Fighting disease pandemics with DeFi

This was originally a blog post I did, I hope its okay to post this here

When Bill Gates was asked in a Vox interview [^1] on what he feared most, his reply was not climate change or nuclear war.

Mr. Gates was most worried about pandemics, deadly diseases that spread quickly over large regions, he goes ahead to cite some of the biggest “death charts” of history.

These “death charts”, where several spikes in which a large numbers of people died in a very short period.

The first “death chart” he mentions is World War I, the second one is World War II, the third spike or “death chart” was about two times bigger than World War I (50 million deaths), but it was not caused by a war, it was the spanish flu [^2]. This isn’t even the worst case, pandemics like the the black plague killed over 200 million (60% of Europe’s population at the time) about 2 times a bigger death toll than any war we have ever had[^3].

Pandemics are real & unpredictable as we have seen with Ebola [^4], SARs [^5], and at the time of this writing, the Corona virus[^6].

The problem is that, we are often not prepared for these pandemics. For instance, during the Ebola pandemic in West Africa, 11,000 died simply because the responsible bureaucrats could not mobilize enough resources in time.

There was an idea from the World Health Organization (WHO) to use create a kind of insurance market they call a Pandemic bond.[^7]

How it would work is that, a pool of money (equivalent to whats needed to finance an Ebola pandemic) would be put up by speculators.

The WHO would then continuously pay the speculators a kind of insurance premium. But if a new Ebola out break occurred in a new country, the WHO would use the pool of money (put up by the speculators) to facilitate the mitigation of Ebola in that region. This is obviously an over simplification of the 300 plus page document that explains how these pandemic bonds actually work[^8] but I hope you get the idea? Its basically health insurance for everyone subsidized by the WHO.

The pandemic bonds have however become controversial[^9] probably due to their poor mechanism design[^10]. Despite this fact, I think mechanism designers can come up with better mechanisms resembling these “pandemic bonds” that actually work in a society.

The great thing about Smart-contracts like Solidity[^11], Scilla[^12] & Simplicity[^13] is that, they allow us to design trust minimized financial instruments, thus incorporating a strain of these pandemic bonds into what is now popularly defined as DeFI or decentralized finance[^14].

We can have several of these DeFi (Decentralized Finance) powered applications to mitigate several problems around disease.

For instance, Animal husbandry businesses can pay these premiums to mitigate risks around animal disease pandemics like bird flu or mad cow disease.

Charities or Governments can pay these premiums to to secure resources for fighting pandemic out breaks like the recent Corona virus.

The recent Corona virus for example is so new, there exists no cure[^15]. In such a case, the pool speculators put up would be used for research towards the creation of a vaccine.

Another way of using DeFi to mitigate disease pandemics is by leveraging prediction markets like Augur[^16] & Gnosis[^17] to create an “event derivative” that may assist in the mitigation of a disease.

Event derivatives are markets that pay people for accurately predicting events in the future[^18]

An example event derivative is a market we can call, “Will it rain on Thursday, next week?”. Before Thursday next week, people can bet “YES” or “NO” on if it will really rain on that day.

If it rains, people who bet “YES” win the bet & people who voted “NO” have their money transferred to people that bet “YES”.

Coming back to disease pandemics, we can have a question like “Will there be a vaccine for Corona viral infections?”. In theory, this “event derivative” should incentivize the release of information that may lead to the creation of an Corona viral infection.

The market can also be subsidized by an entity through increasing the stakes to be won if incase the market outcome ins “YES”.

[^1]: Here is the video from VOX media.

[^2]: America’s centre for disease control says this is the worsted pandemic in recent history

[^3]: Black Death

[^4]: Resources on Ebola by the CDC

[^5]: Resources on SARS by the CDC

[^6]: Resources on the Corona Virus by the CDC

[^7]: A great article from the Economist is, Pandemic bonds, a new idea. There is also one a press release from world bank

[^8]: Here is the full PDF of the Pandemic bond prospectus. You can also find more related documentation here.

[^9]: Investors Cash In on Ebola Bonds That Haven’t Paid Out

[^10]: Pandemic bonds: designed to fail in Ebola

[^11]: Solidity is the most popular smart contracting language but has several limitations

[^12]: Scilla is designed to overcome the short comings of solidity.

