Ruby.Exchange will distribute NFT-permissioned rewards to help create an engaging, rewarding trading experience and enhance loyalty across the platform. Rather than being bolt-on extras, these features are a natural application of blockchain's toolbox of functionality and an outworking of its community-driven culture. DeFi as a whole is in a strong position to use gamification to attract, educate, and retain new users. At the same time, the aligned interests and open structures of DeFi projects and communities discourage the use of gamification strategies to exploit users, as has been the case in the conventional finance industry.
As DeFi gains mainstream adoption, dapp designers have an opportunity to use gamification more effectively than TradFi has been able to do, helping in its mission to build products that are more rewarding and fair than the legacy financial sector is capable of providing.
What Is Gamified Trading?
"Gamification" is the application of game-style mechanics to non-game products and systems, with the aim of driving specific user activities. Elements of board game and video game design that may be added to platforms include point scoring, badges, rewards, competitions, leaderboards, avatars, performance metrics and charts, and other forms of real-time feedback that make using a service more fun and engaging.
Until a few years ago, integrating these kinds of features into conventional financial services would have felt incongruous, at best. Consider the TradFi investment platforms that are currently still the norm. People may not phone their stock brokers any more, but investment portals have more in common with paying a tax bill or banking online than, say, logging into a social media platform or a game.
Launched in 2015, Robinhood was the first mainstream app to change that. The company was founded on the principle that financial markets should be accessible to everyone, at any scale. The team argued that existing brokerages generally imposed unnecessary minimum account limits of at least several hundred dollars on their customers, and charged $5-10 for placing trades that actually cost them less than a cent. Robinhood's zero-fee model allowed customers to buy fractions of a share worth a few dollars or even pennies, if they wanted.
But the appeal of the app went far beyond its cost-effectiveness. Robinhood's team worked hard to build in principles of gamification that naturally attracted younger, tech-savvy users who were steeped in video gaming and social media. The app is user-friendly, with a colorful, clean interface. An auto-updating chart of portfolio performance with red and green themes gives a near real-time indication of whether users are up or down on their investments. Social media-style feeds provide relevant news headlines. Users can browse shares that are popular among other Robinhood users. Referral lotteries offer the chance to win a valuable stock. Push notifications keep users in the loop. A confetti shower was even used to celebrate the customer's first trade, until it was discontinued after criticism by regulators.
The entire user experience is designed to increase "stickiness" and fuel further engagement. It's been successful enough to have spawned a whole new industry of informal financial advisers in the form of TikTok influencers—not to mention the mass, coordinated attacks organized via r/WallStreetBets, which have taken down hedge funds.
All of this has horrified the Old Guard of TradFi. Regulators have taken Robinhood to task for errors and what they consider irresponsible practices, resulting in a record fine. (And, to be clear, there are issues with the claim of "commission free" trading, in reality paid for in the currency of information asymmetry inherent in the payment-for-order-flow model. There's no guarantee Robinhood are routing orders to the best option for their customers, and if that order data is provided to hedge funds before users' trades are executed, there's the opportunity for major players to take advantage of incoming market movements—TradFi's version of MEV.) For its part, Robinhood has countered by suggesting these accusations are politically motivated. After all, Wall Street stands to lose out if Robinhood gains market share, which has implications for the political campaigns its profits might have funded.
Love them or hate them, though, the fact is that gamified financial apps have introduced a wary and jaded generation to investing in a way that TradFi could never hope to do.
Calling Out The Exclusive World Of TradFi
Millennials and Gen-Z have a diversified portfolio of reasons to be cynical about investing. They have missed the opportunities their parents' generation enjoyed: Boomers who invested in the stock market (mostly before the mid-80s) have seen their wealth increase by a factor of between five and 10, and have seen real estate follow a similar trajectory. Millennials know they are unlikely to see those kinds of returns, but are still advised by the "experts" to buy the assets that, they fear, the wealthy older generation will be offloading en masse as they retire and pass away.
Moreover, TradFi—a trust-based system which requires integrity and honesty from its advisors—is riddled with corruption. The fact that every criticism leveled at newer gamified trading services is also true of TradFi only compounds this fraud with hypocrisy. Incidents of market manipulation organized by crowds of small traders over social media are dwarfed by episodes like the LIBOR-rigging scandal and JP Morgan spoofing the precious metals market. Suggestions that retail speculators don't care about real companies but just want to make profits are even more true of algo-driven HFT funds, which may hold shares for as little as milliseconds. And accusations that gamification encourages irresponsible trading by people who don't understand what they are buying ring hollow, given the role that complex and opaque assets like Mortgage-Backed Securities played in bringing about the Global Financial Crisis.
