When URL Meets IRL in Web3: Lessons for Decentralized Trust-Building Technologies in Democratic Gove

When URL Meets IRL in Web3:

Lessons for Decentralized Trust-Building Technologies in Democratic Governance

Helena Rong

When URL Meets IRL in Web3:

Lessons for Decentralized Trust-Building Technologies in Democratic Governance

Helena Rong

Acknowledgments

First and foremost, I would like to express my deepest gratitude to the late Secretary Ash Carter, for his unwavering support and invaluable guidance in the Technology and Public Purpose program. His steadfast dedication to technology and public purpose serves as a continuous inspiration for carrying the torch forward.

I would also like to extend my heartfelt appreciation to our TAPP Associate Director Amritha Jayanti for her inspirational leadership during times of crisis and constructive feedback throughout this project’s development, our TAPP Project Coordinator Victoria Burnham for her generous assistance and uplifting presence, and Professor Venkatesh “Venky” Narayanamurti for his support of the TAPP program. Gratitude is extended to my entire TAPP cohort Sarah Hubbard, Conrad Kramer, and Luca Giani for their encouragement, valuable input, and warm friendship. I also thank the rest of my colleagues at TAPP and Belfer Center John Schultz, Ariel Higuchi, Ada Ezeokoli, and Liza Xiao for their camaraderie and support.

I would also like to express my gratitude to my PhD advisor Professor Weiping Wu, and my PhD prospectus defense committee members Professor Anthony Vanky, and Professor Xiaobo Lu for their insightful feedback and suggestions on my PhD proposal which helped shape part of this research.

I am beyond grateful to my stellar team of research assistants, Zeslene Mao, Er Li Peng, David Dam, and Elena Jin for their hard work and invaluable contribution to this research. I also thank all the interviewees who generously shared their time, knowledge, and perspectives on the selected case studies with my research team.

I would like to thank Professor Alex “Sandy” Pentland, Professor David Wood, Professor Mitchell Weiss, Dr. Shirley Jackson, Finn Xu, Xenofon Kontouris, Connor Spelliscy, Vasu Nigam, Scott Moore, and colleagues from MIT Connection Science for providing feedback on parts of this work, particularly on the proposal for fractional property ownership and collective governance in local development that was published earlier this year.

I am grateful for the opportunity to teach the class on “Technology, Trust, and Governance” at the Harvard Graduate School of Design this spring. I thank my

wonderful co-instructor and collaborator Professor Eric Gordon, and all twelve MDes students in our class, our reviewers, as well as our guest speakers for the class. Our discussions and engagement have been inspiring and continue to influence my thinking about this space.

I am also grateful for the chance to collaborate with Professor Justin Hollander and the fantastic team at Tufts University on the Robert Schalkenbach Foundation-funded project in the town of Swampscott, where we could test some of the ideas related to this research in a real-life setting. My gratitude goes to Pete Kane and Marissa Meaney for providing us with the opportunity to collaborate on this project.

I am thankful for working with Sarah Hubbard on organizing the “Perspectives on Web3” virtual panel series last fall and with Eduard Peris i Deprez on putting together the “Harvard Blockchain for Impact Workshop” this spring. My gratitude goes to all our panelists, speakers, and attendees who help deepen my understanding of this evolving landscape.

Last but not least, I am also thankful to numerous academics, practitioners, and friends who took interest in this work and generously shared their time and insights with me at different stages of this work’s development. This includes Stephen Larrick, Rebecca Williams, Professor Graham Allison, Cara Eckholm, Mike Bloomberg, Charlie Stigler, Sheng-Hung Lee, Maxwell Kanter, Yan Ma, Zixiao Yin, Liz Sisson, Aviv Ovadya, Joshua Cheong, Ian Cain, Leila Collins, Professor John Haigh, and Tim Massad. I also appreciate the exchange of conversations with Dr. Glen Weyl, Joseph Lambke, Professor Anthony Zhang, Madeleine Daepp, Nneka Sobers, Josiah Tullis, Professor Adele Santos, Doug Calidas, William Gao, Cyrus Hodes, Li Sun, Juncheng Yang, Michael Cooper, Dr. Primavera De Filippi, Dr. Shlomit Wagman, Joshua Tan, Eugene Leventhal, Hazel Devjani, Professor William Riggs and Professor Vipul Vyas.

To all those who have contributed to this project, either directly or indirectly, thank you.

Research Assistants Who Contributed to this Report: David Dam, Zeslene Mao, and Er Li Peng.

About the Technology and Public Purpose Project (TAPP)

The arc of innovative progress has reached an inflection point. It is our responsibility to ensure it bends towards public good.

Technological change has brought immeasurable benefits to billions through improved health, productivity, and convenience. Yet as recent events have shown, unless we actively manage their risks to society, new technologies may also bring unforeseen destructive consequences.

Making technological change positive for all is the critical challenge of our time. We ourselves - not only the logic of discovery and market forces - must manage it. To create a future where technology serves humanity as a whole and where public purpose drives innovation, we need a new approach.

Founded by former U.S. Secretary of Defense Ash Carter, the TAPP Project works to ensure that emerging technologies are developed and managed in ways that serve the overall public good.

TAPP Project Principles:

• Technology’s advance is inevitable, and it often brings with it much progress for some. Yet, progress for all is not guaranteed. We have an obligation to foresee the dilemmas presented by emerging technology and to generate solutions to them.

• There is no silver bullet; effective solutions to technology-induced public dilemmas require a mix of government regulation and tech-sector self-governance. The right mix can only result from strong and trusted linkages between the tech sector and government.

• Ensuring a future where public purpose drives innovation requires the next generation of tech leaders to act; we must train and inspire them to implement sustainable solutions and carry the torch.

For more information, visit: www.belfercenter.org/TAPP

About the Author

Helena Rong is an urbanist, researcher, and designer with interdisciplinary training. She is a Technology and Public Purpose (TAPP) Fellow at Harvard Kennedy School’s Belfer Center for Science and International Affairs and an Urban Planning PhD candidate at Columbia University. Her research lies in the intersection of digital technology, collective intelligence and urban planning and governance. Currently, she is investigating the potential of disruptive technologies such as blockchain to enable collective decision-making and engagement in urban governance and planning in the Web3 era. Rong received her Master of Science in Urbanism (SMArchS) degree from MIT and Bachelor of Architecture from Cornell University, where she graduated with the Charles Goodwin Sands Memorial Silver Award (1st Place Thesis Award).

Rong has led a number of research publications in peer-reviewed journals such as Buildings, European Transport Research Review and Landscape and Urban Planning among others. Her work has been featured on platforms such as ArchDaily, WallPaper magazine and Bustler, and exhibited internationally at Haus der Architektur Graz, Shenzhen Biennale 2019, solo exhibition in New York among others. Previously, Rong worked as a Research Associate at the MIT Real Estate Innovation Lab, where she led the “Value of Design” research pillar that studies the impacts of architectural design on commercial real estate asset pricing; and at the MIT Senseable City Lab, where she led the development of a model for travel optimization to museums in Amsterdam using autonomous waterborne vehicles. Rong is the founder of CIVIS Design and Advisory LLC, a design and research practice based in Boston and Shanghai that engages in multi-scalar and interdisciplinary architectural and urban projects.

Executive Summary

Trust in democratic institutions has waned in recent years, stemming from insufficient transparency and representation in public decision-making processes, expanding social and wealth disparities, and growing apprehensions surrounding mis/disinformation fueled by the emergence of highly persuasive AI-generated content such as ChatGPT. Decentralized Web3 technologies such as blockchain emerged as instruments for creating an alternative “trustless” system that uses cryptography and decentralized consensus mechanisms to obviate the need for third party human intermediaries, but suffered significant setbacks due to massive frauds and speculations throughout the past decade of their evolution. Although it might appear counterintuitive to advocate for the potential benefits of these technologies in light of their evident failures, we assert that, before dismissing them, it is essential to differentiate the technological layer from the social layer in these instances and examine them with greater care and criticality. We argue that the recurrent failures of blockchain-based projects, as reported in the media and denounced by critics, are less indicative of the technology’s inherent weakness, and more a consequence of malicious actors exploiting the social layer within the system.

What is thus heavily lacking in the current Web3 landscape is the collaborative development and innovation in the social and institutional layer to build systems that genuinely enhance democracy and address the trust crisis society faces as a whole in a more sustainable way through leveraging the capabilities offered by decentralized technologies. As such, rather than perceiving these technologies as decentralized trust-replacing technologies, we consider them as “Decentralized Trust-Building Technologies” (DTTs). DTTs do not seek to replace trust, but instead serve to fortify trust through transparent and secure mechanisms combined with robust institutional designs.

In this report, we investigate a variety of case studies that showcase emerging efforts to employ DTTs in the physical realities and the built environment of our social institutions. These empirical examples offer valuable insights – both inspirational and cautionary lessons – into the practical applications of DTTs in transforming our society and lived environments. From this empirical analysis, our goal is to establish a set of guidelines and best practices for current and future endeavors in fostering innovation within this space, ultimately paving ways for more resilient and sustainable lived ecosystems that harness the power of DTTs.

Key Takeaways

1. Decentralized Trust-Building Technologies (DTTs) offer a technical infrastructure to provide a tamper-proof source of truth, but this does not automatically lead to trust.

2. DTTs hold the potential to innovate across a range of social institutions, including identification, voting and governance, titling and rights management, collective ownership, financial transactions, record keeping, civic participation, and regenerative economies.

3. DTTs can help enable wider participation and coordination at scale, but they should balance between undifferentiated mass involvement and particularized local control.

4. DTT applications can be driven by institutions, grassroots initiatives, or collaborations among stakeholders to achieve different goals.

5. DTTs hold the potential to help foster a shift from extractive to regenerative economies, ultimately providing sustainable economic benefits to local communities.

6. To enhance the trustworthiness of both technology and institutions, it is crucial to build systems not just for the community, but collaboratively with the community in participatory design processes.

7. Policymakers need to better understand both risks and benefits of DTTs to effectively integrate them into our existing systems.

All artwork generated by AI Through Midjourney

1. Introduction

What’s in this report?

In this report, we explore an array of use cases in which Decentralized Trust-Building Technologies employed widely in virtual domains (URL) have been intersected with the physical and material realities of our social institutions (IRL, or “in real life”), ranging from government-led experimentations in policy innovations, to decentralized grassroots efforts in collective ownership and governance of real world assets and public goods. Through this empirical analysis, we propose a set of recommendations and best practices to guide present and future initiatives in promoting innovation within this domain. Ultimately, we aim to pave the way for more resilient and sustainable living ecosystems that harness the potential of DTTs.

In Section 2, we examine the trust crisis faced by contemporary democratic institutions, provide an overview of Decentralized Trust-Building Technologies, discuss their major application areas for the social institutional building blocks of democracy – including identification systems, voting and governance systems, titling and rights management, collective ownership, financial transactions, public record keeping, civic engagement and participation, and regenerative economies – and highlight open questions that ask how we can think about these systems differently with DTTs. We further explore the pitfalls and promise of DTTs for transforming democratic governance.

In Section 3, we outline our research methods and present case studies in three subsections. We reflect on three key areas where DTTs can influence or transform democratic governance in social institutions; chiefly: 1) information transparency and security for trustworthy e-governance; 2) wider participation and coordination for multiple publics; and 3) economic benefits for local communities.

In Section 4, we discuss the overall key takeaways from our research and highlight future outlooks and potential research directions. Given the rapid expansion of the field, the cases surveyed in this report do not represent a comprehensive overview of all emerging innovations in DTTs. This report serves as an open invitation for technologists, policymakers, designers, and users to collaborate in finding ways to maximize the benefits of Decentralized Trust-Building Technologies, with the aim of elevating democratic governance and addressing the trust crisis in the Age of AI, while defining a value foundation for its development.

2. Reimagining Trust: Decentralized Trust-Building Technologies (DTT) for Democratic Governance

2.1 Context: Trust Crisis in a Broken Democratic System

Trust is defined as the belief or confidence that one party (the “trustor”) has in the reliability, integrity, and ability of another (“the trustee”) to act in a manner that is consistent with one’s interests and expectations of a forecasted future.1 It involves a willingness to rely on another party to fulfill their promises, commitments, and obligations, even in situations that involve a necessary “leap of faith” that would expose one to uncertainties or risks. Trust can be built on confidence through repeated positive interactions and experiences with the other party (interaction-based trust), as well as on faith through evidence of shared value and transparency between two parties (institution-based trust).2 Meanwhile, trust can be eroded or broken through failure of the trustee to deliver expected promises, inconsistency, deception, power imbalance, and lack of communication in behavior or action.

Many Western democratic countries have recently observed a significant decline in both citizens’ trust in institutions and their levels of engagement. According to the Edelman Trust Barometer (a global survey measuring trust levels in 28 countries),3 trust in institutions such as governments, businesses, media, and NGOs has reached its lowest point in several decades. This is due to a number of reasons.

Internally, the overall lack of transparency in public decision-making, coupled with the ineffectiveness of current democratic systems for representation, hinders the establishment of meaningful connections between civil society and government institutions. In certain contexts, entrenched systemic inequalities undermine the trust individuals hold in institutions, resulting from a sense of exclusion, unfair treatment, historical trauma, and lack of accountability.

Externally, global crises such as Covid-19 and rapidly intensifying climate change exacerbate existing social and wealth inequalities by aggravating disparities in access to essential services, availability of resources to remain resilient, and

1 Lewicki, R. J., McAllister, D. J., & Bies, R. J. (1998). Trust and distrust: New relationships and realities. Academy of Management Review, 23(3), 438-458.