[^13]: Simplicity aims to improve smart-contracts on Bitcoin, it is however still under heavy development.

[^14]: “‘DeFi’ movement promises high interest but high risk”, is a great article from financial times to get familiarity with DeFi.

[^15]: Corona Virus: Scientists race to develop a vaccine

[^16]: You can checkout the Augur event derivatives or prediction markets.

[^17]: Another market for making event derivatives is Gnosis

[^18]: A more comprehensive definition of event derivatives can be found on the Markets Wiki

1 Like

Intresting and thanks for explaining the crisis in plain terms that humanity faces . but i think there needs to be diffrentation from possible integration of solution and the actual / subjective reality of the society being ready for the solution . although the idea of having the event derivative market on pre-existing platforms like augur is great , but still fraught with issues and are susceptible to flawed results . thus we need to have very specific DLT framework for insuring BFT consensus , thus although using DeFI is great idea , you need to think hard on system design persepective :slight_smile: check blockscience website for more details . also oracles for getting the authentic data and then comparing that with the predictions will be a nice way to start).

Thanks for the feedback. Block science is such an interesting resource & am glad you brought it to my attention.

The main problem I see is how to control the payout:

  • If the WHO decides how much they want to use to fight the disease, then there is no reason for them to control costs. That means that investors will be very mistrusting in investing into it, and the premiums that have to be paid to them will be very high
  • If it is a DAO and investors decide how much to pay, they would have no interest in paying more than is necessary
  • So how do we create a neutral entity that decides, in each case, how much should be taken out to fight a disease?

I would be interested in hearing your suggestions.

Hi, dankrad,

Good questions!

If the WHO decides how much they want to use to fight the disease, then there is no reason for them to control costs.

That’s true from a “rational” point of view. But the donors & speculators generally “trust” the WHO to efficiently manage costs, expenditures are probably backed up by some regulatory assurances, that they won’t squander the funds.

What happened how ever, was the opposite, the speculators took the money & the contracts didn’t faciliated the Ebola outbreak

If it is a DAO and investors decide how much to pay, they would have no interest in paying more than is necessary.

True, we can have mechanisms to ensure this.

So how do we create a neutral entity that decides, in each case, how much should be taken out to fight a disease?

First, we need a way of measuring how devastating a disease is.

This “devastation index” can be one of or a combination of;

  1. Rate of new infections.
  2. The nature of the pathogen (some pathogens are more dangerous than others)
  3. Contageousnes (some diseases spread more easily than others)

I am sure experts already have standardised ways of measuring the above.
This index can then be relayed to a contract by an oracle & would be used to compute how much one could draw from the contract.

For example, lets look at rate of new infections, it can be hard coded in the contract that the pandemic bond pays out $10,000 per new infection.

Asuming the payout function is a simple as;
devastation_index = number_of_new_infections*10000
…and 8 people get infected, then the health volunters would be allowed to draw out a maximum of $80,000

Besides using indices, we can also auction a contract to any health organisation/corp that claims will reduce the devastation_index to the value we want, at the best price.

For example, WHO may say they can reduce this devastation_index to 0 for $1million & the CDC says the can reduce it to 0 for $500k.

The contract would then be awarded to the CDC automatically, but no money would be given to them until devastation_index hits 0 as they claimed. They instead pay a security deposit (this is to combat spam)

if devastation_index hits 0 as they claimed, the contract would pay the $500k plus a mark up (for their profit) of say 30% they would they get a total of;

(500000 + 500,000*0.3) = $650,000

I think the problem is that there are a lot of things about fighting the disease that cannot be quantified directly by numbers. And even if it could, these numbers are incredibly hard to determine (uncertainty on number of infections as well as mortality can be several 100%, as is the case for Covid-19 even now; but you would have needed the money a month ago!)

There’s basically lots of judgement involved. I think the only way is if you have an independent team of experts somehow judge this.

There’s basically lots of judgement involved. I think the only way is if you have an independent team of experts somehow judge this.

Precisly, the oracles relaying the information are the team of experts. It can be an org like the CDC, a scientific board or people can play a game to reveal the information.

indeed . and also getting the governments on board related to tracking on managing their emergency budget by using the mixture of speculative forums like Augur along with DAO based monitoring of facts and then working with the diffrent stakeholders in order to find most vulnerable people .

in case you are working on getting this project realised , feel free to ping me .