Games Will Be Your New Investment Manager

The app that tricks me into investing 20% of my income into the S&P 500 will win DeFi

One of the crypto industry’s foundational promises is to provide better banking services to everyday people, and few projects in the space shied away from using the “Bank the Unbanked” mantra. Even Facebook’s Libra took a page from the whitepaper playbook and touted Banking the Unbanked/Underbanked (“BTU”) as the primary goal of their Silicon Valley-backed token.

Yet most of these projects miss the mark. Open finance is as much about access to financial tools as it is about changing bad financial habits and deeply rooted misconceptions around money and wealth.

Perhaps one of the most interesting projects addressing this issue is Pooltogether, which offers a creative way to incentivize people to open a high-yield savings account.

This app strikes at the heart of a more compelling goal — to better bank the poorly banked.

What is Pooltogether?

Pooltogether is a no-loss lottery. It incentivizes good personal finance habits by gamifying a traditional savings account.

To play the game, users commit at least $20 worth of Dai in exchange for what is effectively a lottery ticket. All funds are pooled and lent out on Compound. At the end of the given period (15 days), the earned interest is allocated at random to a single participant, instead of spreading it out evenly amongst all.

One person gets paid, and everyone else gets their principal back!

This kind of prize-linked savings account has many predecessors, from UK premium bonds to MaMa in South Africa. States like Texas and Michigan have also experimented with prize-linked lotteries in the past. Of course, tools like Maker, Compound, and Aragon make the creation of and trust in these products much easier and more efficient.

Perhaps the most exciting thing about Pooltogether is that it proves that gamification and incentives normally used to capture attention (and deplete time and money) are useful for the opposite purpose.

With $80 billion spent on lotteries every year in the U.S., and with most Americans holding less than $1,000 in savings, the savings market is an easy target for better banking tools.

Banking the Unbanked

The BTU narrative is a flimsy moral crutch for the crypto industry. Underneath it is a commingled web of problems, solutions, and terminology. Unbanked and underbanked people are meaningfully different. They face different hurdles and have different needs.

The FDIC defines unbanked people as those without a basic checking account.

The underbanked are those who have a checking account, yet receive financial services from “Alternative Financial Services,” a euphemism for financial services you likely wouldn’t use if you were affluent or given meaningful choice. These include payday loans, pawn shop loans, check cashing solutions, and remittances.

It’s easier to imagine three categories:

· Unbanked 0–1: Mostly developing countries (technically 7% of US is unbanked).

· Underbanked 1–2: Could be Zimbabwe, could be Appalachia (~19% of US is underbanked).

· Poorly Banked 2-∞: Anywhere from Caracas to Manhattan.

Despite what the majority of whitepapers may tell you, you only need a smartphone and one software tool to bring people from 0–1. Sovereign-grade censorship resistance and byzantine fault tolerance need not apply.

From what Libra has shown, they are well positioned to deliver on this goal at a meaningful scale. I don’t doubt this can bring real value to many in the developing world, but that’s mostly a question of hardware, not software.

The harder questions are whether new financial tools (i) offer fair rates and opportunities that are on par with what sophisticated investors normally receive and (ii) encourage people to make good financial choices?

The fact that most Americans have sophisticated financial tools readily available and half still have less than $1k in savings shines a light on gaping hole in the narrative.

Some of these issues are naturally larger systematic problems. Yet some of the problem still relates to the failure of core banking products. Most don’t try and correct core misbeliefs or poor practices. Just because there’s a permissionless lending primitive floating in cyberspace, doesn’t mean Joe the Plumber is going to turn in his Miller Lights and Marlboro Reds for high-yield, low-risk lending with eyes on a down payment.

Pooltogether’s target — the savings account — is a great example of the state of financial services for retail investors. Until recently, most banks paid out practically 0% APY on cash savings account, despite historically offering 3–7%. Goldman Sachs’ Marcus savings account debuted with around ~1.25% a few years ago, setting off a savings account race to the top with Wealthfront now leading the pack at 2.57% APY for a cash savings accounts. Most other banks pay close to zero. An FDIC insured cash savings account is about the closest thing you are ever going to get to “free money.” The fact that many (if not most) consumers still bank with banks like Citi that offer 0.04 % is telling.

Of course, if you have only a thousand bucks in your account, the 2% isn’t much, but it’s still money on the table. The “unbanked” need tools that provide benefits on par with what wealthy investors receive, and encourage the habits that those at the top take for granted.

Stake to Game

Large scale gaming is well positioned to help correct financial behaviors and encourage good banking practices. This industry can best capture the strengths of crypto native products — easily programmable incentives and gamification that combine with fluid money and financial products.

This means that your future wealth manager could be a video game.

Pooltogether is in many ways exactly that — it’s a game where the cost of entry is a decision to “bank” with that game for a given period of time.

The ease in which you can move tokenized assets around makes it likely that banking of “staking” of assets will become a more popular (and potentially easier) way to monetize various products.

Large scale games and MMOs with long time horizons, rewards, and so on are best positioned to capture this market. You could tie in-game rewards, skins, and perks to either the amount of money staked or length of time staked. To avoid providing all the benefits to a few rich kids, you could distribute rewards based on the percentage of net worth staked. You could also just set a low minimum — everyone who deposits $50 or more at Bank of Fortnite is allowed to play, and will be automatically entered to win various perks. The money can be allocated to a passive savings account, invested in ETFs/indexes, or yield rewards at random like Pooltogether.

Apps like Longgame have offered gamified incentives to save and invest for some time. Many of these apps, however innovative, are savings tools first and games second. The tools that succeed will be just the opposite. Games will compete for AUM instead of in-game purchases or merch.

To do this effectively, games would need to erode institutional dominance of FDIC insurance and misconceptions about wealth. The former could easily be done if large scale gaming protocols worked to get the insurance. They could also partner with FDIC insured banks and “hang their license” there and share in some of the upside. This is a common model in the Broker/Dealer space.

Changing deeply rooted conceptions about who should manage your money will take some time, but the open finance space is already working on that. It took thirty years for people to realize that a Harvard grad wearing suspenders and a bow tie is less effective at managing your wealth than a tiny robot choosing the shiniest 500 stocks.

It might take some for people to realize that Pac-Man is just as good at holding or managing your wealth — if not better.