Decentralized Basic Income: Creating Wealth with On-Chain Staking and\n Fixed-Rate Protocols

Abstract

In this review, we evaluate the mechanisms behind the decentralized finance\nprotocols for generating stable, passive income. Currently, such savings\ninterest rates can be as high as 20% annually, payable in traditional currency\nvalues such as US dollars. Therefore, one can benefit from the growth of the\ncryptocurrency markets, with minimal exposure to their volatility risks. We aim\nto explain the rationale behind these savings products in simple terms. The key\nto this puzzle is that asset deposits in cryptocurrency ecosystems are of\nintrinsic economic value, as they facilitate network consensus mechanisms and\nautomated marketplaces (e.g. for lending). These functions create wealth for\nthe participants, and they provide unique advantages unavailable in traditional\nfinancial systems. Our review speaks to the notion of decentralized basic\nincome - analogous to universal basic income but guaranteed by financial\nproducts on blockchains instead of public policies. We will go through their\nimplementations of how savings can be channeled into the staking deposits in\nProof-of-Stake (PoS) protocols, through fixed-rate lending protocols and\nstaking derivative tokens, thereby exposing savers with minimal risks. We will\ndiscuss potential pitfalls, assess how these protocols may behave in market\ncycles, as well as suggest areas for further research and development.\n