How I learned to stop worrying and love the gamification of finance

Gamification has a bad name in finance, and rightfully so. Trading apps fired confetti when you bought options. Meme stocks turned rent money into casino chips. Say “gamified finance” today and people picture slot machines packaged as financial products.

The gamification itself was not the problem. The problem was the mechanisms powering these experiences: leveraged bets where you could lose everything. Game mechanics are tools that have been leveraged for nefarious purposes, to make gambling more addictive. However, when built into the right products, they can bring tangible benefits to users.

Three questions separate gambling and gamification.

First, what’s the worst case? In gambling, it’s losing everything you put in. In good gamification, the worst case is small, known, and capped before you start.

Second, where does the upside come from? In gambling, winners are paid out of losers’ principal, minus the house’s cut. In good gamification, prizes come from pooled yield, fees, or activity. Nobody’s savings fund anyone’s jackpot.

Third, does playing more increase your risk? At a casino, yes, by definition. In a well-built product, you can play as much or as little as you want without ever touching your principal.

We’ve been doing this for centuries

Tontines appeared in the 1600s. Investors paid into a common pool and split the income among surviving members, so your payout grew as the others died. A morbid game, but it sat on top of a real income-producing pool, and by the early 1900s tontine-style insurance held a serious share of American household wealth.

Britain’s Premium Bonds are the cleaner example. Since 1956, the UK government has sold bonds that pay no interest to individual holders. Instead, the interest on the whole pool is raffled off every month as tax-free prizes. Your principal is never at stake, and you can redeem at face value whenever you want. It’s a lottery where the ticket is refundable, and more than 20 million Britons hold one.

The idea keeps working. “Save to Win” accounts at American credit unions raffle prizes funded by pooled interest, and the model did well enough that Congress legalized it nationally in 2014. South Africa ran a “Million-a-Month” account on the same design. The research on these programs found something worth pausing on: they attract people who never saved before, and they pull habitual lottery players toward saving. The same psychology that casinos exploit pointed the other way.

The pattern across all of them: the game runs on the yield. It never touches the principal.

The same design, rebuilt on blockchains

Premium Bonds needed a national treasury and an act of Parliament to guarantee the floor. Blockchains removed that requirement: financial rules can now be written as code that executes exactly as published, so fees route themselves, floors can’t be quietly changed, and no institution has to be trusted to keep the promise. A design that once took regulatory oversight can now be enforced by open-source code.

An example of one such product that uses these mechanisms is BakerDAO.

It works like this. You hold an asset. You deposit it into the protocol and mint a synthetic version of it, which you can redeem back into the original at any time. The one unusual property: the redemption rate can only rise. The synthetic cannot fall against the asset that backs it.

That’s possible because every action in the system pays a small fee, and most of every fee goes into the reserve backing the synthetic. Minting pays a fee. Redeeming pays a fee. Borrowing pays a fee. When supply shrinks, the backing per remaining unit improves. The floor ratchets up and has no mechanism to reverse.

So what’s your worst case? The entry fee plus the exit fee, about 5% round trip, and less in practice because the floor rises while you hold. Not risk-free, but the downside is bounded and disclosed before you commit, and it’s denominated in an asset you had already chosen to hold.

The yield comes from the game layer, which is strictly opt-in. Players can borrow against the synthetic at very high loan-to-value and loop into leveraged positions. These loans can’t be liquidated by price movement; the only way to lose your collateral is to miss repayment. When someone does default, their collateral is burned, and that burn accrues to every remaining holder. There’s also a betting layer, funded by a staked pool of the synthetic: winners are paid from the pool, and losers’ stakes flow back into the backing.

Run the three questions. Worst case: capped near 5%. Upside: funded by fees and by players who chose to play, not by anyone’s principal. Engagement: you can hold the synthetic for years and never touch a single game. The passive holder is, in effect, the house. And the house’s worst day is about 5%.

The players carry real risk, and that’s the point. Risk in this system is chosen and priced, not ambient. The caveats are the honest ones: smart contracts can fail, and the floor holds against the underlying asset, not against the dollar.

The increase of financial gamification

People respond to games, and finance will keep using that whether we like it or not. The real choice is where the game stands: on a floor, or over a trapdoor.

Premium Bonds settled the argument seventy years ago. Give people a lottery with a refundable ticket and millions of them will save who otherwise wouldn’t. What’s new is that this design can now be written into the asset itself: keep what you hold, know your worst case in advance, and let other people’s appetite for the game pay your yield.

Gambling asks you to risk everything for a chance at more. Good gamification asks you to risk almost nothing and pays you for everyone else’s fun.