[Series Column-3] Decentralized Finance Stories---Lotto-like savings
[Series Column-3] Decentralized Finance Stories---Lotto-like savings
  • HJ Kim (khj@koreaittimes.com)
  • 승인 2020.05.02 02:37
  • 댓글 0
이 기사를 공유합니다

1. Bankless bank
2. Interest-free loans
3. Lotto-like savings
4. Stablecoin
Kim Hyoung-joong, Chief Editorial Writer and Head of Korea University's Cryptocurrency Research Center
Kim Hyoung-joong, Chief Editorial Writer and Head of Korea University's Cryptocurrency Research Center


Would you use a savings account that also operated like a lottery ticket? Deposits are supposed to earn interest, but in these times of extremely low interest rates, they are essentially interest-free. Therefore, some depositors are turning to prize-linked savings accounts where only a few lucky savings account holders are awarded a higher rate of interest, just like in a lottery.

These prize-linked savings accounts work just like traditional bank savings account except that depositors do not receive any interest. Instead, all the small amounts of interest that would have been paid out to the account holders is pooled into one large sum. Only a few account holders are selected as “winners” of this big payment. 

This scheme seems more reminiscent of casinos than banks. Indeed, a lottery is classified as gambling in South Korea,  along with casinos and horse racing. However, in certain places in the world, regulations have been changed to include this type of lottery account. In 2009, the product was first launched in Michigan and is now permitted in 33 states in the United States. Furthermore, it passed the American Savings Promotion Act in 2014.

This new type of account was started in the hopes of encouraging more Americans to save money. According to 2016 data, the U.S median savings deposit was only US $ 3,000, and 40 percent of Americans did not have any savings at all. Nevertheless, about 60% of the people bought lottery tickets. No matter how much promotion and education that was done on the importance of saving, the situation was not improving.

However, with the appearance of these prize-linked deposits, the number of people saving money in the USA has increased significantly. In fact, a study of customers found that 56% of respondents were saving for the first time through this product. It has been helpful in encouraging deposits and has attracted many new customers, particularly those who are fond of gambling!

Lotteries are big business in the United States. In 2019, Lottery sales amounted to $91.3 billion. Estimating a 1 percent interest income alone, the figure is worth 913 million dollars. With just that 1 percent, a zero-loss lottery could be made that guaranteed (or guarantee) the principal while still giving the feeling of excitement of a lottery. However, calling a bank account a lottery doesn’t give a positive impression, but if you call it "prize-linked savings", it sounds much better.

This type of account did not suddenly arise from nowhere. On November 1, 1956, a product named Premium Bonds was first launched in the UK, selling £ 5 million a day since that time. Of course, some politicians and religious leaders have criticized the U.K. for turning it into a gambling den. However, over the past 60 years, these Premium Bonds have been much loved by the British.

Lottery type saving accounts are also an acceptable part of Shariah banking. The Islamic prohibition on paying or receiving interest is of utmost importance. Therefore, this product has been introduced as a good example of gamification by making deposits like a game.
Fintech and blockchain companies have also begun to pay attention to this type of product. In fact, there is a prize-linked deposit that runs on the Ethereum platform, which can be deposited with DAI or USDC stablecoin. Prize-linked deposits are one of the more light-hearted products that have come about in this new decentralized finance environment.


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