We’re used to data being streamed over the internet. Netflix and Spotify let you access movies and music by the second. You don’t need to buy DVDs or CDs to access content. In fact, you don’t even need to download the associated MP4 files onto your device. If you have an internet connection, these providers can entertain you in real time.
Now that money is also represented almost entirely by bits, why are we still getting paid in discrete lumps, instead of *streams*?
And why only on business days? Could you imagine Youtube being closed on Sundays?
I’ve written at length about this here, but we’ve inherited a financial system with all kinds of backwards compatibility issues. These inefficiencies date back to the days where paper checks had to be flown across the country each night to be processed.
While fintech companies like Stripe & Venmo have made sending money easier, we’re still far from a financial system that’s as efficient as the rest of our online world. Crypto is innovating at light speed and creating entirely new financial applications. The industry’s aim is to bring money into the 21st century – making it instantly transferable, programmable, and port it into places that it’s never been before.
When a new innovation arises, it’s hard to predict what the totally new use cases will be for that new piece of technology. The first widely distributed internet content was mostly limited to newspaper articles, research papers and essentially digital letters. It took time before we got content that was native to new platforms: i.e. Facebook newsfeeds and Twitter DMs.
Similarly, the first iteration of decentralized finance has been built around transactions. These transactions settle instantly, allow for easy self custody of funds, and can plug in to endless other applications – all of which are a significant improvement over what we have in traditional finance. However, we have yet to see a truly internet first application for cash flows until very recently.
Superfluid has introduced a new primitive to DeFi – streaming money. It’s one that I’m really excited about – especially for what it can do for salary payments and overall employee compensation. With Superfluid, you can create streams that send funds in real time. Imagine your monthly salary was divided into tiny chunks, and paid to you continuously – on what is effectively a second by second basis.*
Why aren’t you getting paid by the second?
The way that payroll works now is inefficient. You’re paid money in discrete lumps, typically in weekly, bi-weekly, or monthly intervals. While your money sits in bank accounts, these institutions loan it out and earn money while you wait to receive your cash. This ability to float money that’s sitting idle generates billions of dollars in revenue for financial services providers.
For example, before payroll providers pay taxes on behalf of their clients, they withhold the money for a period of time before they’re required to pay it out to governments. Typically, there is a time gap between when tax funds are collected, and when they’re actually deposited in government accounts. While they wait to send funds to governments, there’s an opportunity to earn money on the withheld funds. ADP – one of the world’s leading payroll providers, made over $400M in interest revenue on funds that were held for clients last year.
Financial institutions should not be able to earn interest on money that belongs to you. They’re making money from the arbitrage that comes from them having access to your money before you can access it for yourself. As Bezos might say: their margin is crypto’s opportunity.
Streams provide capital efficiency. You, as an employee, can get the precise amount of money that you’re owed, at precisely the moment you’ve earned it.
The payday loans industry is massive. As of 2017, there were more payday loan locations in the US than McDonald’s locations, and over $9B in payday loan fees are paid each year. It’s also an incredibly predatory industry – the average APY on a payday loan is 396%, and 17 states have either banned or restricted payday lending. Silicon Valley has spun out a significant number of startups targeting the payday lending market in a more consumer friendly way, but many of them have yet to gain widespread traction.
DeFi has an opportunity to bring real time finance to more consumers with payroll streams – ideally making much of the payday lending market irrelevant.
Blockchain Based Payroll Will Unlock Innovation
The traditional financial system, as we’ve established, is slow. The ACH network settles payments in days, while blockchains settle payments in seconds. Now that we have streams, we can pay users on a second by second basis. It’s how the world should work.
But the real benefit of on chain payroll is *proof of payment*. When you put payroll transactions on chain, you can make them programmable. For example, you could set up a payment stream between you and your employer, and a developer could use Superfluid to build a ‘Super App’ (yes, that’s what they’re called😉) that redirects a portion of your stream into cryptoassets you’d like to dollar cost average into. You could also divert those funds to pay bills and subscriptions automatically. And, if your bill provider knows that your payment is going to come directly out of your paycheck, they can be assured that you’re more likely to pay on time, thus giving you access to potentially lower rates.
More Efficient Lending
Consider also a world in which you could use your payment streams as a kind of collateral mechanism for loans. Income share agreements could be built as smart contracts, and use underlying salary streams as payback mechanisms. It could enable enterprising individuals and influencers to issue social tokens which could have streams plugged directly into them, providing the token holders with a constant stream of the token originator’s earnings.
Efficiencies could expand to endless types of loans. If a lender knows that interest payments are going to come directly out of your stream, they’re also likely to provide you with a lower interest rate. And what happens when one loan provider is able to provide 6% interest while everyone else can only provide 7%? Everyone wants the 6%.
Another interesting use case for payroll streams falls into the broader realm of compensation. Most startups provide their employees with stock options that vest after a specific time period. Vesting schedules often require an employee to wait several years before gaining access to their shares. However, these shares vest in discrete lumps. What if they could vest gradually, second by second via a stream?
This enables early employees to be rewarded more quickly in proportion to their efforts. It could be a major employee benefit, and many crypto projects may offer this as an option.
Superfluid is building the primitive that is programmable cash flows. They have great documentation and a budding community that’s well worth joining for developers and curious DeFi users alike.
If you’re interested in learning more about Superfluid, head over to their docs to start building, or open up a stream in their dashboard. You can even DM me directly @sflamini5 on twitter and I’ll help you open a testnet stream while walking you through the process.
*Technically, Superfluid uses block times as a means of allowing users to send value continuously. You can learn more about how this works here.
**Note: Yes, the vesting process is necessary to incentivizing long term thinking. But why not be more innovative as a way to win over top talent?