Gratis from the Latin word for favour; without charge, free.
(All figures quoted in U.S Dollars).
When a person grasps the concept of decentralised finance (defi) and begins to understand the magnitude of its limitless potential, that person will never be the same again.
My own ‘lightbulb moment’ took place in a virtual classroom at MIT, during the introduction of ‘Blockchain and Money’ given by lecturer Gary Gensler, now the Chairman of the U.S. Securities and Exchange Commission (SEC). The course is free and available to anyone with an internet connection.
After explaining how money had changed throughout history, Gensler said that about fifteen years ago, people in Kenya began trading unused mobile minutes to create their own form of currency and that ‘in Africa today, half of the adult population are still unbanked, but half of that half have mobile phones’.
The point he was making was that for those without bank accounts, the future of money could, and should, be digital.
As we know, defi is growing exponentially. According to Defi Pulse, the total value locked (TVL) has risen to $55 billion in the last twelve months, increasing 2,000%.
Yet this figure still remains a fraction of the global financial services market, estimated to be $22 trillion by MakerDao’s calculations. Defi’s current TVL is just 0.25% of this figure, a quarter of one percent.
So how can Instadapp gain a larger slice of what is a considerable pie? What if part of its strategy tied in with helping some of the world’s poorest people, creating a win for both?
Migrant worker remittances
According to the United Nations, about one billion people in the world – or one in seven – are involved with remittances, either by sending or receiving them. Around 800 million people are reliant on money sent by family members who have migrated for work, the amounts generally ranging between $200 and $300, sent every one or two months. In 2018, a total of $689 billion was sent home.
Remittances are expensive, incurring fees through multiple intermediaries all taking a cut that can amount on average to 7% of the total. In Africa, it can be as high as 14%.
Remittances are a lifeline keeping millions out of poverty. Remittances make up to 60% of a household income, with 75% of the money used for essentials: food, medical expenses, school fees, whilst the rest can be saved to safeguard against what is often a precarious existence.
Migrant workers leave their families behind and miss out on seeing their children grow in the hope that their hard-earned remittances might make migration a choice rather than a necessity for future generations. This is one of the reasons why the United Nations has set a target to reduce transaction fees on remittances to less than 3% by the year 2030.
But what if Instadapp could provide a solution sooner, for less than 3%? What if Instadapp could do it for 1%, or even without charge?
Instadapp payments processing
The first step is to create a payments extension that could be attached to Instadapp Smart Accounts. This is something already being considered, going by the last point in one of Samyak’s recent posts.
Migrant worker remittance payments, (let’s call them gratis payments for argument’s sake) could be identified and flagged by meeting a specific set of criteria:
An agreed value (for example $300 or less)
A recurring payment sent every 30 or 60 days
Only two accounts ever used – one sender, one receiver.
Let’s say that as a result of the ongoing pandemic, the total value of migrant worker remittances is $500 billion per year and that Instadapp secures one per cent of the market:
$500 billion, 1% of the market = $5 billion
A transaction fee of 3% on $5 billion = $150 million revenue
A transaction fee of 1% on $5 billion = $50 million revenue
No transaction fee = no revenue
Benefits of minimising / waiving transaction fees
The obvious benefit is in helping some of the world’s poorest people who for years have had little alternative other than to pay high fees. But a low or no transaction fee brings benefits to the provider in return.
Imagine the kudos / goodwill /media exposure generated by creating something so worthwhile. Imagine how quickly word of mouth could spread if transaction fees were reduced to nothing and how others might come on board, increasing liquidity pools, helping mainstream adoption of defi from grass roots level up.
The remittance payment could act as a starting point with a potential user base of one billion. With a larger user base using the protocol and all its features, new innovations are likely to result.
TVL is likely to grow benefitting both parties. The initial payment can be separated into different smart accounts (such as a savings account for example) as shown here in Vishva’s post. Smart accounts can also be delegated to a defi whizz kid (are these the investment advisors of the near future?) in order to take advantage of clever strategies to earn interest.
Half of all remittances go to remote rural areas where recipients are often forced to travel long distances to urban centres (where the banks are), often at significant cost, to retrieve cash. With significant uptake within a community, people could use digital money in their Instadapp smart accounts as an alternative to cash to pay others, much like the trading of mobile minutes mentioned earlier.
Open for discussion
Slice of the pie, or pie in the sky?
With lower gas fees via Ethereum 2.0 and greater mobile coverage in remote areas, the idea becomes more feasible especially when these hindrances are being addressed by two extraordinary organisations, led by two extraordinary men.
Given Vitali Buterin’s penchant for benevolence in donating over $1.1 billion to India’s covid relief effort and though a collaboration might seem extremely unlikely, if ‘crypto’ has taught us anything, it is surely that anything is possible.
In the space of twelve years, Satoshi Nakamoto’s idea of electronic cash not only materialised but reached a value of $1.1 trillion, one seventh of the value of all the gold ever mined over 2,500 years.
Instadapp’s own story is equally astonishing, two brothers rising from a 2018 ETHIndia hackathon to create game-changing, cutting edge technology with a band of merry men and women in just three years, increasing its TVL to $8.88 billion at a rate of 4,750% in the last twelve months alone.
Yet if reaching the top of the TVL leader board is the height of Instadapp’s ambition, those within governance must help those in power to set its sights higher. I doubt there has ever been a better opportunity in the history of mankind for ordinary citizens to transform the lives of people who have only ever been on the outside, looking in.
Recognising that, might be the biggest lightbulb moment of all.