Satoshi Nakamoto gave us the Bitcoin Network and a new incentive model – tokenomics which allows users to bootstrap network effects. For the past 12 years, tons of innovation, and experiments have gone into understanding and utilizing blockchain technology and incorporating tokenomics into their products and communities.
There were several attempts to build living communities from the ground up via tokenomics, but none have gained traction and/or endorsements from government officials. Recently, during the Bitcoin 2021 conference, Patrick Stanley Founder of Freehold announced the launch of CityCoins – with Miami being the first city to launch its own coin $MIA. This is probably the first serious attempt in incorporating tokenomics into a city, with significant interest from the community(2,000+ signed up within days) and the endorsement of Mayor Suarez of Miami. While we’re used to tokenomics applied to crypto products and services, e.g. DeFi, Crypto-games, NFTs, etc. MiamiCoin has taken a step further by marrying crypto tokenomics to a city’s treasury fund. While it’s definitely a novel use case that could potentially unlock several new solutions to solve existing problems faced by cities (e.g. misaligned incentives of various stakeholders) and drastically improve the lives of its communities, a more comprehensive understanding of how CityCoins work could help inspire folks to tinker how crypto-tokenomics can be applied in real life. In the following paragraphs, I’ll dive into how tokenomics can potentially be applied to cities, what makes it unique, some potentially game-changing use cases, and considerations that the cities would have to look into.
A city, as we know it has its beauty and challenges, for every 1) well-governed, 2) culturally & heritage-rich, or 3) scenic city, lies various challenges, e.g. 1) underfunded public infrastructure, 2) crippling city debt, 3) housing issues, etc. To date, a city’s funding largely derived from tax revenue that the government collects, which at times could lead to too many priorities fighting over a limited pool of resources and misaligned incentives across various stakeholders(e.g. Government officials, city dwellers, taxpayers, businesses, etc).
Crypto-tokenomics allows for a novel approach to solving this misalignment, whereby the consensus mechanisms of blockchains create trust among independent participants in decentralized networks. This creates a strong network effect due to the economic flywheel enabled by tokens, incentivising participants and coordinating all economic activities in crypto networks.
Applying crypto-tokenomics to cities gives rise to multiple possibilities. Take MiamiCoin ($MIA) for example, it gives people a way to support the City and grow its crypto treasury while earning BTC and STX yield themselves. MiamiCoin can be mined or bought by individuals who want to support the City and earn crypto yield from the Stacks protocol.
Mining MiamiCoin is mined by forwarding STX (the Stacks token) to the MiamiCoin smart contract on the Stacks protocol. The winning miner can claim their rewarded MiamiCoin from their Stacks address at any time. 30% of the STX that miners forward to the Stacks protocol is sent directly to a wallet that is set up for each Miami. The mayor of a city may elect at any time to accept the reserved wallet to access the treasury for use by the city.
Stacking
MiamiCoin generates yield for holders in STX and BTC through a function on the Stacks protocol known as Stacking. The remaining 70% of the STX that miners forward to the Stacks protocol is distributed to holders of CityCoins who choose to stack their tokens. Stacking requires holders to lock their CityCoins for determined “reward cycles.” Stacking CityCoins yields STX rewards. STX rewards can further be stacked on Stacks to yield BTC rewards.
MiamiCoin provides an ongoing crypto revenue stream for the city through the above setup while also generating STX and BTC yield for $MIA holders. MiamiCoin additionally benefits holders by allowing them to Stack and earn yield through the Stacks protocol. The city can then elect to use its growing crypto treasury to benefit the city and its constituents. Blockchain technology introduces new possibilities that were once deemed impossible, thereby opening up opportunities for existing wicked problems to be solved. In the following paragraphs, I’ll explore a couple of ideas that I feel passionately about and could be feasible/game-changing as the technology is introduced on a micro-level basis.
Digital ID on the blockchain, that’s secure, private, decentralized and fully owned by users. In the case of MiamiCoin, which is built on the Stacks protocol, the city can leverage on Stacks blockchain to introduce a Digital ID for its residents, allowing them to access public spaces, government services and commercial services that integrate with the city’s digital ID ecosystem. This opens up a wide range of possibilities, where government services that require secure authentication can move online, automated via smart contracts and distributed instantaneously. This can be in the form of integrating Digital ID with Tax authorities, Welfare support programs, various license registration. As Digital ID matures with government services fully integrated, this can be introduced to private sectors where services that interact with government services can come on board or just private companies who wish to integrate Digital ID to adopt it. A single Digital ID that authenticates all your life’s necessity, built on Web3 infrastructure, in a completely decentralized, secured manner which is owned by the user and settles on Bitcoin. No more misplacing of physical cards that are susceptible to fraud. Furthermore, projects like Ryder allows you to integrate your Digital ID into accessories, thus making Online-to-Offline living a much more seamless experience.