2 Graham Dietz (2011) Going back to the source: Why do people trust each other?, Journal of Trust Research, 1:2, 215-222; Niklas Luhmann, “Familiarity, Confidence, Trust: Problems and Alternatives,” in Trust: Making and Breaking Cooperative Relations, ed. Diego Gambetta (New York: B. Blackwell, 1988); Anthony Giddens, The Consequences of Modernity (Cambridge, United Kingdom: Polity Press, 1990).

3 The Edelman Trust Barometer. (2022). https://www.edelman.com/trust/2022-trust-barometer

opportunities for social and economic mobility. Consequently, vulnerable populations face increased challenges in overcoming these adverse effects, which ultimately leads to a further erosion of trust in institutions that are meant to be designed to safeguard the public interest.

More recently, disruptive digital technologies, while bringing immense benefits to society in terms of connectivity and democratization of information, have simultaneously introduced new challenges concerning trust. For example, although social media platforms developed by private tech companies have inarguably enabled a globally connected society, these platforms have also inadvertently facilitated the coordination and dissemination of mis/ disinformation by actors across spatial and temporal boundaries. As a result, the traditional role of physical geographical distances as moderating buffers in representation is effectively challenged, leading to amplified political polarization.

Now, the sudden unleash of generative artificial intelligence and synthetic media such as ChatGPT into the public realm5 introduces an unparalleled trust crisis that the current democratic system is ill-equipped to confront. At the same time, as the digital public realm is about to be inundated with emerging AI-related challenges

4 Edelman. (2022). 2022 Edelman Trust Barometer: The Cycle of Distrust. https://www.edelman.com/trust/2022-trustbarometer

https://www.theverge.com/2023/3/23/23653591/openai-chatgpt-plugins-launch-web-browsingthird-party

2022 Edelman Trust Barometer: The Cycle of Distrust4

5 Clark, M., Vincent, J. March 23, 2023. “OpenAI is massively expanding ChatGPT’s capabilities to let it browse the web and more.” The Verge.

such as proliferation of deepfakes6 and intensified mis/disinformation, physical cities are simultaneously on the brink of facing social and economic complications such as substantial job losses expected from AI-enabled automation. As seen in global responses to other ongoing pressing issues such as racism, inequality, and climate change, cities will again serve as the hubs for innovation to lead and develop new tools and new models of democratic innovations to protect and advance the public good in this new age of trust crisis.

2.2 Overview of Decentralized TrustBuilding Technologies

Despite the predominantly negative sentiments towards blockchain due to the catastrophic failures of several crypto projects in 2022, it is crucial to remember that the genesis of blockchain in Bitcoin was founded upon a vision to build a decentralized network based on “trustless trust” in response to the trust crisis triggered by the 2008 financial crisis.7 At the time, erosion of trust in traditional trusted institutions such as banks has given rise to the emergence and adoption of an alternative “trustless” system that uses cryptography and decentralized consensus mechanisms to eliminate the need for third party human intermediaries. As such, the raison d’etre of a blockchain system is that its operation does not require trusted human third parties (therefore it is “trustless”), marking what Bitcoin proponent Andreas Antonopoulos calls a “shift from trusting people to trusting math”8 (therefore a new type of “trust” in deterministic computation and code).

As legal scholars De Filippi, Mannan, and Reijers point out, however, such conviction that a blockchain-based system is “trust-less” or “trust-free” is highly misplaced.9 Blockchain does not replace trust; instead, it increases the confidence users have in a system which stems from the belief that the system is built on decentralization, tamper-proof mechanisms, transparency, and resistance

6 Atleson, M. March 20, 2023. “Chatbots, deepfakes, and voice clones: AI deception for sale.” Federal Trade Commission: Protecting America’s Consumers. https://www.ftc.gov/business-guidance/blog/2023/03/chatbots-deepfakes-voiceclones-ai-deception-sale

7 T.C. Earle, Trust, confidence, and the 2008 financial crisis, Risk Anal. 29 (6) (2009) 785–792.

8 A. Antonopoulos, Bitcoin Security Model: Trust by Computation. O’Reilly Radar, 2014. February 20. https://radar.oreilly. com/2014/02/bitcoin-securIty-model-trust-by-computation.html

9 De Filippi, P., Mannan, M., & Reijers, W. (2020). Blockchain as a confidence machine: The problem of trust & challenges of governance. Technology in Society, 62, 101284.

to censorship.10 What has been less scrutinized is that apart from the technical layer that the system is built upon, a blockchain-based system also involves a complex and less predictable social layer that involves an array of human actors – such as software developers, miners, validators, token holders, end-users, and regulators –who collectively shape and contribute to the functioning of the entire ecosystem. In other words, trust is not absent, but is simply diffused and delegated to a much more sophisticated and unknown assemblage of social actors that are involved in building and interacting with the technology, rendering the entire system much more than a technical system, but a sociotechnical one.

Bitcoin, with its straightforward and single function as a decentralized digital currency enabling peer-to-peer transactions, can easily showcase the technical capabilities and robustness of a secure and decentralized system; and indeed, the technical blockchain infrastructure of Bitcoin has never been hacked or compromised since its launch in 2008.11 However, when the technology attempts to more closely integrate and interact with existing systems in much more complex use cases, blockchain-based systems often falter due to the inadequacy of our current models in addressing vulnerabilities in the social layer, such as poor governance, inadequate security practices, insider attacks, centralization risks, human error, social engineering attacks, and misaligned incentives. Thus, the frequent failures of blockchain-based projects reported in media and denounced by critics12 are less a reflection of the technology’s fragility, and more a result of malicious actors interacting with the system who exploit the social layer.

What is heavily lacking in the current Web313 landscape is the collaborative development and innovation in the social and institutional layer to build systems that genuinely enhance democracy and address the trust crisis society faces as a whole in a more sustainable way through productively leveraging the capabilities offered by decentralized technologies. As such, rather than perceiving these technologies as decentralized trust-replacing technologies, we consider them as “Decentralized Trust-Building Technologies14” (DTTs), ones that do not seek to replace trust – a fundamental aspect of human nature – but serve to fortify trust through transparent and secure mechanisms combined with robust institutional designs.

10 Ibid.

11 Chainanalysis. (2021). The Chainanalysis 2021 Crypto Crime Report. https://go.chainalysis.com/2021-Crypto-Crime-Report.html

12 White, Molly. (2023). Web3 is Going Just Great. https://web3isgoinggreat.com/

13

14

Coined by Ethereum co-founder Gavin Wood, “Web3” describes the next generation of the decentralized internet that is controlled by its users, in contrast to the current web that is mainly focused on centralized platforms and services controlled by large companies.

To our knowledge, this marks the first appearance of the term “decentralized trust-building technology.”

Technology Description of the technology

1 Distributed ledger technology (DLTs)

DLT is a decentralized database technology that allows multiple participants to share and synchronize data without intermediaries. This creates a distributed, immutable ledger of transactions, shareable and verifiable securely among multiple parties. Blockchain, a DLT example, uses cryptographic techniques to secure and validate transactions. Each block in the chain contains a set of transactions or other data that is timestamped and validated by a network of computers called nodes using a consensus algorithm such as Proof-of-Work (PoW) or Proof-of-Stake (PoS). When a transaction is made, it is broadcast to the nodes on the network, which validate the transaction and add it to a block. The block is then added to the existing chain of blocks, forming a permanent and unalterable record of the transaction.

2 Cryptocurrencies

A cryptocurrency is a digital currency that uses cryptography for security and runs on a blockchain. Created through processes like mining (in PoW) or staking (PoS), cryptocurrencies such as Bitcoin or Ethereum operate independently of a central bank, with values determined by market forces.

3 Stablecoins A stablecoin is a type of cryptocurrency designed to maintain a stable value by pegging it to a reserve of assets, such as fiat currency like the US dollar or a commodity like gold. Stablecoins aim to combine the benefits of cryptocurrencies, such as decentralization, transparency, and fast transactions, with the price stability of traditional currencies or other stable assets. This makes them more suitable for daily transactions than other cryptocurrencies that fluctuate in price based on the market. Examples of popular stablecoins pegged by the US dollar include Tether (USDT), USD Coin (USDC).

4 Decentralized finance (DeFi)

5 Decentralized Apps (dApp)

6 Decentralized autonomous organization (DAO)

DeFi is a financial ecosystem built on blockchain technology and smart contracts that enables users to access financial services such as lending, trading and borrowing peer-to-peer without intermediaries like banks.

Unlike traditional apps, which are centralized and run on servers owned by a single entity, dApps operate on a distributed network of computers that are owned and operated by many different people.

A DAO is a digital-native organization that operates on a blockchain. It utilizes smart contracts to manage and govern shared resources, allowing token holders to carry out decentralized decision-making and collaboration.

7 Fungible token Fungible tokens15 are digital assets that are interchangeable with each other and have identical properties and values, such as aforementioned cryptocurrencies and stablecoins.

8 Non-fungible token (NFT)

9 Non-custodial wallet

An NFT is a type of digital asset that is unique and cannot be replaced or exchanged on a one-to-one basis. An NFT is usually used to represent ownership or proof of authenticity of a specific asset that has unique properties, such as digital art, music, and more recently, digital representation of physical goods and rights such as voting rights and title deeds. In DAOs, governance rights can be represented using either fungible and non-fungible tokens, depending on how they are designed and implemented.

A noncustodial wallet is a crypto wallet that allows users to maintain full control over their digital assets without relying on a third-party custodian. In other words, users possess full ownership of their private keys, which are necessary to access and control their cryptocurrencies. To manage shared resources of an organization, a multisig (or multisignature) wallet is used to enhance the security of funds by requiring multiple signatures or approvals before a transaction can be executed.

15 A token is defined by the SEC as “a digital representation of values or rights,” that has an unmodifiable transaction history on the blockchain and can be exchanged between persons or entities without an intermediary. See: Peirce, Hester M. April 13, 2021. “Token Safe Harbor Proposal 2.0.” U.S. Securities and Exchange Commission. https://www.sec.gov/news/publicstatement/peirce-statement-token-safe-harbor-proposal-2.0

Before exploring the present challenges and potential future benefits of Decentralized Trust-Building Technologies, we first unpack and de-jargon several key components within this suite of technologies. Additionally, we identify application areas or social institutions where they could have the most significant impact related to democratic governance, followed by some guiding design and design research questions related to their implications.

Table 1. The Technical Building Blocks of Decentralized Trust-Building Technologies

Technology Description of the technology

10 Smart contract Smart contracts are self-executing computer programs stored and replicated on a blockchain network that typically automatically execute the terms of an agreement between two or more parties. They are designed to ensure that contractual obligations are carried out automatically without the need for intermediaries.

11 Cross-chain bridge

A cross-chain bridge is a technical architecture that enables the transfer of digital assets or tokens between different blockchain networks by creating a link between them through smart contracts. It facilitates interoperability by functioning as an intermediary that enables two or more blockchains to trade-off their efficiencies, decentralization, and security.

12 Zero-knowledge proof (ZKProof)

Zero-knowledge proof is a type of cryptographic protocol that allows one party (the prover) to prove to another party (the verifier) that a certain statement is true without revealing any additional information beyond the statement being proved for privacy protection purposes.

Social Institutions

1 Identification systems

Description of impact area and potential transformation with DTTs

The function of the state is to count people. Identification systems have existed since the Babylonian Empire during 3800 BC.16 The modern identification systems emerged in the late 19th and early 20th centuries with the development of photography and fingerprinting techniques. Historically, identification has been used to categorize people based on social statuses (e.g. single, married) and has sometimes been employed as a tool for exclusion by the state by delineating boundaries between the accepted and the “other” (e.g. citizen, foreigner, illegal immigrant). The institution of the passport allowed the state to “monopolize the legitimate means of movement…and individual existence.”17 Today, the proliferation of mis/disinformation in the digital sphere introduces new challenges in identifying credible sources for digital participation, which requires not only distinguishing between human from human, but also human from machine (bots). In a decentralized environment where verification can be conducted by a range of stakeholders rather than a centralized entity such as the government, one proposed area of innovation enabled by DTTs is self-sovereign identities, where individuals control their digital IDs and information can be verified through a decentralized network of nodes.

Open design questions:

How might we design a decentralized digital ID system that promote inclusion by incorporating an inclusive and decolonial framework, such as the UN’s “protect, respect, remedy”18 approach?

How might we design an identification system that balances security and privacy protection with the need to verify the identification of a digital participant in order to prevent malicious actors from spreading false information?

16 Veriff. May 10, 2022. The history of ID. https://www.veriff.com/blog/the-history-of-id

17 Caplan, J., Torpey, J., & Torpey, J. C. (Eds.). (2001). Documenting individual identity: The development of state practices in the modern world. Princeton University Press. pp. 256-257.

18 The “protect, respect, remedy” framework is proposed by the United Nations Guiding Principles on Business and Human Rights that refers to the responsibilities of states and businesses in ensuring that human rights are protected in the context of business activities.

Table 2. 8 Major Application Areas of Decentralized Trust-Building Technologies for the Social Institutional Building Blocks of Democracy

Social Institutions

2 Voting and governance systems

Description of impact area and potential transformation with DTTs

Voting is a vital aspect of maintaining a healthy democracy, as it enables citizens of a state or members of an organization to partake in the decision-making process that impacts their lives and communities. Intrinsically linked to the social institution of identification, voting eligibility relies on the verification of one’s membership within a particular organization or group. As individuals possess multiple identity categories and their affiliations become increasingly pluralistic, the institution of voting must adapt to accommodate variations among voters within the same category and support diverse plural identities. A robust digital infrastructure presents opportunities to explore and implement more sophisticated forms of governance, such as liquid democracy (which combines the benefits of both direct and representative democracy), and quadratic voting (which weighs in a voter’s degree of preference).

