CAI0046

Written evidence submitted by Alice SI Ltd, Curiosity Society, Resonance Ltd

Submission Focus:

What impact could the use of crypto-assets have on social inclusion?

Project SAVE

Sustainable poverty Alleviation of Vulnerable populations, through distributed ledger technology, big data analytics, and Evaluation

Beneficiary saving rewards on a Blockchain wallet

“I’ve been homeless 3 times. The problem isn’t drugs or mental illness — it’s poverty” a homeless woman described through tears in an interview with a social worker.

Economist James Sullivan of the University of Notre Dame in South Bend, Indiana, conducted research, in 2016, with people on the brink of homelessness. He tracked the lives of those, who received a cash infusion in a time of need, and those who didn’t. The people that received the cash infusion were 88% less likely to become homeless after 3 months and 76% less likely after 6 months (Research Report, Science.org, Aug 2016). "We found no evidence that this effect fades away," Sullivan says. "There is evidence that it's a sustained impact up to 2 years later."

Resonance, a leading UK impact investment property fund, with £320m under management, is pioneering this type of research in the UK, with a revolutionary social innovation experiment with the same hypothesis:

Cash injections, as part of a set of related interventions, will

(a) prevent homelessness,

(b) enable supported individuals to have a positive move on to independent homes, and

Resonance buys properties in the UK to house homeless people, former prisoners, and victims of domestic abuse. Through years of data on their tenants’ journeys out of poverty, Resonance has witnessed that up to 40% of the people that move out of their properties are evicted, due to rent arrears.

To minimise this percentage and prove their hypothesis, Resonance is launching the first distributed ledger technology cash injection programme in the UK, that will provide tenants with money in a savings account on a Blockchain wallet.

Funding into tenants’ savings accounts will come from investors and local authorities, and it will be granted to beneficiaries, on a smart-contract basis, as rewards for their achievement of pre-set goals towards their positive move on to independent housing.

Social Innovation on the Blockchain by Resonance, Alice, and Curiosity Society

Platform developer Alice, in partnership with Resonance, has created the SAVE platform, that analyses and visualises impact data on a decentralised infrastructure. SAVE is a project initially funded by Innovate UK. Resonance and Alice are extending the SAVE project with a smart contract-enabled reward system that will maximise Resonance’s tenants’ positive move-on to independent homes.

Curiosity Society is Resonance’s impact measurement partner. Curiosity Society is working with Resonance’s housing partners and their tenants to form two groups of participants (one being the control group) and to generate the goals that the participants will complete, as part of their journey out of poverty.

SAVE will build a traceable, yet anonymous, Savings Blockchain wallet for Resonance’s tenants that will receive funds, on the basis of a smart contract infrastructure. The smart contracts will allocate cash, vouchers (eg gym, childcare vouchers), and badges (eg badge for fastest move-on to independent housing) to the tenants, upon completion of their goals. These three ‘dimensions’ of smart contract reward respond directly to the tenants’ needs for resources (cash for savings), relationship (vouchers for activities) and identity (recognition for achievement).

A data-driven beneficiary journey

SAVE’s use of distributed ledger technology, with its decentralised impact data analysis and smart contract infrastructure, is essential for the following three reasons:

(a) it guarantees beneficiaries’/tenants’ data security on the blockchain,

(b) it safeguards beneficiaries’ data privacy and anonymity, and

(c) its decentralised data storage ensures data verifiability; data storage from it source to its analysis is decentralised, so no data can be tampered with.

SAVE will track individual progress, with full security and anonymity, to trace the tenants’ journeys, measure impact as it happens and adapt (based on the data) their personalised financial incentives.

SAVE will correlate tenants’ positive progress with a plethora of data from their employment status and demographics to benefits claimed and their overall well-being.

Resonance will then share this invaluable data analysis with investors and local authorities to:

(a) prove the impact of their tenant support, with full data anonymity,

(b) integrate verified impact into the investment process,

(d) generate housing affordability data to accurately inform local authorities and policymakers.