Imagine visiting a public hospital for your medical procedure, you scan your Ryder smartwatch for your appointment, and in the process allow permission for the hospital to access your data which is stored privately and securely on the blockchain. Subsequently after the medical procedure, via a smart contract, the hospital determines if you’re eligible for any subsidy and/or insurance claims, and take those into account before presenting you with the final bill. You can then approve it via your smartwatch either for a lump-sum payment or regular instalments that are funded by the yields generated from your savings through various DeFi solutions. All happening seamlessly in the background, powered and secured by blockchain technology.
Increased accountability and sound governance, as city officials tap on its crypto treasury to fund projects, constituents can then signal their support for those policies by holding/selling the city’s coin. Thus for Mayors to build up their city’s crypto treasuries from the onset, they can opt to publish the city’s master plan which details the government’s plan for the next 3-5 years, highlighting key themes(e.g. Entrepreneurship, innovation, healthcare, public education, etc) that they would like to pursue, how they can meet the budget required, what concrete steps they will be taking and how results are being measured. This gives greater insights, which also provides greater fundamentals to its citycoin, which is essential in a city’s context as it helps in reducing volatility and speculation in the open market.
New funding mechanism for public goods that pays for itself, using MiamiCoin as an example, where 30% of STX that miners commit to mining are deposited into the city’s treasury, where these STX are yield generating assets(~10% APY pays out in BTC), the city can structure debts packages based on these 2 streams of onchain income. An example could be: Public infrastructure generally have a longer time horizon, where fundings are paid in tranches based on completion milestones, and ROIs are measured across decades. STX from the treasury can be committed as collateral to take on debt which unlocks at various milestone(in line with payment schedule), while the yields generated from the committed collateral can be used to pay down the debt, thus the city does not need to allocate a certain portion of its future budget for debt/interest repayments. This allows for a more sustainable way of funding large long term projects, without the burden of servicing those debts from future budget thereby allowing politicians to adopt a longer-term horizon and not solely focus on just getting re-elected every cycle.
The above is just 1 possibility of using DeFi to fund large scale expenditure, with new DeFi solutions coming up every other day and currently being battle-tested in the face of huge drawdowns and price swings. The possibilities of tapping onto DeFi solutions in the future to fund large infrastructure expenditure in a sustainable and equitable manner, in my opinion, is very much a real possibility.
Safeguards can be built into treasuries, via smart contract as part of the condition before a city decides to tap into its crypto treasury. For example, prudence behaviour can be inculcated via treasuries conditions whereby 10% of treasury funds shall be left intact as emergency funds. Using MiamiCoin as an example, 10% of its treasuries as an emergency fund which is generating ~10% APY in yields yearly, over time these funds adds up to a substantial amount which further cushions Miami’s budget allowing it to navigate any black swan events effectively or to compete more extensively by deploying the surpluses of its emergency funds into value-enhancing projects.
Tokenomics when applied appropriately are like healthy steroids, supercharging existing models that are working to be more impactful. For example, a city can allow a lower tax rate for businesses that signal their intention to establish a significant presence in the city by anchoring their business to the city’s blockchain. Using Miami as an illustrative example, the business can hold a position in MiamiCoin which unlocks various city benefits/services or commit to mining MiamiCoin, which acts as a form of onchain contribution to the city, but at the same time allowing the business to be plugged into Miami’s ecosystem, thereby benefitting from various economic activities happening onchain.
This allows a city to be competitive, where in real life, businesses pay a lower tax rate if they plug into the city’s onchain network by meeting a certain threshold of coin exposure either through mining or holding and stacking of the city’s token. This creates a win-win situation for all stakeholders, as businesses benefit from increased economic activity onchain, pays a lower tax rate in real life but supplements it via onchain contribution while the city and its community benefit from robust economic activities.
Expanding on Balaji’s idea of a cloud city. Digital transformation is becoming more prevalent across industries, the idea of a cloud city seems to be a natural transition(no longer a far fetched fantasy) as humans become more plugged in(digitally) as significant portions of our lives move online. In my opinion, blockchain technology help accelerate the transition as we can now transfer value digitally in a trustless manner, digital scarcity has been established and self-governing digital ecosystems are taking shape as we speak. It also provides a real alternative to millions of people that are currently being marginalized in their home countries due to various reasons(political, war, corruption, etc). Individuals can now opt into cloud cities that resonates with them ideologically, culturally, or economically, as blockchain serves as the underlying infrastructure to facilitate this transition. They can essentially participate in the community of a cloud city, building their reputation and credibility while earning through various economic activities happening over the cloud, from anywhere around the world, with just an internet connection and a mobile phone. This provides them with a legitimate path to transit in real life, when sufficient trust and credibility has been built between both parties acquired the financial means from participating in the cloud economy.
A city like Miami where the integration of blockchain technology and tokenomics can serve as an anchor for a cloud city where physical real estates are located, to power the greater economic activities that are happening in the cloud(digital).
The above are some possibilities that I find fascinating exploring and hope it’ll inspire more to do the same, as we collectively as a community tinker on ways to improve our living spaces, thereby leaving it a better place for the next generation.