Open design questions: How can we think about these systems differently?

How might we design governance systems that accommodate variations among voters within the same category?

How might decentralized systems create effective incentive structures to encourage honest participation, discourage malicious behavior, and reward those who contribute to the system’s security and stability?

How might different decentralized platforms and systems work together to enable seamless voting and governance processes across various jurisdictions and organizations?

3 Titling and rights management

Titling and rights management systems are used to maintain records of ownership and rights of assets such as real estate titles and intellectual property rights, and are usually issued by a centralized authority such as a government agency or a private company. One of the main problems with the current system is the potential for errors and fraud, as the centralized authority may be susceptible to corruption or technical errors. Additionally, the process of transferring ownership or usage rights can be slow, expensive, and require the involvement of multiple parties. DTTs such as DLTs and NFTs have the potential to help reduce fraud and errors, as well as more efficiently streamlining the process of transferring ownership or usage rights.

4 Collective ownership Existing models for co-ownership of assets, such as companies, real estate, or other divisible and shared assets, face significant barriers to entry due to challenges in legal structures, governance and decision-making, funding and financing, management and maintenance, and cultural norms that prioritize individualism. Recently, DTT innovations such as DAOs, smart contracts, and token engineering present early signs of potential to overcome these barriers and enable collective ownership at scale. The use of digital voting tools like Snapshot has enabled DAOs to experiment with collective ownership and management of shared assets on an unprecedented scale. However, many current experiments with DAOs have yet to establish effective governance models that present a strong use case for these organizations. DAOs face the challenge of balancing efficient leadership to prevent the “tragedy of the commons” while maintaining sufficient decentralization.

5 Financial transactions Current financial transactions are characterized by the need for intermediaries such as banks and financial institutions to process and verify transactions. This can lead to delays, high fees, and a lack of transparency in the process. In many cases, these intermediaries can sell or share user data with third-party companies for marketing and advertising purposes, without the knowledge or consent of the users. Additionally, the centralized nature of these intermediaries means that they have the power to control or censor transactions, which can limit access to financial services for certain individuals or groups. Some of the key appeals of a blockchain-based fund transfer system include ease of cross-border transactions, lower fees, instant settlement, protection of user privacy, and prevention of sale or misuse of user data by intermediaries.

How might we ensure that blockchain-based titling and rights management systems are equitable and accessible to all users, regardless of their socioeconomic status or geographic location?

How might we design these new systems that ensure recognition and acceptance by existing systems and institutions, in order to protect the rights and interests of owners?

How might we design systems that do not conflate ownership with voting rights of collectively shared (public) assets to ensure equity?

In governing shared assets, how can voting mechanisms be designed to prevent voter apathy, reduce the influence of large token holders, and promote informed decision-making?

How might we establish clear regulatory guidelines and standards for blockchain-based transactions to ensure compliance with AML/ KYC regulations, taxation laws, and consumer protection laws?

Social Institutions

6 Public recordkeeping

Description of impact area and potential transformation with DTTs

The institution of public record-keeping involves the use of centralized databases managed by government agencies or other organizations. While many such agencies have adopted digital records management systems for storing and accessing public records, paper records continue to exist in numerous instances. From a security standpoint, centralized record systems are susceptible to hacking, fraud, tampering, and deletion. DTTs such as blockchains provide a decentralized and more transparent alternative for keeping public records. Furthermore, DTT systems offer potential tools that enable more diverse and decentralized methods of record verification, shifting the legitimacy of records from being solely state-issued to incorporating more dynamic and pluralistic approaches for verifying identification and records.

7 Civic engagement and participation

Civic participation currently faces multiple challenges, including uneven access for various social and demographic groups; lack of motivation; distrust in the process due to perceived ineffectiveness; unengaging designs of e-participation platforms; and disconnect between participation processes and actual decision outcomes. DTTs offer tools to improve transparency, traceability of community input, and more effectively incentivize participation through rewards. However, open questions remain, such as addressing inclusivity (tackling the digital divide), educating the public about the technology to increase adoption, and gradually building trust within communities.

8 Regenerative Financial Systems

Relatively a newer concept that has just emerged in recent years, regenerative finance (ReFi) describes a financial system that seeks to support ecological regeneration, social justice, and economic resilience through aligning financial investment incentives with values of sustainability, equity, and justice. An emerging direction is tokenizing and monetizing natural capital to protect natural assets and onboarding Global South players to participate in the ecological credit markets.

Open design questions: How can we think about these systems differently?

How might we design systems that allow for more pluralistic and dynamic ways of verifying records, without compromising accuracy and authenticity?

How might a balance be achieved between transparency and privacy, given that blockchain is inherently transparent and public?

What type of consensus mechanism should be employed in a decentralized record-keeping system?

How might we convey abstract technical concepts of transparency and immutability to end-users through accessible language and user-centric design interfaces?

How might we design systems that effectively complete the feedback loop, connecting inputs to outcomes, potentially by integrating other analytical technologies like natural language processing?

How might we design incentives that align the interests of various global players, encouraging them to collectively contribute to the efforts of regenerative finance?

What alternative indicators and metrics, beyond conventional financial returns, can be used to assess the success of regenerative finance initiatives in terms of social, environmental, and cultural impacts?

2.3 The Pitfalls and Promise of Decentralized Trust-Building Technologies

The evolution of the Web3 and crypto space has undergone substantial fluctuations throughout the past decade. This dynamic era has been fraught with pronounced hype cycles, theatrical failures, and restless controversies. Most recently, the dramatic collapses of Three Arrow Capital,19 Terra/Luna,20 and FTX,21 occurring one after the other, have led skeptics and critics to affirm their belief that the crypto industry lacks redeeming qualities and that its underlying technology, blockchain, is essentially useless.22

It is certainly difficult to refute such allegations when all the evidence making the headlines so far point to massive frauds and scams. However, we would like to stress again the need to distinguish the technological layer from the social layer of these instances of failure and scrutinize them with more care and criticality. One stark irony in all of these debacles is that their collapse was not due to the technical defect in the decentralized technology per se; but rather due to the lack of transparency in the oversight, decision-making structures, and accounting systems within highly centralized governance systems. This juxtaposition highlights a desperate urgency in innovating in the social layer of these technological assemblages to better build trust in governance and democratic decision-making procedures. And we argue that the same tools that have contributed to the successful construction of decentralized technical networks also possess the potential to help create decentralized trust networks that can facilitate better decision-making procedures, provided that they are combined with thoughtful design principles, well-informed ethical guidelines, and deliberate governance frameworks that are capable of addressing both existing and emerging trust-related challenges.

A similar stance is taken by a recent report from the Safra Center for Ethics at Harvard University entitled Ethics of Decentralized Social Technologies:

19 Dugan, K. June 17, 2022. “Another Big Crypto Player Just Blew Up.” New York Magazine. https://nymag.com/ intelligencer/2022/06/crypto-hedge-fund-three-arrows-capital-just-blew-up.html

20 Sandor, K., and Genç, E. December 22, 2022. “The Fall of Terra: A Timeline of the Meteoric Rise and Crash of UST and LUNA.” CoinDesk. https://www.coindesk.com/learn/the-fall-of-terra-a-timeline-of-the-meteoric-rise-and-crash-of-ustand-luna

21 Napolitano, E., and Cheung, B. November 18, 2022. “The FTX collapse, explained.” NBC News. https://www.nbcnews. com/tech/crypto/sam-bankman-fried-crypto-ftx-collapse-explained-rcna57582

22 Schneier, B. June 24, 2022. “On the Dangers of Cryptocurrencies and the Uselessness of Blockchain.” https://www. schneier.com/blog/archives/2022/06/on-the-dangers-of-cryptocurrencies-and-the-uselessness-of-blockchain.html

Lessons from Web3, the Fediverse, and Beyond. In the report, the authors identify the current development of these decentralized technologies as a “constitutional moment,“23 referencing legal theorist Bruce Ackerman.24 This refers to a historical moment in which introduction of new technologies trigger “transformations in: (1) political institutions, (2) the structure of civil society, (3) economic organization, (4) common understandings of political institutions/ civil society/economic organization, and/or (5) the apparatus of, and social relationships embedded within, the state.”25 The authors contend that this specific set of technologies may profoundly impact society due to their capacity to fundamentally alter social institutions and democratic structures. The outcomes could range from dystopian to desirable, depending on society’s ability to collectively and democratically manage these novel mechanisms. Consequently, the authors emphasize the pressing need of creating guiding values and guardrails to promote responsible technological advancement that can ultimately improve human flourishing.

Aligning with this perspective, we posit that Decentralized Trust-Building Technologies hold the potential to improve democratic governance and address the trust crisis in the Age of AI if we can establish a well-considered value foundation for its development. When considered in isolation, it is always difficult to answer the question, “What unique value-add do blockchain systems bring to the table that traditional Web2 technologies cannot achieve?” However, when considered more holistically, DTTs, working in combination with social institutional systems of identification, voting and governance, ownership, engagement, and more, can potentially restructure the ways in which we organize society and distribute resources in more equitable and dynamic ways. While simple use cases such as Bitcoin have demonstrated the technical robustness of a truly decentralized network, we are still in the very infant stages of exploring the integration of this technology stack with more sophisticated use cases that will be embedded in our complex social systems.

25 Ibid. pp. 6.

23 The phrase ”constitutional moment” was first coined by legal theorist Bruce Ackerman in We the People: Foundations (1991).

24 Allen, D. Frankel, E. Lim, W. Siddarth, D. Simons, J. Weyl, G. (2023). Ethics of Decentralized Social Technologies: Lessons from Web3. Harvard University.

Far from being value-neutral, technologies can serve both domineering and liberating purposes depending on the values that are encoded into its conceptualization, design, implementation, use and management. Mass adoption of technologies such as blockchains without ethical and institutional frameworks could produce new forms of oligarchies and deepen societal polarizations,26 while well-guided approaches of using DTTs might have transformative potential to aid the exploration of innovative governance mechanisms and novel approaches to integrating democratic governance within decision-making processes.27 As such, the question of using Decentralized Trust-Building Technologies as our apparatus to build better democracies amid an unparalleled trust crisis is less about debating “Should we or should we not use this technology?” Instead, it is a proactive “How might we?” question that boldly seeks to innovate in human-centric policy designs, social institutions, and ethical frameworks to establish a system that is better suited for supporting democratic governance and trust-building.

In the subsequent section, we delve into a variety of case studies that showcase emerging efforts to employ DTTs in the physical realities and the built environment. These empirical examples offer valuable insights – both inspirational and cautionary lessons – into the practical applications of DTTs in transforming our society and lived environments. From this empirical analysis, our goal is to establish a set of guidelines and best practices for current and future endeavors in fostering innovation within this space, ultimately paving ways for more resilient and sustainable lived ecosystems that harness the power of DTTs.

26 De Filippi, P., & Loveluck, B. (2016). The invisible politics of bitcoin: Governance crisis of a decentralized infrastructure. https://papers.ssrn.com/abstract=285269

27 Allen, D. Frankel, E. Lim, W. Siddarth, D. Simons, J. Weyl, G. (2023). Ethics of Decentralized Social Technologies: Lessons from Web3. Harvard University.

3. Decentralized Trust-Building Technologies for Public Good: Learning From Recent Experiments in Decentralized Governance and Social Innovations

3.1 Research Methods

Mixed Methods Approach

In this study, we employ a mixed-methods approach to examine 16 selected projects/initiatives (Table 4). For each project, we utilize a combination of gray literature review, semi-structured interviews with key stakeholders, and digital ethnography of online activities. Our data collection process for all three methods is guided by an evaluation framework that seeks to understand both the intentions and the outcomes of the projects. The details of which are provided in Appendix A.

Archival research and gray literature review

For each project, relevant textual data such as policy reports, white papers, references to municipal, regional, or national policy frameworks and legislation documents released by the state were collected for analysis. We have limited sources to official releases that have a direct impact on the implementation of the selected projects. Government sources encompass websites of the city and affiliated organizations. Non-government sources comprise official whitepapers released by the project team, as well as official websites and Twitter accounts associated with the projects.

Semi-structured interviews

We have conducted a total of 20 interviews with relevant stakeholders associated with the chosen projects. The majority of interviewees were members of the project’s founding team. In some instances, we also interviewed government stakeholders and key participants, such as DAO members and citizens, who participated in the projects. All interviews were conducted in English on video conferencing platforms such as Zoom and Google Meet. Each interview lasted for around 60 minutes. All interview transcriptions were qualitatively analyzed to help derive insights. Through both cold contact and personal connections, we were able to access at least one stakeholder for interviews from 13 out of the 15 selected projects. Due to time and resource constraints, the interview sample size for each case is small. We recognize this limitation and aim to offer a basis that can act as a launching pad for future research.

Digital ethnography

For projects with active online communities, such as CityDAO, CityCoins and Unit Network, we conducted digital ethnography in publicly accessible virtual spaces that do not require payment or exclusive registration for entry, including platforms like Discourse, Telegram, Twitter, and Snapshot. Following Pink et al. (2016), digital ethnography involves applying participant observation in the virtual world to gain insights on embodied social practices in the intertwined and overlapping digital and physical worlds.28 For these projects, we collected data such as announcements, comments, images, videos, and memes in discussion threads left by participants as digital traces for analysis. We focused on key debates and discussions among users, levels and patterns of member engagement, as well as normative practices, to complement the insights gained from stakeholder interviews and gray literature reviews. Data collection primarily took place between September 2022 to February 2023.

