Impact Farming: Decentralized Finance with Purpose
Creating virtuous cycles between DeFi investors and the underprivileged.
With Decentralized Finance (DeFI) booming since last year, the rise of a practice called “yield farming” has shaken the Ethereum ecosystem by introducing incentives for investors to provide capital to liquidity pools for newly launched protocols and a wide range of financial products directly built on top of the Ethereum chain. These rewards typically come in the form of a governance token that lets holders vote on proposals to improve the protocol, and also sometimes introduce the right for their holders to rent seek fees from the usage of the application.
These incentives can lead to massive capital movements. Back in November, two major decentralized exchanges (Uniswap and Sushiswap) started competing for liquidity, and Sushiswap rolled out a reward scheme that nearly halved the Total Value Locked (TVL) of its competitor. Close to $1B shifted within 24 hours. Since November, these numbers have significantly gone up, with close to $40B locked in smart contracts at the time of writing.
While these numbers and terms might seem abstract if you are not familiar with the concepts at hand, these movements essentially mean that given the right set of incentives, money can move fast. Meanwhile, World Bank data suggests that still about 1.7B adults in the world remain unbanked, without an account at a financial institution or through a mobile money provider. So what if we could convert greed into social impact and make some of this money flow towards where it’s most needed?
We have been exploring this question at Keyko, in collaboration with our partner Celo, who is on a mission to create a monetary system that “creates the conditions of prosperity for all”. Our work with Celo has brought us to run and operate a validator on its network, for which we currently receive up to 75,000 cUSD (cUSD is a Celo-based stablecoin mirroring USD value) per year.
A validator can be thought of as a crucial infrastructure component that secures the state of a decentralized network by writing transactions to the blockchain. The model proposed by Celo allows greater throughput and less latency than legacy chains like Ethereum and Bitcoin. This fits well with the purpose of the organization, which seeks to be mobile-first in its strategy to bank the unbanked.
As Celo continues its expansion to provide mobile-first financial services for those in need (for instance through their Valora app), we at Keyko have decided to explore the virtuous cycle of social and impact farming. Through our integration with ImpactMarket’s smart contracts, we’re enabling the continuous funding of Universal Basic Income programs throughout the world for the communities that are the most in need.
While DeFi investors seek return on their investment by purchasing tokens that they fundamentally believe will increase in value, farming aims at putting these assets at work. We’ve designed a system in which any CELO holder, on top of the existing return they get for delegating (up to 6% per year), will receive a voting token (vMOJO) that lets them decide where Keyko will disburse the cUSD it earns for running a validator. More information about the mechanics of how vMOJO is minted will be published in a follow-up article.
Approximately once a month, users delegating to the Keyko validator will now able to use the voting tokens inside a web application that is directly connected to Universal Basic Income contracts. Each voting session lasts the equivalent of three days, during which users can cast their votes in either of the two projects carefully curated by Keyko and ImpactMarket. At the end of the vote, the cUSD rewards Keyko receives will automatically be sent to charitable organizations and causes, which contribute to a stable source of income over a fixed period of time to UBI beneficiaries.
With the tap of a finger, UBI beneficiaries can periodically claim their cUSD allowance from the Valora mobile app and start spending it to local merchants accepting it. This system has proven to be efficient, as ImpactMarket tracks more greater transaction volume than the donation amount being made.
By delegating CELO to Keyko’s validator, CELO holders actively fund and promote the usage of cUSD throughout the globe while simultaneously helping those who need it the most. This creates a virtuous cycle for CELO holders who can boost network usage by picking the right validator and participating in governance. Being closely tied to Celo’s operations, organizations like Keyko also benefit from more cUSD usage, as CELO captures the value of the infrastructure enabling these use cases.
Impact and social farming are about providing access to decentralized finance applications and funding communities who don’t have the privilege to access basic financial services, and to leverage these user bases to promote a more sustainable and fair economy while bootstrapping protocol adoption.
As DeFi matures, we hope to see more projects adopting a model where a portion of the yield generated by farms is used to directly fund network adoption through users who could benefit it the most, and drive greater governance engagement via similar models where token holders have a say in capital allocation decisions.
Recently, Keyko made a proposal for integrating Celo’s ecosystem with Compound’s newly proposed Compound Chain to allow cUSD and CELO holders to access its money markets. Such a development could create huge opportunities for these communities around the world, by enabling them to borrow and lend crypto assets.
To summarize, DeFi represents a great opportunity for many of us, but because these systems are decentralized by nature, they allow for the inclusion of users who have been too often left alone, so let’s make sure those who need it most are empowered through fair capital distribution.
If you have questions about how to participate in our impact farming experiment, don’t hesitate to drop us a line — meanwhile, check out our staking app, which you can find in our virtual dojo!
As we get closer to the first voting ceremony (date TBD), we invite all CELO holders to start delegating to our validator to start farming vMOJO and to participate in the governance of those donations.
ありがとうございます — Arigatou gozaimasu
Keyko is a Web 3.0 solutions provider building integrated decentralized solutions for enterprises and startups. We thrive on onboarding organizations and individuals into the emerging digital world where capitalism and ownership are being profoundly rethought.
If you would like to know more about our services or are interested in having a chat, please reach out to us at c or visit our website here.
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