Project UBU is a cryptocurrency system that aims to deliver a Universal Basic Income product to the marketplace. The basic premise is to use a block chain protocol to deliver a fixed amount of tokens called Universal Basic Units or UBUs into a participating “citizen” wallet. The tokens may be spent at participating vendors or exchanged between citizens, and the UBU mobile phone application acts as both a marketing system and a financial service. A separate application is in development for vendors, and this also works as a point of sale payment system. As a means of funding the growth of the project and the enrolment of citizens and vendors, an ITO has been offered for the an UBU derivative product called the UBX token. The UBX pays the holder an amount of UBUs per month that scales up with the number of participating citizens. The article below explains why the UBU and UBX will hold value for investors.
The first question that most investors ask after reading about Project UBU, UBUs and UBX tokens is how (and why) will the system hold value if UBUs are being issued en masse? The second is, why buy an UBX token if one can just go out and collect UBUs? The UBU yellow papers provide a detailed mathematical answer to these questions which is good if you understand that sort of thing, but completely opaque if you do not. What is the short answer?
At its heart Project UBU is a marketplace that connects vendors to potential customers or “citizens”. The theory goes that vendors and citizens will engage with each other using the UBU as a means of exchange and, as vendors price goods and services in UBUs, the UBU token will obtain a value. UBUs are issued to citizens at a fixed rate of 100 per day, and participating vendors give a place where the daily issue can be spent, attracting customers and other intangible benefits in the process. Unfortunately, for a sceptical investor, this is not quite enough: How can the currency hold its value, especially if UBUs are being handed out like sweets?
First off, there is a built-in counter-inflationary mechanism written into the blockchain protocol for UBU. Every citizen wallet has a ‘fixed point’ of 10, 000 UBUs (or 100$ if one goes at a ratio of 100UBU: 1$). If the wallet contains more UBUs than this amount, then over time the balance will decrease daily until it hits the 10, 000 UBU limit. Similarly, if the wallet contains fewer UBUs than this amount, then the amount will increase daily until it hits 10, 000 UBUs. Why is 10, 000 UBUs the magic number? Think of an UBU wallet as a balloon that is being pumped up with air at a fixed rate, with one caveat: The balloon has a leak somewhere. Unless you are entrepreneurial enough to increase the daily rate at which you collect UBUs, your balloon is going to stay at a certain size as the incoming air balances with outgoing air. This is the clever Universal Basic Income aspect of Project UBU which encourages people to transact with UBUs on a daily basis, become UBU entrepreneurs, and build an UBU economy.
But, if millions of people are collecting free UBUs, then, surely, there will be UBU price inflation? More and more UBUs will chase goods and services supplied by vendors and the token will lose purchasing power. Yes and no. As citizens join the project more UBUs will be issued, however, the value proposition for any given vendor to price and discount items in UBUs will increase, and so the real economy underlying Project UBU will grow. Further, this growth will be faster than the rate at which UBUs are issued to additional citizens. The idea is that, from a vendor perspective, Project UBU behaves like a Universal Rewards System that can be used to attract and retain customers.
The core argument is as follows: The more citizens that sign up to receive UBUs in a given region, the more effective the system is for vendors in that region, and the more value vendors will be willing to ascribe to the UBU. Moreover, vendor-citizen ratios will stabilize in specific regions. This, in turn, will create price stability in the UBU region by region. The mathematics backs the idea up by connecting growth in UBU citizens to a logistic population model: Eventually, as citizen numbers stabilise, per day issued UBUs will be equal to per day dissipated UBUs and circulating UBU volumes will stabilise.
Why, then, is the UBX token a good investment? There is one simple answer: The magnitude and scale of Project UBU. Cryptocurrency and token values are driven by powerful network effects as more people enter the crypto marketplace. Project UBU aims to enrol around 500 million citizens and a commensurate number of vendors over the next 10 years. At this level 1UBX token will pay out an ongoing 500 UBUs per month, and 1, 000 UBX tokens (equivalent to a $5,000 investment today) will pay out 500,000 UBUs per month.
The long run expectation is that UBUs will become fungible with conventional money, and investors will be able to obtain a fiat return. As fiat holders see a value in buying UBUs to obtain unique UBU denominated rewards, goods and services from vendors, the UBU can obtain a fiat value on an exchange. At a peak of 500 million citizens an average demand of 1$ worth of additional UBUs per citizen per day implies a daily fiat market for UBUs with a volume of half a billion dollars. At this scale, it is easy to anticipate the development of UBU exchanges and the equivalence of UBUs with fiat money. The UBU counter-inflationary mechanisms will help to keep this equivalence stable. At an exchange rate of 0.01$ to an UBU a $5,000 investment into UBX tokens today has the potential to pay $5,000 per month for as long as the system is operational. And that is very good value.
About the author: Viroshan Naicker is a mathematician with a background in graph theory, the formal study of networks. He is the author of the UBU and UBX yellow papers which provide the mathematical formalism for Project UBU. These papers are incorporated into the white paper that is available here
Disclaimer: This article is not intended as investment advice nor will the author be responsible for any investment decisions that are made on the basis of this article. Cryptotokens are speculative investments that are not for the risk averse.