Project Selection

We have intentionally sourced diverse projects from around the world, varying in scale, geography, stage of implementation, and application, to illustrate the broad array of use cases in which DTTs (URL) have been intersected with the physical and material realities of society (IRL or “in real life”), varying from top-down institution-led endeavors, to bottom-up grassroots initiatives. As shown in Table 3, the selected projects encompass the eight social institution and use case domains we have identified in Section 2, under Table 2: 8 Key Application Areas of Decentralized Trust-Building Technologies for the Fundamental Building Blocks of Democracy within Social Institutions. Many of these projects are still in their infancy; however, the preliminary empirical evidence – both inspirational and cautionary – provides valuable insights that allow us to analyze their effects and outcomes and to extract lessons to guide current and future projects.

Findings

While we have selected the projects based on social institutional applications, we organize our findings in the subsequent subsections according to three overarching impact areas that have emerged during our qualitative analytical

28 Pink, Sarah, Heather A. Horst, John Postill, Larissa Hjorth, Tania Lewis, and Jo Tacchi, eds. 2016. Digital Ethnography: Principles and Practice. Los Angeles: SAGE.

process, namely: (1) information transparency and security for trustworthy e-governance; (2) wider participation and coordination for multiple publics; and (3) strengthening local communities.29

In the first set of cases, we examine projects that aim to harness DTTs to enhance transparency and accountability of government institutions across three spatial scales. We primarily present and discuss lessons from the nationwide digital infrastructure of e-Estonia, Reno’s city-wide pilot in public record keeping, and a community-scale experiment in civic participation in urban planning in Berlin.

In the second subsection, we delve into the potential of decentralized autonomous organizations (DAOs) for democratizing ownership and governance of real-world assets, using CityDAO as an empirical example. Lastly, in the third subsection, we investigate initiatives that foster local resilience through digital local community currencies (or city-specific tokens), drawing insights from projects such as CityCoins, city3, Ibiza Token, and Kolektivo. These early empirical examples together reveal how DTTs can play a role in fostering trust and facilitating more resilient and sustainable democratic governance. At the same time, they underscore the outstanding challenges that must be tackled in order to fully realize their potential. (Note: Additional information on cases not included in the subsequent three subsections can be found in Appendix B).

1 Identification systems

2 Voting and governance systems

4

5

6 (Public)

e-Estonia

CityDAO, RenoDAO, Unit Network, Gitcoin Boulder Downtown Stimulus Program

CityDAO, RenoDAO, EarthFund

CityCoins, city3, Ibiza Token, Berkeley Microbond

Reno’s Biggest Little Blockchain, e-Estonia

7 Civic engagement and participation BBBlockchain, Swampscott Community in_PUT, Gitcoin Boulder Downtown Stimulus Program 8

29 Note: The content in these sections has been adapted from three distinct case study essays, each independently published: Rong, Helena, Mao, Zeslene. 2023 (upcoming publication). “Deep-Dive Into CityDAO: An Experiment in Collective Land Ownership and Decentralized Governance.“ Belfer Center.

Rong, Helena, Peng, Er Li. 2023 (upcoming publication). “Connected Digital Society: Paving Ways for Country-Scale Digital Interoperability in Estonia.” Belfer Center.

Rong, Helena, Dam, David. 2023 (upcoming publication). “From Community Currency to Crypto City Tokens: Potentials, Shortfalls, and Future Outlooks of New Old Ideas.” Belfer Center.

4. Selected cases and interviewees:

Project Description Interviewee(s)

e-Estonia is a government initiative to facilitate Estonian citizen interactions with the state through the use of electronic solutions and digital public services. e-Estonia has been testing and implementing blockchain for data security since a devastating cybersecurity attack in 2007. As of 2019, 99% of public services in Estonia are available to citizens as e-services. Virtually all state-related operations – except marriage, divorce, and real estate transactions – can be carried out digitally.

Reno’s Biggest Little Blockchain is a record-keeping blockchain for keeping the records pertaining to historic properties in the City of Reno, Nevada. The blockchain was built by a private company known as BlockApps, which is a service provider of private, permissioned blockchains. Only those with the necessary permissions are able to write to the blockchain, and information uploaded to the blockchain is publicly accessible through a website interface.30

BBBlockchain is a blockchain-based participation platform to investigate how blockchain technology can improve participatory urban planning and seeing how a platform that allows for the management of documents, voting, and publication of proposals and feedback can enhance citizen participation and build a more inclusive process for co-creation.

BBBlockchain is an Einstein Center Digital Future research project supported by Berlin‘s six municipal housing associations.

CityDAO is a decentralized autonomous organization registered in Wyoming, USA, whose mission is to build an on-chain, community-governed, crypto city of the future. Members possessing Citizen NFTs have rights to vote on governance matters such as the purchase and use of property.

Kolektivo is a framework to enable the creation of regenerative economies in communities. Using a geospatial smart contract standard, Kolektivo allows communities to register ecological assets on Ethereum as NFTs, establishing a basis for a nature-backed currency. Kolektivo seeks to launch the first Kolektivo Economy in Curaçao in 2023.

EarthFund is a DAO-as-a-Service company that allows anyone to easily establish a DAO through a single platform. The DAO that is launched would be listed on the Earth Fund website. At present, there are three sub-DAOs on EarthFund, being Never Alone (a DAO with a mission to find and fund mental health improvement projects), Female Empowerment DAO (seeking to empower women of color that have faced abuse and trauma) and Carbon Commons (for carbon-removal projects).

Single.Earth is a GreenTech company that seeks to develop a virtual ecosystem for the preservation of nature. It partners with landowners and organizations committed to preserving nature. Landowners join the Single.Earth platform, committing to use their land in an environmentally friendly way, receiving financial rewards in the form of cryptocurrency (i.e. the MERIT token).

EthicHub is a social enterprise built on the blockchain that facilitates the provision of microloans from investors to small farmers in Latin America with financing needs. Lenders provide capital to farmers through stablecoins and a DeFi architecture for collateral secures the lending to minimize the risk of defaults.

RenoDAO was a project announced by the City of Reno to develop a decentralized autonomous organization for the citizens of Reno. The project envisaged the issuance of two types of tokens - a governance token for voting purposes and a stablecoin which would be used for transactions. This project is not currently active.

Mike Gault

(CEO

and Founder of Guardtime)

Two Estonian citizens

Nic Ciccone (Legislative Relations Program Manager, City Manager’s Office); Jeffry Powell (Vice President of Sales, BlockApps)

N/A

Scott Fitsimonies (Founder of CityDAO); Favian Valencia (member of CityDAO’s council)

Luuk Weber (Pioneer of Kolektivo Labs)

Adam Boalt (Founding Investor and Advisor, EarthFund)

Tarmo Vikri (Head of Communications, Single.Earth)

N/A

Teddy Clapp (Smart Contract Engineer, RenoDAO)

Project Description Interviewee(s)

CityCoins combines financial incentives to hold and mine tokens with revenue generation for cities. Whenever a user obtains a native token (STX) on the Stacks blockchain, 30% of the STX tokens goes to the participating city’s wallet and the remaining 70% is sent to holders of CityCoins who choose to “stack” their tokens.

Unit Network provides a platform based on blockchain technology so people, businesses, or even cities can build their own token economies. Anyone can create their own token to share the value captured by their brand.

Michael Bloomberg (Visiting researcher at Jacobs Technion-Cornell Institute)

Michael Healy (Co-Founder of Unit Network);

Zachary Kerschberg (Co-Founder of Unit Network);

Ann Boothello (Co-Director Unit Network)

$OAK is a proposed digital community currency pegged to the dollar, and aims to develop and govern a pool of shared community assets in Oakland, California. Through their merchants payments network, community governance system, and community ownership, the project hopes to generate pathways toward self-sufficiency.

Darrell Jones III (Co-Founder and CEO of city3)

Ibiza Token is a utility token that grants access to exclusive marketplaces for local artists’ NFTs, discounts at local shops, and tickets to local events. The aim is to better generate and circulate wealth within the island.

Remo Frisina (Co-Founder and CEO of Ibiza Token);

Marco Frisina (Co-Founder and CMO of Ibiza Token)

Gitcoin Boulder Downtown Stimulus project’s purpose is to raise capital for downtown Boulder’s downtown local businesses during the COVID-19 pandemic using quadratic fundraising.

Berkeley is slated to become one of the first cities in America to incorporate blockchain technology into its municipal bond market through a government-backed initial coin offering. Berkeley City Council voted unanimously in December 2021 to authorize the city manager to contract with a firm to provide professional services with a microbond financing program. They hope to make the municipal bond issuance process faster, cheaper, more transparent and more accessible to community members.

Scott Moore (Co-Founder of Gitcoin)

Ben Barlett (Berkeley City Council member)

3.2 Information Transparency and Security for Trustworthy E-Governance: Experiments Across Scales

3.2.1 Trustworthiness of Blockchain-Based Governance

Trust is a complex and multifaceted social phenomenon with varying interpretations on its source and substance. Within the trust literature in the social sciences, researchers have explored and identified multiple types of and sources of trust. According to management scholar Graham Dietz, various types and sources of trust follow a sequential pattern during different stages of their development.31

First, there is a psychological evaluation of a party’s trustworthiness that is based on the trustee’s ability, benevolence, and integrity.32 Then, when a trustor perceives the trustee as trustworthy, they are more prepared to be vulnerable, leading to a potential risk-taking act.33 The outcome of the interaction leads to reassessment and update of that trustworthiness, and such a cycle continues and repeats. Overtime, trust develops as a result of both confidence and faith. 34 Trust based on confidence stems from repeated positive experiences and interactions (i.e., trust in using an ATM machine) which leads to an attitude of reassurance and a sense of predictability and certainty. On the other hand, trust based on faith derives from an alignment of values that are reliant on non-verifiable factors (i.e., faith in a city government),35 such as shared experiences and a sense of belonging with other members of the community or institution.

At its inception, blockchain seeks to establish a new architecture of trust by enforcing deterministic outcomes through software code to effectively remove the need to trust untrustworthy intermediaries, both at the level of infrastructure and application.36 Blockchain enthusiasts contend that various technology design implementations such as decentralization, open source technology, radical transparency, and abstraction of problems and solutions to mathematics offer the

31 Dietz, Graham. (2011) Going back to the source: Why do people trust each other?, Journal of Trust Research, 1:2, 215-222.

32 Schoorman, F.D., Mayer, R.C., & Davis, J.H. (2007). An integrative model of organizational trust: Past, present, and future. Academy of Management Review, 32(2), pp. 344354.

33 Dietz, Graham. (2011) Going back to the source: Why do people trust each other?, Journal of Trust Research, 1:2, 215-222.

34 Seligman AB (2000) The Problem of Trust. Princeton, NJ: Princeton University Press.

35 Gordon, Eric, and Tomás Guarna. (2022). Solving for Trust: Innovations in Smart Urban Governance.

36 Bodó, B. (2021). Mediated trust: A theoretical framework to address the trustworthiness of technological trust mediators. New Media & Society, 23(9), 2668-2690.

technological tools to tackle systemic trust problems in trust mediation.37 As such, through the removal of trust in intermediaries through code, blockchain is widely understood to be a type of trust that is “trustless.”

As highlighted previously, however, these technological trust guarantees are inadequate prerequisites for establishing trustworthiness. While hard-coding rules into the system introduces higher predictability of outcomes and thereby produces confidence-based trust in the technology as opposed to trust in a centralized human intermediary, trust in social institutions is not replaced but rather is diffused into a wider and more intricate network of actors that are involved in the creation, development, and use of the technology stack.38 This can be further influenced by local contexts, norms, institutions, regulations, and customs,39 as well as perception of the technology.

Within the realm of e-governance in the public sector, governments are increasingly becoming interested in exploring the integration of blockchain and other DTTs into a myriad of applications to increase institutional accountability and service delivery efficiency, such as record keeping, titling and rights management, and civic engagement and participation. However, very few institution-led cases to date are built on public blockchains, where a high degree of decentralization and transparency maximizes the accountability of the code-based system. Instead, they often opt for using permissioned blockchains,40 where the degree of decentralization is controlled but still leveraged to provide confidence, auditability, and transparency. In these instances, the balance between centralized control and decentralized benefits becomes a crucial factor in achieving the desired level of trust and efficiency in e-governance solutions. Since many of these efforts are still emerging and in the early phases of development, the lessons learned offer initial insights into how the technology can be integrated into the existing social fabric and how they can be woven into our material realities and daily lives. In the following three case studies, we outline three institution-led

37 Bodó B and Giannopoulou A (2019) The logics of technology decentralization: the case of distributed ledger technologies. In: Ragnedda M and Destefanis G (eds) Blockchain and Web 3.0: Social, Economic, and Technological Challenges. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3330590

38 De Filippi, P., Mannan, M., & Reijers, W. (2020). Blockchain as a confidence machine: The problem of trust & challenges of governance. Technology in Society, 62, 101284.

39 Bodó, B. (2021). Mediated trust: A theoretical framework to address the trustworthiness of technological trust mediators. New Media & Society, 23(9), 2668-2690.

40 Permissioned blockchains, also known as private or consortium blockchains, are a type of distributed ledger technology where access to the network is restricted to a specific group of participants. Unlike public blockchains, where anyone can join, read, and participate in the network, permissioned blockchains require users to have authorization to join, read or write data, and validate transactions.

use cases of blockchain that operate at different spatial scales and complexities aimed at enhancing trust with citizens: (1) country-scale digital transformation in Estonia, (2) city-scale record keeping in Reno, and (3) community-scale civic participation urban planning experiment in Berlin.