The crypto-assets conundrum

The holy grail of crypto assets, when it comes to social and financial inclusion, is that cryptocurrencies will provide financially vulnerable individuals with easier and cheaper access to financial services — such as accumulating savings, building credit, and making payments.

Financial inclusion is typically measured by the percentage of a community’s population that has access to a bank account (World Bank, March 2022).

In order to build our back-end architecture we had to decide whether we would use an existing stable coin, create our own, or simply use an internal token that is pegged one-to-one to the British Pound, yet has no intrinsic currency value.

To make our decision, we had to examine the costs, risks and long-term benefits of each of these solutions. Using an existing stable crypto-currency would be the simplest solution, as we would choose the least risky one to execute GBP to crypto transactions and vice versa.

Our decision process, favouring a stable crypto-asset, however, stumbled upon the following:

- The transaction fees we’d have to pay for every pound-to-crypto transaction, as well as for the distribution of funds to the beneficiaries’ wallets, would be higher compared to the fees charged by banks. In our case actually, the fees of a simple bank transaction would be near zero, as we will only operate within UK banks.

- Holding crypto-currencies in the beneficiaries’ wallets, even in a stablecoin, is a risky form of investment with significantly low consumer protections in place. This is at odds with the purpose of financial inclusion, especially since financially vulnerable individuals could be most at risk of losing their money in the event of a crypto-related financial crisis, or any sudden regulatory announcement.

- The goal of social and financial inclusion is to make sure that individuals and households have better financial stability and economic well-being. Crypto-assets enable more accessible financial services and make old processes more efficient, however, they don’t reduce income equality or put money into people’s pockets. Well-designed social inclusion programmes, that enjoy the benefits of distributed ledger technology, are the ones that truly fulfill the goal of financial inclusion.

SAVE aims to achieve precisely that: sustainable financial inclusion for their beneficiaries without the high transaction fees or the risk of holding crypto-assets, but rather the data security and verifiability of a decentralised storage and smart-contract infrastructure.

We, therefore, took the decision to create a token, internal to our smart contract infrastructure, without relying on an existing stable coin or creating our own. Our token only serves the purpose of ‘fuelling’ our smart contracts and reflects the numerical values of the beneficiaries’ rewards on their Blockchain wallet in two forms:

(a) Voucher rewards - Resonance’s tenants will use the British Pound equivalent of the token rewards at a gym, nursery or any equivalent institution, with a simple QR code on their phone.

(b) Saving rewards - The numerical value of the accumulated savings, as shown on the beneficiaries’ wallets will be transferred, in GBP, from Resonance’s bank account to the beneficiaries’ existing savings accounts, or the bank accounts that Resonance will help their beneficiaries open. The savings transfers will take place at the point of the tenants’ positive move-on to an independent home, at which point they will be out of the programme. The savings rewards will be used for the tenants’ deposit into an independently rented home or the purchase of their own home. The tenants will continue using their wallets and they will commence their life out of supported housing with a healthy reserve in their bank accounts.

Our choice of operating SAVE with a simple internal token ensures the beneficiaries’ sustainable inclusion into the financial system, without exposing them to the costs or risks associated with crypto-assets holding. At the same time, we’re introducing the beneficiaries to a revolutionary technology that, when used wisely, gives rise to financial liberation for all.

The secure and verifiable data that we generate with our decentralised storage and smart-contract infrastructure will offer key data analytics to local authorities on constituents’ employment status, financial resilience, housing affordability, difficulties faced, and overall well-being.

Based on this key data analytics, and the learnings of our pioneering social experiment, local authorities and political party representatives can generate support programmes for their constituents and initiate social policies’ reform and development. With this objective, we would aim for local authorities’ and the UK government’s support throughout the programme. We would welcome the publication of this paper, announcing the programme, as well as introductions to relevant government departments that will springboard the first beneficiary cash injection programme on the Blockchain.

September 2022