they please since they are providing products in the real world and are not in the program for financial aid.
Blockchain and smart contract solutions are the future. Smart contracts will help guide society towards removing the irrational fear associated with giving out money to someone in a lower financial class. In this system, the ADA delegated to the stake pools never leaves the wallet of the donator. The donator gains ADA from staking which in turn helps those in financial need. This will allow the higher class to financially benefit from helping the lower class.
Merchants
Merchants play a major role in the CUBI program. Similar to EBT, participating stores will be able to sell specific products for users with CUBI wallets. The merchant side of the program will be kind of involved but the CUBI program will provide an onboarding mechanism to modernize the merchant's inventory and monetary system.
A merchant will have a CUBI wallet where each item the merchant sells is represented as a non-fungible token, an NFT. When a CUBI user purchases an item from a CUBI merchant, the NFT will be burned, removing the item from the merchant's wallet and replacing it with ADA from the user's wallet. The transaction on the blockchain is a receipt for the transfer of ADA for goods.
The merchant's wallet is the inventory system and their bank.
CUBI users gain the ability to purchase goods with ADA and the merchants gain the ability to manage their inventory and funds from a single device. The merchant's wallet is the inventory system and their bank. This allows other non-CUBI users with ADA wallets to also have the ability to purchase goods by a transaction on the blockchain. In a single system, we can provide financial aid for someone, the modernization of crypto-based merchants, and a purchasing system useable by everyone on the blockchain.
The CUBI Program in Detail
The CUBI program will run private stake pools dedicated to a single purpose of providing a universal basic income to unhouse people in financial need. These pools will take 100% of the return on investment and directly feed it into the UBI system. The program will also host split pools for outside investors and donators. This will allow wealthy ADA holders to gain a personal return on their investments and provide additional assistance to the program. The program will have donation tiers like 70/30, 50/50, or 40/60, where the first number is the percentage going towards UBI and the latter going back to the donator.
The idea is to incentivize donators into a system where the donator may remove their own funds at any time from the program and use it however they please. Donating to the CUBI program is not a loss on the initial donation amount but rather a loss on the potential return on investment one would get if their ADA was personally staked. With the CUBI program, a donator has peace of mind knowing they are helping others while always allowing that individual to access their own donation at any time.
The CUBI program is the first of its kind. It will create a system for the users and the merchants.
Potential Cost
By utilizing smart contracts, the system can run autonomously and in a decentralized fashion. The initial development cost would be concentrated on the stake pool operation, smart contract creation, and technological infrastructure.
The cost of buying the initial ADA for a single pool at the time of writing would be about 85,000,000 USD. This is a huge investment to ensure that the city will be able to obtain funds over 3,000,000 ADA every year. The required ADA will probably be a mixture of CUBI purchasing ADA and private delegators staking to the dedicated stake pools, donating a percentage of their returns to the program.
There is a technological infrastructure that will require time and money to be built. The users will need a smartphone application that will allow the users to interact with the smart contracts simply and fluidly. The merchants will need a point-of-sale application that will handle inventory, minting and burning, and monetary gains. If done properly, it will benefit everyone in the surrounding communities.
Challenges
The biggest challenge is getting the initial ADA funding and getting merchants on board with the required technology. Jump starting this program will require massive fiat funding to obtain the required ADA. The actual smart contract should be fairly quick to create since all the contract needs to do is be a wallet. Building the inventory and monetary app required for the merchants will be a challenge on its own. It will require an inventory system contract to be built as well as a purchase-to-burn contract. This will need to be contained in some form of a point-of-sale device the merchant can use for their payments.
References
https://www.census.gov/quickfacts/sacramentocitycalifornia
https://www.saccounty.net/Homelessness/Pages/default.aspx
https://bdm.saccounty.net/Pages/AnnualBudgets.aspx
The price of ADA was assumed to be 1.30 USD.
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