3.2.2 Case Highlight – Country-Scale Digital Connected Society: e-Estonia

Blockchain’s promise as a technology for public interest lies in its potential to simultaneously provide transparency, trust, and privacy. For this reason, it has been rigorously experimented by public institutions over the last half decade in policy areas such as electronic voting systems, land registry management, digital ID creations, and private and public information recording and sharing. Over 100 government-led blockchain projects were being experimented in 40 countries by the close of 2018.41

E-Estonia is often cited as one of the most prominent examples of blockchain implementation in the public sector.42 The origins of e-Estonia can be traced back to the nation’s quest for independence from the Soviet Union in the early 1990s. After gaining independence in 1991, the government of the small Baltic republic, with a population of 1.3 million, faced the daunting challenge of reconstructing the country’s infrastructure, including its communication networks and public services. Recognizing the potential of technology to leapfrog traditional development paths and establish a more efficient and modern society, the government has made substantial investments in building digital infrastructure “from scratch” since the country’s inception. Today, Estonia is one of the most digitally connected countries worldwide, where 99% of all public services are available to citizens as e-services.43 According to official reports, through its digitized public services, Estonia is able to save over 1,400 years of working time and 2% of its GDP annually.44

41 Jun, M. (2018). Blockchain government - a next form of infrastructure for the twenty-first century. Journal of Open Innovation: Technology, Market, and Complexity, 4(1).

42 Alexopoulos C., Charalabidis Y., Loutsaris M. A., & Lachana Z. (2021). How blockchain technology changes government. International Journal of Public Administration in the Digital Age, 8(1), 1–20.

43 PwC. (2019). “Estonia - the Digital Republic Secured by Blockchain.”

44 Ibid.

The three technological pillars forming the bedrock of e-Estonia are (1) e-ID, (2) X-Road, and most recently, (3) KSI (Keyless Signature Infrastructure) blockchain:

1. e-ID: a secure digital identity card that allows Estonian citizens to access a wide range of public and private sector services securely online (est. 2002);

2. X-Road: a centrally managed distributed data exchange platform that allows public institutions to share data with each other in a secure way (est. 2001);

3. KSI Blockchain: a timestamp system built on a permissioned blockchain used to ensure the integrity and authenticity of data within different data registries (est. 2008).45

The adoption of the KSI blockchain, developed by the Estonian cybersecurity company Guardtime, was partly motivated by a series of massive cyberattacks in 2007, collectively referred to as “Web War 1.”46 These concerted denial-of-service attacks targeted Estonian government, media, and web bank servers amidst a dispute with Russia over the relocation of the Bronze Soldier of Tallinn. Estonia’s need to bolster its cybersecurity infrastructure prompted the country to integrate blockchain technology into the architectural foundation of its e-governance system.

The permissioned nature of the KSI blockchain makes it particularly well-suited for applications that require high levels of security and data integrity. In 2012, Estonia became the first country in the world to deploy blockchain technology in production systems with the Succession Registry kept by the Ministry of Justice.47 Since then, the KSI blockchain – a robust cybersecurity infrastructure that is also used by NATO and the U.S. Department of Defense – was integrated into the rest of the e-Estonia governance system to protect sensitive Estonian e-services.48 The KSI blockchain creates tokens for data with cryptographic proof of its properties

45 The system generates a unique, unforgeable fingerprint (hash) for each piece of data, which is then chained together with other hashes in a hierarchical structure. This creates an immutable and transparent record of the data’s provenance and any changes made to it.

46 The Economist. July 1, 2010. “War in the fifth domain Are the mouse and keyboard the new weapons of conflict?” https://www.economist.com/briefing/2010/07/01/war-in-the-fifth-domain

47 PwC. (2019). “Estonia - the Digital Republic Secured by Blockchain.”

48 These include e-Health Record, e-Prescription database, e-Law and e-Court systems, e-Police data, e-Banking, e-Business Register, and e-Land Registry.

(such as time, integrity, provenance, identity, uniqueness) that can be verified and acted upon off-chain in the real world.

KSI’s integration into e-Estonia reflected a seamless weaving into Estonia’s mature product assemblage of e-governance infrastructure and services, which had already become indispensable and deeply embedded in the lives of the citizens. As such, for citizens of Estonia, the implementation of the blockchain was an insertion into an invisible infrastructure that did not introduce disruptions to their daily interactions with e-services,49 but rather made these existing services even more secure and efficient.

Guardtime’s approach to blockchain technology, however, is contrary to that of most public blockchain evangelists who favor using radical transparency and decentralized governance to build “trustless” systems. As stated on the company’s website:

“The early iterations of blockchain involved architectures such as the one of the left below. Every party in the supply chain would run a consensus node and participations would establish governance committees to establish access to what is effectively a shared database. 49 In

The tokenization of data of KSI blockchain. (Source Guardtime50)

fact, our interviewees expressed that they might not have even been aware of or noticed the change. 50 Guardtime. (2023). “Technology.” https://guardtime.com/technology

This approach is failing universally – the idea that a hospital, an insurance company, a financial institution, or a logistics company needs to know anything about blockchain, let alone run consensus infrastructure, is fundamentally flawed. Our technology takes a different approach. Blockchain is a critical component in all our enterprise solutions but only as the plumbing, deep underground as the infrastructure for generating and transferring tokens. There are no governance committees or shared databases - only software that solves a business problem.”51

This approach in thinking and in technological implementation implies that blockchain serves as a concealed infrastructure that bolsters privacy and security, where decentralization occurs primarily at a technical architectural level, rather than at the governance level. As Semenzin, Rozas and Hassan point out in a recent article, this raises a debate on whether blockchain is being utilized to reinforce central authorities in governance, rather than promoting the decentralization of power away from centralized practices.52

Estonia’s transformation into a fully connected digital society stems from very specific sociopolitical conditions. At the foundational level, as a relatively young country, Estonia’s intricate relationship with Russia and vulnerability to external cyber intrusions contribute to the emergence of a faith-based governmental trust, that stems from warranting cybersecurity and maintaining control over sensitive

51 Ibid.

52 Semenzin, S., Rozas, D., & Hassan, S. (2022). Blockchain-based application at a governmental level: disruption or illusion? The case of Estonia. Policy and Society, 41(3), 386-401.

private data. This foundation of institutional trust lays the basic bastions for a country-wide digital transformation with high levels of public buy-in since the start.

During our interviews, citizens from Estonia conveyed a strong sense of trust in the government, which contributed to their comfort in utilizing digital services provided by the state and allowing the state to gain comprehensive access to their data. This trust is predicated on the understanding that their information will be securely managed and utilized only with explicit permission. Through X-Road, citizens are empowered to monitor the ways in which their data is accessed, as well as the specific individuals or entities granted access, thus ensuring transparency and accountability. In doing so, mutual accountability and reciprocal trust between the state and citizens are created and maintained. Such trust is further reinforced by the citizens’ repeated successful interactions with enhanced efficiency that these digital services consistently offer, ultimately creating a positive feedback loop between faith-based trust and confidence-based trust in the institution.

In contrast to the implementation of blockchain in Bitcoin, which sought to establish an alternative financial system to replace untrustworthy traditional institutions, the integration of blockchain in e-Estonia is propelled by the imperative for an already trusted institution to augment cybersecurity and defend its citizens against external threats, and ultimately increasing the trust in the institution through both alignment of values and successful interactions with trustworthy services.

3.2.3 Case Highlight – City-Scale Record Keeping: Reno’s “Biggest Little Blockchain”

A city-scaled example with a single use case is Reno’s Biggest Little Blockchain (“BLB”) project. BLB is a record-keeping blockchain for storing data pertaining to historic properties in the City of Reno, Nevada. Launched on September 12, 2022, the project’s primary purpose is to place information from the City of Reno’s Register of Historic Places onto a permissioned ledger to be displayed on a web portal.53

Emerging out of a partnership between the City of Reno – under the leadership of innovation-minded Mayor Hilary Schieve, and New York-based private company

53 City of Reno Register of Historic Places. https://reno.stagingnet.blockapps.net/historicPropertys. As of March 2023, there are currently 21 properties listed on BLB’s register. Information on the BLB include the property’s name, address, ownership details, uses and functions, type of architecture, and historical significance.

BlockApps, Reno’s Biggest Little Blockchain is one of the mayor’s numerous visions for utilizing DTTs such as blockchain to enhance governance processes.54 Built on BlockApps’ proprietary blockchain STRATO, BLB was a simple use case that was completed under a compressed time frame to allow the city to migrate its historic properties data onto a permanent record. For the city, the project was a low-risk, “low-hanging fruit” to experiment with a new technology without introducing disruptions to existing governance processes.

The city’s intention of using a traceable permanent ledger is primarily to exhibit its benevolence and accountability to its constituents by undertaking actions to transfer public records onto a transparent database that can be easily viewed and accessed, thus increasing the trustworthiness of the information recorded on-chain. However, a number of current design features of the platform as well as the implementation process make such a message difficult to communicate:

• The frontend of the website resembles any other government open data platforms, without any visible timestamps for data entry or information about the party responsible for input. Since the back-end of the blockchain is inaccessible to the public, it becomes difficult to demonstrate the traceable characteristics of the underlying system that the city keenly promotes.

• Since BlockApps offered to construct the platform for the city at no charge, the customary public consultation process was lawfully bypassed. This absence of communication with the public resulted in notable resistance and pushback. Certain community members felt excluded from the decision-making process regarding the integration of new technology into public services, countering the government’s initial objective of fostering trust with the public.

• Despite Reno community members identifying inaccuracies in the data input,55 there appears to be an absence of methods for individuals outside of the city government to engage in peer-verification and offer feedback.

54 Sengupta, Kingkini. June 6, 2022. “Reno mayor touts potential of blockchain, NFTs as city embarks on new pilot programs.” Nevada Current. https://www.nevadacurrent.com/2022/06/06/reno-mayor-touts-potential-of-blockchainnfts-as-city-embarks-on-new-pilot-programs/

55 Conrad, Bob. September 21, 2022. “City promotes blockchain tech for its records, experts say effort ‘riddled with errors’.” This is Reno. https://thisisreno.com/2022/09/city-promotes-blockchain-tech-for-its-records-experts-sayeffort-riddled-with-errors/

Web portal of Reno’s Biggest Little Blockchain, showing Reno’s register of historic places.56

Nonetheless, the Reno case exemplifies a situation where an innovative mayor can effectively navigate bureaucratic hurdles and spearhead a swift implementation of novel solutions for a well-scoped use case. What remains uncertain is how the BLB project can scale from a standalone use case to other applications and establish a sustainable business model for new tech adoption in the public sector. As demonstrated by e-Estonia, the benefits of data interoperability are realized only when data silos are dismantled, allowing seamless communication between different sources of information that can lead to more efficient service delivery. Achieving this necessitates a top-down approach to e-government that is characterized by a highly centralized capacity to organize and deploy resources, one which is less replicable in contexts with more decentralized and uncoordinated governance structures.

3.2.4 Case Highlight – Community-Scale Participation Experiments: BBBlockchain’s Innovations in Civic Engagement for Urban Planning and Development

Citizen participation is one of the most important aspects of public governance, particularly with regards to decision-making in public affairs.57 Despite increased avenues for participation with the emergence of e-Participation platforms, recent research finds that there are declining trends of citizens’ engagement and participation in public affairs due to lack of trust in public institutions, lack of motivation, and disconnect between participation processes and actual decision outcomes.58 Within the realm of urban development, governments have often faced criticism for limited transparency, reduced trust among diverse stakeholder groups, and an absence of co-creation initiatives, leading to a growing demand for greater transparency in order to improve governmental functioning, accountability, and civic participation in the decision-making processes.59

Addressing these challenges and advocating for participatory urban planning, BBBlockchain is a participation platform built on the Ethereum blockchain and developed by researchers from Technische Universitat Berlin’s Einstein Center Digital Futures with support from Berlin‘s six municipal housing associations.60 Different from the permissioned KSI blockchain and the STRATO platform shown in the previous two examples, BBBlockchain attempts to leverage the immutability and transparency of the public blockchain to create a platform without a monopolistic control over data and information with goals of increasing citizens’ confidence in the participation process. The platform’s primary functions include facilitating document management, voting, and the publication of proposals and feedback, with ancillary features of social media integration, opinion polls, and the utilization of tokens for various initiatives, such as participatory budgeting.

57 E. W. Welch, “The rise of participative technologies in government,” Transformational government through eGov practice: Socioeconomic, cultural, and technological issues, pp. 347–367, 2012.

58 N. Kogan and K. J. Lee, “Exploratory research on the success factors and challenges of smart city projects,” Asia Pacific Journal of Information Systems, vol. 24, no. 2, pp. 141–189, 2014.

59 S. J. Piotrowski, Governmental transparency in the path of administrative reform. Suny Press, 2008.

60 Einstein Center Digital Future. 2023. “BBBlockchain: Project is exploring the possibilities and limits of digital participation processes.” https://www.digital-future.berlin/en/research/projects/bbblockchain/

Developed in phases, BBBlockchain has been first piloted at Kietzer Feld in Köpenick and at Bülow90 in Schöneberg since February 2020.62 The Kietzer Feld project focused on increasing the information transparency of the ongoing participation process through the two use cases of timestamp and document management, both of which feature one-way flow of information from housing authorities to citizens. Citizens can access the platform via a mobile app, which features a simple interface centered around a timeline of data provided by housing associations and other institutional stakeholders. The user experience is designed such that users’ exposure to intricate blockchain details is reduced to a minimum; but when demanded, these details for each entry can be accessed with a cryptographic hash value to verify data integrity and ensure information reliability, as shown in the screenshots below of BBBlockchain’s user interface.

Current technical infrastructure of BBBlockchain. (Souce: Ietto et al., 202261)

61 Ietto, B., K. Eisenhut, R. Muth, J. Rabe, and F. Tschorsch. “Transparency in Digital-Citizens Interfaces Through Blockchain Technology: BBBlockchain for Participation Processes in Urban Planning,” 2022.