Poor though TradFi's record might be, its incumbents jealously guard the keys to the kingdom. There is a widespread view that investing and financial management is a serious business that must be entrusted to a particular kind of person. Typically, such a person will come from a certain background, from a certain level of wealth, and have a certain type of education.
The "need" for advisors is reinforced by the fact that financial education in schools is practically non-existent. Rates of financial literacy are staggeringly low. While the majority of people are expected to become economically self-sufficient by earning a regular salary, only a quarter of those in developed, high-income countries understand the basic concepts of money management required for financial independence. Topics as fundamental as the effect of compounding interest or debt are absent from the school curriculum. The goal of the educational process is not to enable students to live meaningful, rounded lives. Instead, the norm is teaching to the test—gearing education towards passing standardized assessments—with the aim of preparing students to enter the workforce as units of economic productivity. They are generators of wealth that others will manage and harvest, rather than being equipped to be the informed, creative and independent managers of their own resources.
Unfortunately, it turns out that the experts' results could be a lot better. In practice, the majority of the industry's gurus fail to beat a simple index tracker, especially when their fees are included. More and more people are quite naturally questioning—given how hard they are expected to work to earn their own wealth—whether there isn't another kind of asymmetry at work here. If they can beat the average professional stock picker simply by "buying the market" with a low-cost passive ETF, what else might be possible with a little research and initiative? All they really need is the right nudge.
Gamification As Financial Education
Feeling priced out of traditional asset classes and wary of the narratives woven around them, but at home with the web and social media, younger investors are looking to alternatives. They prefer low-cost, accessible, mobile platforms to stuffy and expensive first-generation web services, and are more likely to have faith in crypto and newer tech stocks like Tesla than they are in the aging monoliths of the past.
The COVID-19 lockdowns that saw millions of people furloughed pulled the trigger on a surge of interest in investing, as prospects for earning a living plummeted but available time increased. Gamified apps like Robinhood gave these financially-curious users the means they needed to dive down the rabbit hole. Robinhood's funded accounts grew 150% to 18 million customers in the year following March 2020, with assets under custody quadrupling to $80 billion.
While established investment companies like Blackrock and Vanguard have also seen strong growth, including among Millennials, they cater to a very different audience. The minimum account sizes, high fees, dated user experience, and stodgy reputation of these TradFi platforms mean that a large tranche of customers are unwilling or unable to use them.
What the gamified UX of next-gen apps has achieved is to dissolve the pervasive sense of disinterest around trading and investing. People are excited again. Younger investors who felt disconnected from the financial system and excluded from opportunities not only had a way to access them, but were able to enjoy doing so. And, if they learned by trial and error as much as by research and analysis, the real enemy of financial literacy isn't making mistakes. It's apathy.
Extending "Play-To-Earn" Into DeFi
DeFi is in a unique position to take advantage of this new trend towards gamifying financial services in a way that is impossible within TradFi. With the ability to distribute rewards of real value on the blockchain comes new ways of engaging users. The play-to-earn sector embodies this idea in its purest form, with titles like Axie Infinity and Gods Unchained enabling their users to earn significant incomes in in-game currency tokens and NFTs. But almost any DeFi service has this new toolkit at its disposal, rewarding users for completing desirable activities. In Ruby's case, some of the most valuable NFTs will come in the form of boosts for liquidity providers and rebates on trading fees—though this is only the start.
DeFi also has the opportunity to structure its incentives in a fairer way than TradFi has done. The criticism of Robinhood has been that its gamification strategies encourage users to trade more often—which is in the interests of the company, but not necessarily the users themselves. In other words, there is a conflict of interests between different groups of platform stakeholders, which naturally tends toward exploitation.
Cryptoeconomic systems are built around game-theoretical principles that align interests between stakeholders, since this is the only way they can operate successfully. (The original and simplest example is Bitcoin's proof-of-work consensus, which rewards honest miners but makes fraudulent activity uneconomical.)
To take another example from Ruby, liquidity providers and traders are both core and interdependent stakeholder groups; neither can exist without the other. Incentivizing LPs to stake funds makes markets more liquid and trading more efficient, and increasing trading volumes brings more fees to LPs, rewarding them for the service they provide. Meanwhile, taking RUBY tokens out of circulation via different burning, locking, and gamification mechanisms unique to the Ruby Exchange Protocol benefits every RUBY holder.
The Golden Opportunity For DeFi
Gamification enables the emerging DeFi sector to attract and reward large and active new communities of financially-curious users, but simultaneously to avoid the abuses that have arisen from companies deploying similar strategies within TradFi. This combination of effectiveness and integrity is a superpower that DeFi's developers have not yet chosen to embrace at scale—though that picture is starting to change with the coming release of Ruby.Exchange and other gamified platforms.