Israeli crypto project wants to direct money to those who need it most

There are two emerging trends in the world of cryptocurrency. The first is the fast-growing field of DeFi (short for decentralized finance) – financial services that can go together with commerce in digital currency or savings with interest, like banks do. As of now, the equivalent of $85 billion is found in DeFi apps.

Another is the rise in popularity of digital currency in developing economies; in Nigeria, Africa’s largest economy, 32 percent of respondents in the country said that they used or owned cryptocurrencies, as opposed to six percent of Americans, a 2020 online survey said.

One in three people purchased cryptocurrency last year , as opposed to one in six in the United States, a February survey said. Digital currency is popular in other countries in Africa, including Ghana and Kenya, and in countries in South America, topped by El Salvador, which has recently made Bitcoin an official currency.

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At this juncture we find GoodDollar, an innovative not-for-profit project of eToro, an Israeli company that developed an investment platform that operates like a social network. The company will be merging with a special purpose acquisition company to begin trading on NASDAQ, at a valuation of more than $10 billion.

According to the project’s director, Tal Oron, GoodDollar is the brainchild of Yoni Assia, co-founder and CEO of eToro, and has its roots in the outbreak of the global financial crisis of 2008. Assia wrote at the time about the need for transparency in global financial systems, that they would operate according to new codes. He also raised the idea of universal basic income, among other things.

Universal basic income (UBI) is by no means a new idea, but it has gained traction in recent years, even more so since the coronavirus pandemic. It would see money distributed to the population on a permanent basis, with no regard to the recipients’ employment status or finances. Experiments in this idea have been conducted around the world in recent years; one of the best known took place in Stockton, California. The experiment showed that participants worked harder and earned more money after taking part, and also suffered less from anxiety and depression.

Tal Oron, GoodDollar project director Credit: Michael Topol

But GoodDollar’s economic model was not intended to line the pockets of the residents of California, Finland or Ontario – places where some of the best-known UBI trials were held, not all of which were successful – but rather for other locales.

“Twenty-five percent of the world population earns less than $2 a day. Half the world’s population lives on $5.50 a day. People in developed economies have a hard time grasping what it is to live off of these amounts,” Oron says.

Yoni Assia, CEO of eToro Credit: eToro

These economies have a solvency problem – in other words, poverty is severe and people don’t have enough money. The idea of GoodDollar is to apply the model of trickle-up economics: distribute a sum of money to people at the bottom or the middle of the income ladder in order to effectively jump-start the economy. They intend to do this through the digital currency GoodDollar, which will become a complementary currency, to encourage the local economy.

Much has changed between 2008, when Assia first conceived the idea, and 2018, when he founded GoodDollar: The invention of Bitcoin and blockchain technology , which for the first time made it possible for digital currency to be traded securely without the intervention of a central bank. Later came the invention of Ethereum blockchain, which brought in new digital coins; and smart contract computer programs, which are intended to work automatically; and now, with the growth of crypto-financial services, DeFi makes the GoodDollar model possible.

Oron explains that the way GoodDollar’s model resembles that of many universities worldwide. A philanthropist endows an institution with a very large sum of money, and the interest from the principle goes to fund its activities.

“The GoodDollar model enables worldwide supporters of UBI to purposefully use their capital to support this cause. Supporters lock their principle towards the UBI cause - in crypto, we call this ‘staking,’” Oron says. “All the supporter’s money is pooled together, and it earns interest, but in this model, the interest is distributed evenly between all GoodDollar members as digital UBI.”

Oron explains that this “no-donation approach” is critical for its cause. If a supporter no longer wants to put their money behind a project or cause, they can withdraw it.

GoodDollar is not just the name of an initiative, it’s also the digital currency invented as part of the project, under the symbol G$. Tomer Bariach, the project’s product lead, explains what sets it apart from others: “Until today, in terms of the stability of the currency, we’ve known two types of digital assets in the world of cryptocurrency. One is volatile currencies that serve as ‘digital gold’ (like Bitcoin), and are harshly criticized because they can’t be used in daily commerce due to their instability.

“The other kind is stablecoin, with a permanent value pinned to another currency, such as the U.S. dollar. These currencies face the opposite criticism – that they don’t create a new economy, but rather build an old economy on new technology.”

GoodDollar, in contrast, is “stable enough” Bariach explains. It is backed by real money in a reserve, and therefore is more stable than the leading 100 cryptocurrencies today. However, it has a unique mechanism that allows its price to change in a way that represents the use of the currency. “So we’ve created a currency that can be used in commerce and still represent a new economy,” Bariach says.

The currency was launched about a year ago, and it is now successfully undergoing checks as to whether the system works properly, whether it is secure and whether there is a demand for it among those who are supposed to benefit from it. As part of the experiment, eToro endowed money in GoodDollar and divided the interest among the people who signed up for the project.

Bitcoin trader in Nigeria. One in three people used the digital currency in 2020 Credit: Temilade Adelaja/Reuters

Although the project has no marketing budget, more than 200,000 people signed up for it, and about 60,000 open the app every day and receive money, most of them from Argentina, India, Vietnam, Nigeria and other developing nations. The interface is intended to be particularly user-friendly, and the system identifies each unique user and prevents duplication.

Over the past year, users received a tiny sum equivalent to 0.2 cents a day, mainly to check whether the system was working. Now the project is moving on to its next phase: eToro is putting $1 million into the till, and for the first time, anyone else who wants to can do so as well. Users can also withdraw money whenever they want, using DeFi apps.

The project has already garnered interest among well-known supporters of UBI, such as Twitter CEO Jack Dorsey and U.S. presidential hopeful Andrew Yang, and GoodDollar hopes that this will bring more money into the project.

“In early October, we’re opening up the protocol, so any person can support community-funded UBI,” Oron says. The community goal we are mobilizing towards is to distribute 20 cents a day to one million unique members, which will prove a decentralized UBI at scale. Within a few years, we hope GoodDollar distributes $2 a day per person, and, together, as a global community, without government support, raise hundreds of millions of people above the poverty line.”

Oron notes that cryptocurrencies got a negative reputation early on due to its associations with cybercrime, but that the technology behind it is “about empowering people and building a more transparent, accessible financial ecosystem that can be accessed by all people.” Oron says.

“Many people are curious about cryptocurrency but are hesitant to get into it because you have to ‘buy in’ and put money down to get started. By giving out real, liquid digital currency every day, with no risk, we are removing that hurdle – even if it’s a very small amount at the moment,” he notes.

In addition to distributing money, the project also wants to advance financial education by providing an easy, low-risk way to learn about digital money and cryptocurrencies. “For a lot of participants in the project, this is the first time they have something that resembles a basic bank account, but immediately, the dots connect that they can save it, borrow against it, invest it and even insure it,” Oron says.

“We believe that if I give a person $1 and guide them in their journey in learning how to make it $2, they can also do it with $100 or $1,000.”

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