62 The Kietzer Feld project focuses on timestamp and document management. In Schöneberg, the project goes one step further by testing which decisions can be made by citizens directly via the mobile app. According to TU Berlin, BBBlockchain passed its first milestones and continued on with a second pilot phase in 2022 before final evaluations of results in 2023.

A recent evaluation64 made by the project’s research team on the platform’s initial pilot in Kietzer Feld revealed a number of interesting findings on the use of blockchain to solve for trust and transparency in the context of civic participation in urban planning. According to the authors:

• Blockchain’s provision of an open and immutable record for all decisions related to an urban planning project positively impacts information availability. However, the same qualities of immutability and traceability can negatively affect information comprehensiveness, as official stakeholders may be discouraged from publishing data out of fear of being held accountable for erroneous entries. As the current design of the platform relies on actors’ willingness to contribute, this tradeoff cannot be easily remedied unless the design features are adjusted to address these concerns and incorporate incentive schemes that encourage participation.

• With regards to information accessibility, permissionless and open-source blockchains theoretically allow any individual to access the information.

64 Ibid.

Screenshots of BBBlockchain’s user interface for the project in Kietzer Feld in Köpenick. (Souce: Ietto et al., 202263)

63 Ietto, B., K. Eisenhut, R. Muth, J. Rabe, and F. Tschorsch. “Transparency in Digital-Citizens Interfaces Through Blockchain Technology: BBBlockchain for Participation Processes in Urban Planning,” 2022.

However, non-expert users may struggle to comprehend the advantages conferred by such technologies, resulting in distrust stemming from a lack of understanding of both the information and the communication process.

• The initial purpose of using blockchain was to improve information quality and reliability by ensuring data integrity. Paradoxically, the immutability of the blockchain serves to extend the longevity of wrong information, pressurizing participants to submit error-free data. Consequently, this pressure could hamper stakeholders’ willingness to engage in the process out of accountability concerns.

Given BBBlockchain is still in its nascent stages of development, it remains to be seen whether incorporating a public blockchain into the design of an online participation platform can effectively lead to higher levels of engagement in participatory urban planning. Nevertheless, these preliminary insights begin to suggest that a blockchain-based participation platform holds potential to address certain aspects of information transparency challenges, but it needs to be coupled with a more socio-technical implementation to tackle stakeholders’ institutional resistance to participation and to incorporate trustworthy values within its design that would encourage user engagement.

3.2.5 Lessons from Current Practices

Takeaways and Reflections on DTT-Enabled E-Governance

1. The motivation for using DTTs in e-governance can derive from different sources, from external to internal threats, leading to different needs for trust and understanding of transparency. In the case of e-Estonia, the adoption of blockchain was initially spurred by the need to fortify the country’s cybersecurity infrastructure against foreign threats following the catastrophic cyberattack in 2007. The promise of bolstering institutional trust through blockchain largely hinges on the capacity of government institutions’ ability to safeguard citizens’ data against external foreign threats and uphold the robustness of the digital infrastructure, and less on addressing internal issues such as institutional accountability or corruption. On the other hand, both Reno’s Biggest Little Blockchain project and the BBBlockchain experiment seek to improve internal government accountability through the use of a traceable and auditable ledger. Consequently, the notion of transparency varies based on

these distinct sets of priorities. While BLB and BBBlockchain view transparency as the open availability of public data for public scrutiny, e-Estonia’s interpretation of transparency focuses on the privacy and security of personal data, as well as their potential (mis)use.

2. DTTs can help enhance institutional accountability, but do not automatically lead to decentralization of power in governance. The ability to provide a continuous audit trail indeed leads to enhanced institutional accountability and trustworthiness compared to previous systems. However, in permissioned blockchains, although there are some levels of decentralization, governance power is largely concentrated in the authorized actors, who have the ability to add to the blockchain and participate in the validation process. Thus, while permissioned blockchains offer benefits such as faster transaction times, elimination of gas fees, enhanced privacy, and increased governability of the blockchain, they also face critiques of limited participation from end users and a greater degree of centralization of power that is prone to a greater risk of collusion. Some may argue that this contradicts the original ideal of decentralization found in public blockchains and serves to reinforce pre-existing centralized practices, deviating from the promise of disruptive decentralized governance and power sharing in decision-making.65

3. In institutional applications of DTTs, transparency provides an affordance to increase trust in the institution, but is often invisible to end users by design. In all three cases, the details of the blockchain are kept to a minimum to avoid confusion and/or skepticism and to increase adoption. Given that these applications target end users primarily comprising the general public who lack familiarity with DTTs, the decision to omit explicit references to the underlying technology within the user experience represents a deliberate design strategy. While BBBlockchain leaves a choice for end users to access details of data entries on the blockchain for verifying data integrity, the other two cases keep such details to the backend viewable only to centralized administrators. In the case of e-Estonia specifically, the balance to be struck is between openness and privacy, ensuring that sensitive personal information is protected while still enabling public access to relevant data for service delivery purposes. Estonian citizens’ trust in government institutions stems not only from the

65 Semenzin, S., Rozas, D., & Hassan, S. (2022). Blockchain-based application at a governmental level: disruption or illusion? The case of Estonia. Policy and Society, 41(3), 386-401.

security the government provides against external threats within a particular historical context (faith-based trust), but is also fortified from repeated seamless experiences of digitally accessing public services (confidence-based trust), supported by an invisible yet smoothly functioning digital infrastructure.

4. The institutional applications of DTTs in e-governance tend to position citizens as consumers of services rather than collaborators. In all three cases, the applications are presented as finished products to the citizens, who are excluded from the design and decision-making processes of their adoption. In some instances, this lack of consultation and citizen participation during the adoption phase could result in potential resistance to the adoption of new technologies and diminished trust in the institutions responsible for their implementation. The traceability and immutability inherent in the technology alone are insufficient for fostering trust. Instead, a culture of trust between institutions and constituents is cultivated through open dialogue, collaboration, fulfilled promises, and transparency that is not only built into the technology and data, but also into the decision-making process.

5. The benefits of data interoperability only manifest when data silos are fully dismantled. In the case of e-Estonia, the enhanced connectivity between different sources of data enables institutional organizations to fully unlock the potential of the digital infrastructure by ensuring data integrity, promoting trust, and streamlining services. However, the value of the ledger technology in single use cases such as Reno’s BLB project may be less clear as they may not readily illustrate the far-reaching implications of interconnected data systems. In isolation, a single use case might only demonstrate incremental improvements, but when viewed in the context of a broader ecosystem, the combined impact of multiple use cases on efficiency, security, and collaboration can become a powerful driving force for efficient and trustworthy service delivery. This can help reduce both the time and distance between the state and the citizens, mutually reinforcing both confidence-based and faith-based trust in the institution. However, realizing this requires a top-down approach to digital infrastructure adoption that is marked by a highly centralized capacity to manage and allocate resources, one which is less feasible in situations with more fragmented and uncoordinated governance structures.

6. The philosophies of permissioned institutional blockchains fundamentally deviate from the original anarchist approach in public blockchains. Blockchain’s inaugural use in Bitcoin was driven by an anarchist vision to establish an alternative financial system that was decentralized and free from institutional intermediaries.66 Contrary to this vision, examples shown in this section are representative of an institutional approach where the aim is not to be disruptive but rather enhancing services and trust in existing systems through government-led blockchain projects. As such, their focus lies in improving efficiency of services from a security and accountability standpoint by employing a continuous audit trail that operates within the existing governance frameworks, and less on meeting the promises of revolutionizing democratic decision-making through decentralization of power in which their anarchist counterparts envisioned.

66 Husain, Syed Omer, Alex Franklin, and Dirk Roep. 2020. “The Political Imaginaries of Blockchain Projects: Discerning the Expressions of an Emerging Ecosystem.” Sustainability Science 15 (2): 379–94.

3.3 Wider Participation and Coordination for Multiple Publics: DAOs, Collective Ownership, and Decentralized Governance

In contrast to the previous set of examples, where DTTs were used to reinforce trust between government institutions and citizens, this section explores the innovative concept of Decentralized Autonomous Organizations (DAOs). These organizations leverage smart contracts and token governance to scale trust among members within a networked organization to enable broader participation and coordination within a self-determined grassroots community.

3.3.1 DAOs for Collective Ownership and Governance

What are DAOs?

Since gaining popularity as a novel model of human coordination in 2016, DAOs have transformed the way organizations collaborate and make collective decisions. A DAO typically consists of a loosely connected community united by a common goal. Members of a DAO pool their resources and employ software protocols, executed by smart contracts on a blockchain, to facilitate collective decision-making.67

Both functionally and philosophically, DAOs are akin to cooperatives that focus on prosocial goals, where the organization is member-run, member-operated, and member-owned, only that they leverage blockchain technology, smart contracts, and digital tokens to ensure more secure, transparent, and scalable trust and coordination across a broader network of decentralized actors.68 In most DAOs, token-holders from around the world can propose and vote on ideas, as well as execute changes to the DAO, based on tailored voting systems like “one-token-one-vote”, or more advanced voting mechanisms such as quadratic voting69 that takes into account voters’ intensity of preference. As of February

67 World Economic Forum. 2022. “Decentralized Autonomous Organizations Beyond the Hype.

68 Hubbard, Sarah. “Beyond the Buzzwords: Web3, DAOs, and the Future of Human Coordination.” Perspectives on Public Purpose, October 4, 2022, https://www.belfercenter.org/publication/beyond-buzzwords-web3-daos-and-futurehuman-coordination

69 Proposed by Glen Weyl and Eric Posner, quadratic voting is a voting system where individuals can allocate a limited number of “voice credits” towards multiple options, with the cost of each additional vote increasing quadratically, allowing for more nuanced and proportional decision-making that takes into account of the intensity of preference. See: Posner, E. A., & Weyl, E. G. (2018). Radical Markets. In Radical Markets. Princeton University Press.

2023, 11,151 DAOs operate globally, engaging in diverse activities such as making investments, powering networks or applications, and promoting ESG-related agendas (such as Earth Fund).70

Without a universally established definition or operating standards, DAOs create their own constitutions and governance protocols tailored to their missions and goals. In most cases, DAOs utilize “tokens”71 to represent and program values and digital assets. The ability to design token systems, or “token engineering,” unleashes new possibilities for designing incentivized systems to own, trade, and govern shared assets in a decentralized, transparent, and secure manner.

DAO Legislation

Currently, DAOs can assume various legal wrappers contingent on their purpose, locality, and scale. These could range from traditional corporations, partnerships, limited liability companies (LLCs), SEC investment clubs, co-ops, LCAs, non-profits, and overseas foundations.72 In the U.S., as DAOs gain popularity as a new form of organizational structure, several states, including Wyoming, Tennessee, Vermont, and Colorado, have enacted legislation in recent years to accommodate and regulate DAOs. For instance, passed in April 2021, Wyoming’s Senate Bill 38, codified as the Wyoming Decentralized Autonomous Organization Supplement, recognizes DAOs as legal LLCs under Wyoming’s Limited Liability Company Act.73 This new law acknowledges DAOs as separate legal entities capable of forming legally binding contracts and stipulates that members of a DAO do not owe fiduciary duties to the DAO or each other, unless otherwise provided by the DAO’s articles of association or operating agreement. Under this law, a DAO can be either “member-managed” or “algorithmically managed,” as long as the smart contracts can be updated, modified, or upgraded. Articles of organization and smart contracts govern the relations among and between DAO members,

70 These organizations range in scale from large communities with shared interests to small, informal group chats, collectively holding a treasury worth $13.3 billion USD. See: DeepDAO. 2022. “Organizations [Industry Data].” 2022. https://deepdao.io/organizations

71 In the context of the United States, the Securities and Exchange Commission defines a token as “a digital representation of values or rights” with an unmodifiable transaction history on the blockchain that can be exchanged between individuals or entities without an intermediary. See: Peirce, Hester M. April 13, 2021. “Token Safe Harbor Proposal 2.0.” U.S. Securities and Exchange Commission.https://www.sec.gov/news/public-statement/peirce-statementtoken-safe-harbor-proposal-2

72 Jennings, Miles and David Kerr. 2022. a16zcrypto. “A Legal Framework for Decentralized Autonomous Organizations. Part II: Entity Selection Framework.” https://a16zcrypto.com/wp-content/uploads/2022/06/dao-legal-frameworkpart-2.pdf

73 State of Wyoming. 2021. Senate File No. SF0038. https://www.wyoleg.gov/2021/Introduced/SF0038.pdf

their rights and duties, the DAO’s activities and conduct, and the transferability of membership interests. Since the introduction of this legislation, 800 entities have registered as DAOs in Wyoming as of March 2023, including CityDAO, a case study to be discussed in-depth in the subsequent section.

DAO Use Case: Fractional Ownership and Collective Governance of Shared Assets

One of the compelling use cases for DAOs is enabling fractional ownership and collective governance of shared assets at scale, which is facilitated by the use of tokens and smart contracts. While current tools and solutions, ranging from large-scale shareholder models to smaller-scale Special Purpose Vehicles (SPVs), do allow for such functionality, they often face a trade-off between accessibility (with potentially high barriers to entry) and management efficiency (due to high administrative costs).

Responding to these limitations, there are two primary value propositions put forth by DAOs in theory: first, the transparency and trackability offered by distributed ledger technologies enable more accountable and trustworthy allocation of shared resources, redistributing power from centralized intermediaries to individual users and potentially reducing corruption; and second, the programmability of digital tokens allow for more flexible designs of incentives mechanisms and governance systems. Based on these proclamations, DAOs have explored radical experimentations with co-ownership and governance of real world assets such as art, real estate property, land, intellectual properties, in a much more decentralized and supposedly in more equitable manner than traditional organizations. However, to date, there has been limited empirical research evaluating their effectiveness and unique value-add. To address this gap, we dive into a specific use case – CityDAO, a Wyoming-based DAO that has attempted to experiment with collective land ownership and blockchain-based governance.

