Running a 10,000 person economy in Kenya on DAI-backed credit tokens

Improving charity and gaining live insights on everyday blockchain payments

Multiply is a charitable donation platform, providing up to 6x more impact than traditional cash or crypto donations. Read on about how we leverage donations through community currencies and which insights we gain on using blockchain for daily payments.

Stablecoins are hard to adopt

There are many problems hindering merchants to accept crypto as payments. User experience, uncertainty about regulation, crypto’s volatile value, unequal distribution etc.

Stablecoins try to solve the cryptoeconomic problems, by requiring collateral to issue a $token. Yet MakerDAO is facing problems due to DAI being collateralized by volatile, largely correlating assets, and fiat-backed stablecoins are collateralized by fully trusted, more or less opaque companies.

Multiply aims to solve these problems (and accelerate Ethereum adoption) by issuing credit currency to one dedicated developing economy. By filling the demand for liquidity in a relatively closed ecosystem, we kick off a positive feedback loop, enabling the trade of products and services and incentivizing an increase in local production. The issued credit will be backed by charitable donations in $DAI (or alternatives), continuously issued to network members, starting as an universal basic income.

Issuing universal basic income (UBI) to introduce the advantages of blockchain while protecting users from volatility and speculation

In Kenya’s poor communities, residents have lots to sell — from home-grown tomatoes to their labor time or teaching children — but few people have enough cash to buy the products, reducing the incentive to produce more. Barter works for some trades, but keeping track of who owes what is an inefficient process. The same goes for village savings and loans groups where transactions are commonly recorded on paper notes and kept in a locked box.

Cryptocurrencies have often been promoted as medium of exchange for developing economies. Yet in the average scenario, crypto too has been failing to get large adoption. Again, people who don’t have access to cryptocurrency or fiat in the first place probably won’t adopt DAI.

The value of local credit is simple to understand. While it can be stabilized through issuance, its price internally is only influenced by the local economy, independent of crypto speculation. Running on the xDAI chain, it is interoperable with Ethereum infrastructure, to hook into existing financial infrastructure like loans groups. But how do we identify people in need for liquid currency?

Our partner Grassroots Economics has been implementing community currency programs for 10 years. Starting out with printing their own paper notes, switching to Cyclos and finally POA, xDAI and Ethereum blockchain infrastructure. Today, the Sarafu community currency allows over 10.000 Kenyan individuals and businesses to freely trade on regional markets.

That is why we are collaborating with Grassroots Economics to scale donations into their Sarafu community currency reserve and gather insights for the Ethereum ecosystem from transactions in the local economic community.

Leveraged donations — aka improved GiveDirectly

While GiveDirectly revolutionized charitable giving in the spirit of effective altruism, by cutting admin costs up to a quarter per donated dollar, the actual donations happen in the same way as traditional aid organisations — with cash donations.

A cash donation is a one-time aid, which finally ends up in the pockets of foreign companies, who sell products to the local economy. This mostly completely leaves out the production potential of the local economy. Imagine for example a donation intended to purchase food. To maximize the short term outcome, the donation receiver will rather buy foreign grain, instead of investing in local agriculture. Leaving the local economy in need for aid again.

Issuing a UBI in credit currency will gently incentivize the receivers to invest locally and businesses to accept the currency as payment. Thus slowly keeping larger shares of each donation inside this growing local ecosystem, resulting in a larger impact per donation. Current field tests demonstrate up to 6x leverage over traditional donations. And tripple the velocity (the rate at which the money is traded) of the US Dollar. These indicators are transparent, because all transactions happen on the xDAI chain.

“Each donation to the Sarafu community currently results in 6x the impact of GiveDirectly”

Will Ruddick and his team at Grassroots Economics have been publishing a plethora of research blogs and insights on currency modelling, issuance, redemption, insurance and donation impact. I highly recommend taking a look at their blog, youtube channel and the raw blockchain data.

For the pilot it is planned that each 1 DAI donation to our contract is locked up as collateral, automatically issuing 4 DAI worth of community credit tokens to our Sarafu network members — low income people in rural villages and slums. They are now already able to access their tokens on feature phones or smartphones, enabling them to buy goods & services from any of the other 10,000+ members.

Multiply acts as a donation website allowing anyone to donate to Kenyans in need, while offering insights on a donation’s impact on the local currency economy. We will also help with building the onramp from fiat and Ethereum to the xDAI system. And prepare insights on the local currency network.

We also look for further communities, interested in launching a similar partnership. For example, we could imagine South American communities to be interested in a US Dollar local credit currency, keeping prices pegged to theUSD, a UBI version of MakerDAO.

Insights into Ethereum usage and insights into the impact of donations

The Sarafu network might be one of today’s most active communities, which uses Ethereum technology for daily payments — providing us with a large dataset of transactions. We can for example already measure the impact of donations on individual’s spending habits and how businesses change when accepting community currency. What else can we measure? A few examples:

Individuals & businesses

Tagged categories, like school, farm, savings group

Change in spending habits

Increase in individuals nutrition intake

Differences per gender

Network analysis

How centralized does a local economy get and need to be

Network stability: How important are loan groups? Are they more successful in judging people’s ability to pay back loans than banks?

Centrality: Importance of individual nodes

How much liquidity is needed

Social impact indicators

Sarafu used for public transportation

Increased income for small scale producers

Increase in local foods bought

Stabilized pricing for farmers and consumers

Share of children who go to school

Sarafu spending on drinking water services

To build great web3 products, we need to analyze usage patterns and keep iterating on them. We hope our pilot with Grassroots Economics provides an opportunity to get unique insights into a live blockchain payments ecosystem, for you to improve your products.

“What would you like to learn from the data? Which insights are interesting to the Ethereum ecosystem?”

We would love to chat with you! Please join our discord and tweet at us and donate to the UBI through multiply.charity.

If you want to support further development, consider funding our team with crypto through our gitcoin grant. ❤️❤️❤️

Where can I learn more about community currencies?

Read our FAQ and write us in our chat!

To learn more about Sarafu, make sure to watch Will’s video series on modelling community currencies or read the Grassroots blog. Thanks a lot to Grassroots Economics for making this possible.