I want to address as many of the aspects of the questions and comments posted as possible within a reasonable and useful amount of time. I will address the Defi potential upsides and pitfalls, some previous findings of PLS accounts, and some insights about the infrastructure and social adoption aspects. Further, there are some opportunities for implementation of PLS accounts that might be easier to trial in the decentralized/open-source space before attempting to trial them in a municipal setting.
First, the theoretical applications of DeFi projects show a lot of potential in the context of growing capital through algorithmic exchanges. There was a couple of analyses of the theoretical framework that were posted on the forum -
Theoretical framework:
Whitepaper: Uniswap v3 Core - Mechanism Design and Game Theory - Smart Contract Research Forum
An analysis of Uniswap markets - Mechanism Design and Game Theory - Smart Contract Research Forum
While this data has not been peer-reviewed, a cursory study of accounts participating in DeFi trading would have been better off just letting their capital stay in place instead of attempting to use DeFi trading mechanisms -
Real-world outcome:
Rekt - Uniswap V3 LP - REKT
This excerpt from the blog post explains that roughly half of the liquidity pools using Uniswap were losing money over time. -
" A recent study suggests that around 50% of UNI V3 LPs are losing money compared to if they just held their assets (and the fees they earn don’t make up for it) .
When V3 was launched, Uniswap promised their LPs increased capital efficiency via the use of concentrated liquidity positions.
But after 6 months of use, it appears that the increased complexity (and risk) have left half of LPs losing out under the new system."
Although their study was limited to 17 pools, it is a strong indicator that the Uniswap liquidity pools are not necessarily as viable for generating revenue as initially anticipated.
That said, there was a significant amount of data that showed PLS accounts can reduce gambling and increase savings among lower-income populations that either gambled, had problems accruing savings, or a combination of both. The long-term studies showed various benefits to PLS accounts, including one study which showed a 3% reduction in gambling among the sample population.
Long Term Study:
Making Savers Winners: An Overview of Prize-Linked Savings Products | NBER
Testing strategies to increase saving in individual development account programs - ScienceDirect
Supply Chain Transparency for cost is preferred by consumers when available:
Lifting the Veil: The Benefits of Cost Transparency by Bhavya Mohan, Ryan W. Buell, Leslie K. John :: SSRN
While there are proposed benefits of bringing more transparency to supply chains, there have yet to be any successful case studies. To the contrary, most of the case-studies I have come across that tried to implement a blockchain into their supply chain did not actually see significant enough improvements to make a case that blockchain technology will actually bring transparency to supply chains:
That is all to say; a realistic implementation of a PLS account that also includes blockchain technology could potentially be a quicker way to get unbanked populations into interest-bearing savings accounts that could also randomly see them getting an outsized prize.
While it is not currently clear what type of structure might yield the most positive outcomes a few issues would need to be addressed to reduce risk:
- It would need to benefit the local supply chain
- It would need to be cost-effective (ethereum gas-fees would be prohibitive as an example)
- It would need to be resistant to volatile market swings
- Optimally, it would be resistant to inflation
- If it were local, it should not undermine the local economy
- If it is part of a national initiative, it should not undermine the national economy (I.E. building on an extranational network)
- It can’t have a high barrier of entry into the global market (I.E. localized currency exchange gouging)
- It can’t be at risk of being banned by local government
- It can’t be at risk of being shunned by the citizens because of cultural/institutional associations
While this list is not exhaustive, it represents a starting point to show that there are factors that would make blockchain/DeFi PLS accounts more likely to be successful if implemented in a real-world situation.
If there was a hypothetical DeFi/PLS account that gave users the option to “save” their money in a digital version of their local currency and/or “invest” their capital into a government-matched bond which subsidized a local supply chain operation, while also having a lossless prize associated with these accounts; that would be more beneficial than gambling or investing in a non-local company. It is difficult to get these types of constructs when maximalists will push single blockchain solutions, but inevitably there will need to be many experiments to get to a PLS/DeFi account model that would work in multiple countries.
I have linked an example of a proposal for a sustainable blockchain infrastructure that was put forth in Bangladesh, as something like this would be necessary to ensure that the net effect was not negative.
engrXiv Preprints | LOCALIZED SUSTAINABLE AND ECOFRIENDLY ENERGY GENERATION AND DISTRIBUTION USING BLOCKCHAIN NETWORK: BANGLADESH PERSPECTIVE
As long as all of the relevant aspects are included, down to the storage and power consumption implications; there is potential for these types of accounts to be made accessible to their targeted population. The issue becomes, these tools will not likely be made accessible until either someone can profit off the users, or a government makes a major investment into a digital infrastructure shift.