3.3.2 Case Highlight – CityDAO: An Experiment in Collective Land Ownership and Decentralized Governance

CityDAO: The Beginnings

It is quite fitting that a crypto-native land ownership project stemmed from a mere tweet. In direct response to Wyoming’s new DAO legislation that went into effect on July 1, 2021, CityDAO founder and software engineer Scott Fitsimones –without first having assembled a project team – initiated the venture with a tweet on the same day: “Starting a DAO to buy and tokenize land in Wyoming, who wants in?”74 Within a month and a half, CityDAO’s membership on the online discussion forum Discord expanded to over 1,000 people from around the world. The group officially registered as a DAO in Wyoming and amassed over $250,000 in funding sourced from the sales of “Citizen NFTs,” which are non-fungible tokens that represent both membership (i.e., “Citizen” status) and governance rights within the DAO. CityDAO Citizens then casted votes to collectively decide on which piece of land to buy, followed by the execution of the official purchase of 40 acres of land in Wyoming on October 29, 2021, now designated as Parcel 0.

At a high level, CityDAO seeks to democratize land ownership and experiment with participatory democracy in a sandbox environment provided by Wyoming’s rural conditions. Following the initial Citizen NFT offering, participants acquire Citizen NFTs by contributing to the DAO (akin to sweat equity) or through secondary market purchases. These tokens allow members to participate in the decision-making process regarding the governance, operations and activities of CityDAO, and provide access to the facilities offered by the DAO. However, since Citizen NFTs do not represent legal ownership of the actual land nor future revenue claims, they are unlikely to be treated as securities under the Howey Test75 for U.S. securities law. This distinction is an important one as digital tokens which are treated as securities under current U.S. laws are subject to stringent registration and disclosure requirements, highlighting the challenge for DAOs to achieve fractional asset ownership at scale while remaining legally compliant.

74 For more information, see: https://twitter.com/scottfits/status/1410724134468739076

75 The Howey Test comprises four criteria, and a transaction is classified as a security if it fulfills all four prongs: 1) an investment of money is involved; 2) it occurs within a common enterprise; 3) there is an expectation of profit; and 4) the profit is derived from the efforts of others. See: U.S. Securities and Exchange Commission. 2023. Framework for “Investment Contract” Analysis of Digital Assets. https://www.sec.gov/corpfin/framework-investment-contract-analysisdigital-assets

CityDAO’s ownership and governance mechanism. (Source: CityDAO76)

Iterations of Collective Governance: The Challenge of Decentralization

Since Fitsimones’ first tweet, CityDAO has gone through four distinct iterations of governance: (a) Core Team; (b) Council; (c) Guilds; and (d) Projects-based governance. These iterations and evolution of governance expose the ongoing tensions between centralization and decentralization, efficiency and inefficiency, and the search for the most desirable balance.

In the initial period of CityDAO’s establishment, governance was led by the Core Team, which is comprised of 10 members including Fitismones as well as others from across the world. Originally strangers, these members demonstrated passion for the DAO, organically forming the CityDAO’s first governance team. CityDAO moved rapidly during this initial period and achieved various key milestones including registering CityDAO as an LLC in Wyoming, purchasing CityDAO’s first piece of land and raising more than $8M for CityDAO’s treasury from Citizen NFT sales.

Following these foundational successes achieved under the Core Team’s leadership, many in the CityDAO community called for further political decentralization, as this was the raison d’etre of a decentralized organization. This led to the second stage of CityDAO’s governance story: the election of the CityDAO Council. 77 Interestingly, the community’s mandate for the Council was not to form an executive

76 CityDAO. September 23, 2022. “CityDAO Parcel 0 NFT Drop.” https://www.citydao.io/news/citydao-parcel-0-nft-drop

77 For more information, see: https://snapshot.org/#/daocity.eth/ proposal/0x19434333adf3e274b65d497bb977c4c5aef1f09466b144e3e55cfabe5b00b3c8

body to run the operations of CityDAO; instead, the Council functioned as a legislative body with the mission of drafting and ratifying a CityDAO Charter and DAO LLC Operating Agreement. The task of drafting a set of governing principles – akin to a constitutional document – from scratch was monumental, requiring a great deal of commitment, discussion and effort from the Council members to arrive at a consensus. According to one Council member, drafting the Charter was one of “the most challenging and rewarding experiences of [his] life,” likening it to the experience of America’s “founding fathers.”78 Ultimately, the Council produced the CityDAO Charter that was ratified by the community in April 2022.79

Unlike a traditional constitution that would typically provide for governance through either a legislative or executive body, the CityDAO Charter put forth instead the establishment of Guilds to take charge of various aspects of CityDAO’s operations, from technical development to public relations.80 There are at least two notable points about this governance design choice. First, this aligned with the trend towards decentralization, diffusing the leadership and operational roles amongst Guilds and their Facilitators as opposed to centralizing leadership in a Core Team or Council. Second, this choice to use Guilds – which is a popular gaming concept meaning a group of players who regularly play computer games together – perhaps well reflects CityDAO’s roots as a digital-native organization.

Another achievement of the CityDAO Charter was to clearly codify the process of decision-making within CityDAO. In brief, the Charter states that any holder of a Citizen NFT may originate a proposal by posting the proposal on the Discourse forum platform for discussion amongst the CityDAO community.81

If the proposal obtains the requisite number of likes on the Discourse platform, the proposal then moves to Snapshot for voting. Snapshot is a DAO governance platform which allows holders of the Citizen NFTs to vote on proposals and which records votes in a transparent and immutable fashion.82 If the requisite number of votes and quorum for the proposal has been reached, the proposal would then be implemented. If funding for the project is required, funds would be disbursed from the CityDAO treasury. Notably, the funds are not disbursed

78 For more information, see: https://forum.citydao.io/t/citydao-charter-version-1-and-operating-agreement/1110/16

79 For more information, see: https://charter.citydao.io/

80 The CityDAO Charter envisaged the formation of 11 Guilds: the Mission Guild, the Community Guild, the Public Affairs Guild, the Legal Guild, the Finance Guild, the Real Estate Guild, the Developers Guild, the Operations Guild, the Risk Mitigation Guild, the Media and Content Guild and the Design Guild: see 4.2.5 of the Charter.

81 For more information, see: https://forum.citydao.io/

82 For more information, see: https://snapshot.org/

automatically upon approval of the Snapshot vote; a group of 8 signatories manage the CityDAO’s treasury via a multi-signature wallet, and in order for funds to be disbursed from the treasury, 5 out of 8 signatories must approve the transaction.

In our analysis of CityDAO’s brief history, the move towards a guild structure represented a turning point in CityDAO’s development as various shortcomings emerged. The large-scale decentralization of specific processes without a concomitant establishment of an oversight body resulted in the siloization of monetary and human resources, confusion over responsibilities, and misalignment of objectives. Due to these various issues, CityDAO has all but abandoned the use of guilds, and as of March 2023 operates on a projects-based structure. Under this approach, citizens form small project teams, formulate a clear proposal, seek approval and funding from CityDAO for their project, and if approved, execute their plan. One such project of note is the Baby Parcel project83 which led to the purchase of 10 acres of land in Blanca, Colorado with the aim of experimenting with NFT leases.

A positive development of the projects-based approach has been to allow CityDAO to advance towards its objective of “building a web3 city of the future” through its support of citizen-proposed projects. At the same time, the projects-based approach has been criticized as splintering the community, depleting CityDAO’s resources to fund personal projects, and lacking frameworks and systems to establish accountability. This had arguably led to an existential crisis for CityDAO, with some members calling for the dissolution of the community, or a pause on all projects in favor of long-term planning, governance overhaul or a discussion on the future of CityDAO.84

CityDAO: The Future

CityDAO is currently at a crossroads. Having achieved its initial aim of owning land as a DAO, the CityDAO community is now struggling to find consensus on governance and its future direction. Whether CityDAO will fulfill its mission of building a “crypto city of the future” remains an open question, and its journey thus far holds a wealth of lessons for blockchain-enabled DAO governance. We identify and discuss these lessons in the next section. (Note: Although numerous lessons from CityDAO may be applicable to other DAOs, certain observations are unique to CityDAO and should not be assumed to apply universally to all DAOs.)

83 For more information, see: https://snapshot.org/#/daocity.eth/ proposal/0x2f258399b295a8f8e9a35dbaa060b9cd8960fd2cdd7f451a887ccdb3df39291a

84 See generally the discussions at: https://forum.citydao.io/t/discuss-how-should-citydao-capture-value-from-proposals/1823 and https://forum.citydao.io/t/taking-a-pause-before-voting-on-all-these-proposals/1881

3.3.3

Lessons from Current DAO Practice: Potentials, Setbacks, Future Outlooks

Potentials

of Decentralized Trust-Building Technologies for DAOs in Cities

1. Blockchain-enabled data transparency fosters scalable trust and coordination amongst strangers. The decentralized, transparent, and secure nature of the public blockchain laid out the essential bedrock for scalable trust, allowing individuals worldwide to pool funds confidently through NFT sales. Funds raised were traceable in a continuous audit trail, making it possible for a community of strangers with an aligned interest to form organically to coordinate and collaborate without a centralized entity directing the agenda, and effectively reducing the likelihood of corruption. Different from the first set of examples from the previous section, the role of DTTs is to foster trust in each other amongst members that self-organize within a decentralized organization operating on a public blockchain, as opposed to promoting trust in institutions.

2. Security and immutability of votes ensure confidence of voters who participate and more dynamic governance. Blockchain-based voting mechanisms, such as Snapshot, enable transparent, secure, and immutable recording of votes, a technical feature that provides the necessary confidence to voters that their votes cannot be tampered with by any third parties. Additionally, only users possessing the DAO’s requisite NFT can vote, effectively eliminating fraudulent votes from those without a stake in the DAO. The transparency of this process offers assurance to members that their voices are heard and votes are counted fairly – a notable contrast to the opacity often associated with political elections.

3. Decentralization allows for more participatory democracy and turns members from participants to contributors. The decentralized foundation of DAOs offers all members equal opportunities to participate, and more importantly to contribute to the mission by proposing ideas for community voting, rather than merely being passive observers influenced by decisions made by a centralized leadership committee or a small board of directors. With the integration of blockchain technology and smart contracts, DAOs enable the implementation of participatory and direct democracy models more feasibly and effectively, granting direct agency to participants, as opposed to traditional organizations or engagement processes where participants often react to

programs designed by higher-level representatives.85 In the context of property ownership specifically, changes in work cultures and spatial demand following Covid-19, coupled with a growing number of distressed commercial properties, necessitate increased flexibility in local development. This situation presents an opportunity to experiment with innovative concepts and technologies related to decentralized governance, financing options, and collective ownership, thereby fostering more agile and nimble solutions for local development.86 DAO-like models present an opportunity to investigate community-oriented financing and local development approaches based on fractional ownership and collective governance enabled by token engineering, significantly shifting away from the prevailing real estate development model that is dominated by institutional investors and developers focused on profit maximization.

Open Challenges and Future Areas of Work

1. Pseudonymity encourages participation, but disclosure of identities is required for greater accountability and trust. A key attraction of public blockchains like Ethereum is the option for participants to remain pseudonymous. Prior research indicates that anonymity can increase the likelihood that participants will provide honest responses in online participation,87 although its benefits can be offset by challenges of negative disinhibition (i.e., foul language, hoax) and reduced credibility.88 The disclosure of identity is thus necessary for situations that demand high levels of responsibility, accountability, and trust, such as approving multi-signature wallet fund transfers or running for the DAO Council election. Contrary to common assumptions about DAOs using smart contracts, fund transfers in most DAOs are not automatically executed, but require final approval from multisig wallet signers, 89 indicating that trust is delegated to elected community members, akin to a common representative democracy.90 While pseudonymity is an

85 Davidoff, Paul. 1965. “Advocacy and Pluralism in Planning”, Journal of the American Institute of Planners, Vol.31, pp.103-114.

86 Rong, Helena, A proposal for fractional property ownership and collective governance in local development (February 10, 2023). Available at SSRN 4353724.

87 Lelkes, Y., Krosnick, J. A., Marx, D. M., Judd, C. M., & Park, B. (2012). Complete anonymity compromises the accuracy of self-reports. Journal of Experimental Social Psychology, 48(6), 1291-1299.

88 Wagenknecht, T., Teubner, T., & Weinhardt, C. (2016). The impact of anonymity on communication persuasiveness in online participation.

89 For example, requiring three out of five signers to sign before any transactions are executed.

90 Note: The use of a multisig wallet is a design choice made by the DAO and does not preclude the possibility of encoding smart contracts for automatic executions.

intrinsic characteristic of blockchain-based participation, the cultivation of trust among members, particularly those engaged in more critical DAO operations, is accomplished through real interactions involving individuals with disclosed identities.91

2. Decentralized communication can bring challenges to accessibility and communication efficiency. The absence of a centralized coordinator in DAOs presents challenges for outsiders who seek to understand a DAO, participate, review its history, and stay updated on projects. For CityDAO, online members note that the effort to uncover the single source of “truth” and grasp CityDAO’s history is a barrier to accessibility and efficient participation.92 However, while a unified communication platform may appear more streamlined, the concept of a centralized DAO platform may conflict with philosophies of decentralization underlying DAOs.

