The Power of On Chain Salaries
Streaming money is a new primitive for crypto that will bring payments into the age of the internet. In doing so, money streaming will solve age-old problems around earned wage access and enable the development of new, beneficial personal finance products for working people around the world.
The transition towards streaming money is one that’s long overdue.
The idea that payments should all be discrete, lump sum transfers is a skeuomorphic one. Now that money is simply information transferred primarily via software, we are free to experiment with new modes of value transfer that map more effectively to the modern world.
When you provide a service, you provide that service in real-time. Every second that the service is provided, you are delivering value to customers. However, discrete, lump sum payments (today’s default payment method) require that we disconnect the link between payment & value transfer. Service provision is continuous, yet payment is discrete.
Today, employees clock in and provide value during the hours that they’re on the job, but they don’t receive payment in real-time as they provide this service. Instead, they need to wait until the end of the pay period to receive value in return for their work. This dynamic has many negative effects. For one, it leads to cash flow issues for employees and enables the often predatory payday lending industry to flourish.
And it’s not just employees. Small businesses are often taken advantage of by unfavorable payment terms and are forced to turn to factoring — the process of selling portions of accounts receivable at a discount in exchange for cash today.
Money streaming allows us to connect the severed link between service provision and compensation. If you’re providing a valuable service, why shouldn’t you be paid every second for that service? Furthermore, you should be able to have an on-chain, digital proof that you’re being paid. Superfluid payments allow you to receive money in real-time for your services in a way that is on-chain and fully programmable. You don’t have to worry about the risk of not being paid, as the payment is being provided every second that you work, and your payer has created an on-chain proof of payment that you can check at any time.
This is amazing for many reasons that the Superfluid team has discussed in other articles, tweets, and podcasts (like here and here). But one thing that I still believe is under-discussed is the potential of programmable cash flows.
The beauty of Superfluid’s programmable Super Apps & other functions is that you can create applications which plug salary streams into the rest of the financial system. Today, this means plugging streams into DeFi, but tomorrow it could mean interoperability with all of finance. That’s exciting!
There are many areas in which this will have a positive impact, but I want to talk about a single area in particular today: salary streaming.
Salary Streaming Enables a More Inclusive & Connected Economy
When I first joined Superfluid, I was deeply interested in this idea of putting salary payments on-chain. I believe that putting proof of payment on-chain for employees would have second order effects that would be immensely positive for working people around the world.
Earlier on in my career, I helped launch a business that ended up employing 70+ hourly workers. Many of these employees struggled with personal cash flow issues. They were working for their money, but they weren’t seeing it until at least 2 weeks after they’d earned it. Streaming money solves at least part of this problem of early wage access — the ability to receive your money in real-time as you earn it.
But what about borrowing? If I have a salary, why can’t I easily borrow against that?
In some sense, you kind of do this in everyday life when you show proof of income with a W2 when applying to rent an apartment, get a mortgage, or take out a car loan. However, these are high-touch, human judgment heavy processes. The transaction costs associated with issuing loans are high because of the diligence process, and these transaction costs are reflected in the interest rates you need to pay for your loan. There’s also a risk that the person showing proof of income is falsifying the information. What proof does the lender truly have that the borrower is being honest about their income outside of a paper W2?
What happens in some instances is the borrower defaults on the loan. In these cases, many lenders reserve the right to garnish wages from the employee’s paycheck to help pay back the loan. This often comes as a shock to borrowers who aren’t aware that lenders can do this, and, once again, leads to way higher than necessary transaction costs. Lenders often outsource the collections process and are required to pay someone to track down borrowers with bad debt as they often jump from job to job to avoid their paycheck being garnished.
Recall that, with Superfluid, we have both on-chain proof of payment and programmability. If we’re the lender in the previous scenario, we could simply require the borrower to give us their Ethereum address to check for proof of income. We could also write a script which queries the Graph to see information about this payment stream. We can see how long the stream has been open, how often it’s changed, and data about who is streaming the payment to the borrower. Then, we could require the borrower to have their employer route 100% of their payment stream through a 3rd party smart contract which will serve as a kind of escrow for the loan itself. This contract could be a Superfluid Super App that initially sends 100% of the inflow into the contract to the borrower. Then, once the lender sends funds to the borrower, the contract could automatically begin streaming a portion of the payer’s salary to the lender to pay off the loan.
In this case, the lender is able to verify proof of income instantly, and get guarantees that they’ll be paid as long as the borrower continues receiving their salary. If they so choose, the lender could get more advanced and even require up-front collateral to be placed in the 3rd party contract. This collateral could serve as a backstop in the event that the borrower stops getting paid or tries to cheat the system.
What I’ve just described is 100% possible with Superfluid, and we even have a newly created example which contains the code for a proof of concept.
Not every borrower will like the idea of having funds pulled from their salary to pay off loans, but lenders might see this as an opportunity to provide lower interest rates for individuals willing to engage in this kind of agreement. What this type of system does is plug salaries into the rest of DeFi. Imagine issuing each lender a tradeable cashflow NFT which is associated with their repayment stream. You could allow lenders to trade these loans in the secondary market, which would create better price discovery & markets for loans to employees who need them.
The other advantage here is that it opens up these new financing opportunities to the globe. Personal financing is a very local process, with the majority of loans being originated to borrowers in the same city and country that the borrower lives.
But what if borrowers the world over had access to a marketplace of lenders & capital that wasn’t confined to their country of residence? Why shouldn’t whales be able to issue employment based loans to developers in India, coffee shop owners in Costa Rica, or taxi drivers in Kenya?
Superfluid Builders Are Paving the Way
Fortunately, the Superfluid ecosystem is already helping to make this future a reality 🔥
Supercard built a prototype of a Superfluid-based credit card at the Road to Web3 hackathon earlier this year.
Huma Finance is attacking this problem directly. The team comes from the world of early wage access technologies, and has knowledge of the problems that employees face every day when managing cash flow. They’re enabling anyone to take out an undercollateralized loan against their salary, which will be massive for the Superfluid ecosystem.
The cool part about this for the Superfluid community is that, as the number of useful money streaming products increases, we’ll see more people want to be paid in streams. It creates a flywheel which leads to more salary streams and better products for employers, employees, and DeFi natives.
We are very much looking forward to supporting current teams working on these use cases around salary streaming, and hope to see even more high-value services built on top of Superfluid to support our rapidly growing ecosystem. There have already been 100+ projects built on Superfluid during the first 3.5 months of 2022 alone, and 200+ projects overall built on Superfluid since the protocol’s launch!
If you’re the type of person who wants to get involved in the future of real-time finance, you should connect with us on Discord at http://discord.superfluid.finance and reach out to our DevX team in the #developers channel. We regularly support teams and individual devs building on the protocol, and would love to hear from you.