3. Token-based voting can lead to the “DAO Plutocracy Problem.” The current one-token-one-vote model utilized in most DAOs reveals governance issues such as the sybil attack – which is a security threat that involves creating multiple fake identities or accounts to gain control over a network; and the DAO Plutocracy Problem – which refers to the disproportionate influence of large token holders (“whales”) over voting outcomes, while smaller token holders have minimal say.93 The sybil attack can be addressed by an identity solution proposed by Glen Weyl, Puja Ohlhaver, and Vitalik Buterin is the concept of soulbound tokens (SBTs), which are publicly verifiable, non-transferrable tokens that “represent the commitments, credentials, and affiliations of ‘Souls’ [and] can encode trust networks from the real economy to establish provenance and reputation.”94 This model proposes that a member’s voting power in a DAO be determined by their reputation within the community, rather than token ownership. Consequently, this merit-based model disconflates financial stakes from governance, allowing for a more equitable distribution of influence. An alternative form of voting called

92 See, for example, a post by JoeZamm in October 2022 at https://forum.citydao.io/t/make-it-easy-for-newcomers-toget-involved/1810, who highlighted that as a newcomer to the DAO, it was “very hard to understand what is happening at the current moment. There are lot of different things going on, so a central location that is continuously updated would be important to maintain”

93 Schneider, N. (2021). Cryptoeconomics as a limitation on governance. Regulation and Governance.

94 Weyl, E. G., Ohlhaver, P., & Buterin, V. (2022). Decentralized society: Finding Web3’s soul. Available at SSRN 4105763.

91 Our interviewees from CityDAO revealed that many of its core members met in person offline.

quadratic voting proposed by Glen Weyl95 addresses the DAO Plutocracy problem by assigning a quadratic cost to each vote cast, meaning that the more votes a person casts on a particular issue, the more they will have to pay per vote. In the context of fractional ownership and governance of physical properties such as real estate, Rong further proposes distinguishing voting rights between property owners and local residents. This distinction aims to guarantee that local residents, who might otherwise be affected by negative externalities of a new development, have a say in decisions that could impact their well-being.96

4. Low levels of voter engagement leads to vetocracy and high coordination costs. Problems plaguing democratic systems like voter apathy and voter fatigue are equally prevalent in DAOs. In DAOs, low voter engagement often leads to a vetocracy, a situation where a group fails to make effective decisions due to high quorum requirements. For DAOs, the challenge of governance lies in improving coordination mechanisms to ensure that decision-making questions are directed to the most suitable individuals at a localized level. As not all members possess the same level of interest or expertise in every voting matter, it is crucial to balance the interests of all DAO members while fostering a more efficient decision-making process. Furthermore, distinguishing between strategic, high-level choices that require greater participation, and tactical, low-level choices that necessitate less involvement, is crucial for ensuring both governance and operational efficiency. Siddarth, Allen, and Weyl’s argument in favor of decentralization rooted in subsidiarity – which is grounded in the principle of solving problems “through the federation of ‘local’ units, clustered around the social contexts most relevant to the decision at hand” – suggests that adopting this approach could lead to more effective and contextually relevant decision-making processes in DAOs.97 By empowering local units to address issues that are most pertinent to their specific situations, a subsidiarity-based model of decentralization can potentially enhance the overall efficiency and responsiveness of DAO governance.

95 Lalley, Steven; Weyl, E. Glen (24 December 2017). “Quadratic Voting: How Mechanism Design Can Radicalize Democracy”. SSRN 2003531

96 Rong, Helena, A proposal for fractional property ownership and collective governance in local development (February 10, 2023). Available at SSRN 4353724.

97 Siddarth, Divya, Danielle Allen, Glen Weyl. May 12, 2022. “The Web3 Decentralization Debate Is Focused on the Wrong Question”. https://www.wired.com/story/web3-blockchain-decentralization-governance/

5. The current regulatory landscape in the U.S. places limitations on blockchain-based fractional ownership of land (or other real world assets). The potential of a DAO for collective ownership lies in its promise to facilitate a fairer distribution of wealth by allowing all members to share in the potential upsides of the collective good. However, in the U.S. (and many other countries), current securities laws would likely classify such upsides as characteristics of securities, rendering it infeasible for DAO-tokens to feature these elements. As such, in the case of CityDAO, it is crucial to emphasize that Citizen NFT holders do not possess any direct legal rights or claims to the physical asset of land. While collective governance is achieved through various mechanisms, collective ownership remains elusive, and it is unclear how DAO members can benefit from future appreciation in the value of the underlying asset they collectively govern. Existing exemption clauses,98 such as Reg A+, Reg S, or Reg D, permit entities to issue securities without undergoing the IPO process if specific conditions are met. However, these exemptions can be costly and might not be suitable for DAOs with smaller treasuries. As such, the attention of policymakers and regulators is required to develop ways that can accommodate these innovations, offering both consumer protection and opportunities for more equitable wealth distribution.

6. When implemented in actual urban settings, the decentralized and “network state”-like99 model for property ownership may be infeasible and undesirable. Built and operated by crypto-natives, CityDAO’s radical experiment of on-chain land ownership takes place in a sandbox-like environment owing to the rural and isolated nature of the site. However, if implemented in an actual urban environment, this model in its current form may face two primary challenges. First, real estate or urban development demands a high degree of professionalism and efficiency. The decentralized governance structure of the DAO risks introducing unwanted amateurism into an otherwise highly professionalized and efficient practice. Second, the DAO’s virtual community may face challenges in engaging and intermediating with local communities to negotiate development trade-offs. The crypto-native focus of the DAO could potentially pose risks to physical residents, as 98 U.S. Securities and Exchange Commission. April

99 Proposed by Balaji Srinivasan, the “network state” is an online community united by a common objective that has the ability to engage in collective action, which crowdfunds territory globally and ultimately obtains diplomatic recognition from pre-existing states. See: https://thenetworkstate.com/

development decisions are made by DAO members who lack physical stakes and connections to the site, which might negatively impact local residents who are excluded from decision-making. To truly advance DAO-enabled democratic ownership and governance of properties within an urban context, the model must evolve to allow for nimble coordination with both in-house and outsourced professional service providers, and establish a governance structure that prioritizes local residents’ ownership and participation, while balancing the needs of all decentralized DAO members.100 When DAO-like models are applied to real-world assets such as real estate, they are likely to differ from DAOs governing digital assets due to their intrinsic ties to physical spaces, local communities, and regulatory frameworks. These factors necessitate a more context-specific and collaborative approach, ensuring that the interests of all stakeholders are effectively considered and integrated into the decision-making process.

100 See “A proposal for fractional property ownership and collective governance in local development” using DAOs by Helena Rong (2023) that seeks to address these challenges: https://papers.ssrn.com/sol3/papers. cfm?abstract_id=4353724

3.4 Strengthening Local Communities: Building Economic Resilience Through Self-Reliance

3.4.1 Case Highlight – From Community Currency to Crypto City Tokens

Throughout history, a strong correlation exists between local economic resilience and the level of social cohesion and trust within a community.101 Tailored to specific geographic areas, local community currencies aim to empower businesses and foster engagement while promoting a greater sense of unity within communities. Although community currencies have never become mainstream practice, they have repeatedly risen in popularity during times of economic crisis or instability throughout history. In the wake of the pandemic in 2019, interest in community currencies again resurged, this time powered by blockchain and Web3 technologies, reshaping how cities approach local financing and constituent engagement. Although this fervor has subsided since the recent decline of the industry, mayors from major U.S. cities once openly endorsed cryptocurrencies and embraced city-branded tokens to unlock alternative fundraising methods and boost local economic growth during crypto’s heyday. As we consider the possibilities of crypto-powered community currencies, a question arises: Are they just a temporary fad posing potential risks and little value, or do they hold the potential to revolutionize the age-old practice of local community currency and help build local economic resilience and trust within communities?

History of Community Currency: Staying Resilient Through Financial Crises

Community currencies, also known as local currencies or complementary currencies, existed since the ancient civilizations in the form of barter systems. In more recent history, the economic crises of the 1920s and 1930s saw the emergence of functional community currencies in response to bank runs that led to the collapse of banks and traditional finance systems. To address currency shortages, numerous cities and towns across the US and Europe created their own local currencies to stimulate economic activity and alleviate financial hardships. These local currencies functioned as complementary currencies to the national currency, with the added benefits of promoting local spending and retaining value within the community.

101 Briguglio, L., Cordina, G., Farrugia, N., & Vella, S. (2006). Conceptualizing and measuring economic resilience. Building the economic resilience of small states, Malta: Islands and Small States Institute of the University of Malta and London: Commonwealth Secretariat, 265-288.

The success of many community currencies can be attributed to their ability to address a pressing need at the time: a shortage of cash. One of the most well-known applications of local currency during the Depression era was in Wörgl, Austria. Responding to the grave economic conditions faced by the town of Wörgl, the town issued its own currency, the equivalent of stamp scrip, based on a limited number of Austrian schillings it had at the time to pay workers for various infrastructure projects.102 Workers would then have an incentive to spend their scrip quickly due to demurrage, an anti-hoarding concept that features a negative interest rate, which increases the velocity of money. This in turn allowed for more jobs to be created and generated high levels of economic activity that attracted interest from neighboring communities before the project was eventually shut down by the Austrian Central Bank due to perceived threats to the Central Bank’s monetary authority. Similar experiments emerged in Iowa, but lukewarm support and poor implementation doomed such plans.

While many of these Depression-era experiments were short-lived, the WIR franc (Wirtschaftsring-Genossenschaft) in Switzerland remains the largest alternative currency still in operation today with an annual turnover of $7 billion.103

Founded in 1934, small and medium-sized enterprises (SMEs) primarily use this currency to sell goods and services to other businesses in a closed-loop. By encouraging businesses to trade with each other, the WIR Franc stimulates economic activity through affordable, alternative business loans backed by the Swiss franc, promoting local supply chains, increasing liquidity, and supporting small businesses.

During the late 20th century, local currency systems such as LETS (Local Exchange Trading Systems) and Time Banks emerged as alternative models for exchanging goods and services within communities. One of the most prominent examples of community currencies in the U.S. is BerkShares, which was established in Berkshire, Massachusetts in 2006. BerkShares supports local businesses by allowing residents to acquire BerkShares from four participating local banks at a rate of 95 cents USD per BerkShare and spend them at more than 400 participating locally-owned businesses. As of 2020, over 10 million BerkShares have been issued, reflecting the success of the currency.

102 Lietaer, B. (2013). The future of money. Random House. https://library.uniteddiversity.coop/Money_and_Economics/ The_Future_of_Money-Bernard_Lietaer.pdf

103 Adriano, Andreas. (2021). New Old Idea: Technological innovation is fueling the resurgence of community currencies. International Monetary Fund.

Community currencies succeed when there is a high level of buy-in from both consumers and businesses in the community, which requires a local focus. Those that lack long-term vision and support, adequate technological infrastructure, acceptance, circulation, and scale tend to fail to generate and contribute to regional economic growth. Importantly, these currencies do not compete with the national currency and hold real-world (currency-equivalent) value. They do not necessarily gain value over time such as an asset, providing no incentive to hold on to them, encouraging spending.

The growth of locality-based complementary currencies over the last several years with estimates has reached over several thousand systems today.104 Digital technology has further facilitated the development of digital local currencies, many of which are powered by blockchain technology, which offers faster settlement and cheaper transactions. More cities and social entrepreneurs are exploring the adoption of blockchain as the foundational infrastructure for their digital community currencies, such as the LVGA stablecoin of Lugano, Switzerland, and Bristol Pound in the UK.

Consequently, several questions emerge: Can technological tools like blockchain help integrate digital community currencies into the mainstream financial system? How can these new sociotechnical systems do more than merely facilitate transactions, but also assist cities in achieving environmental and social sustainability objectives? In the following section, we investigate a number of case studies that have not only created new digital community currencies, but are also experimenting with governance and other intriguing forms of Web3-related innovations.

Crypto Native-First Experiments

CityCoins: Top-Down Approach to City-Branded Tokens

The most prominent and well-funded city-branded cryptocurrency is CityCoins,105 which has garnered over $40 million for Miami and New York tokens. Although not officially affiliated with city administrations, the project enjoys strong endorsement from both cities’ mayors. Established by a private company with the same name, CityCoins is an alternative public financing

104 Deighton, Ben. 2017. Alternative currencies in rapid growth phase – researchers. Horizon: The European Research and Innovation Magazine. European Commission. Available at: https://ec.europa.eu/research-and-innovation/en/horizonmagazine/alternative-currencies-rapid-growth-phase-researchers

105 CityCoins. https://www.citycoins.co/

mechanism that aims to help cities generate extra revenue while providing financial incentives to its token holders and miners, such that anyone from around the world can mine CityCoins on behalf of any city to support their chosen city while accruing rewards.

To obtain a CityCoin (such as MiamiCoin), a user purchases a native token (STX) of the Stacks blockchain, sends the STX to CityCoins, permits CityCoins to mine on their behalf, and then claims the newly minted CityCoin tokens. The distribution of CityCoins functions as follows: 30% of the STX tokens sent to the CityCoins smart contract is designated for the participating city’s multisignature wallet, which is connected to its treasury and offers a fresh revenue stream. The remaining 70% is allocated to CityCoin holders who opt to “stack” their tokens (Figure 2). Stacking necessitates that holders lock their CityCoins for a specified number of “reward cycles” before receiving a share of the STX spent by future miners as rewards.

How CityCoins works. (Source: CityCoins Documentation106)

The 3:7 token distribution holds appeal for cities, as it essentially offers a 30% “voluntary tax” to generate additional funds from the public, requiring nothing more from cities than endorsement and the creation of a city-specific digital wallet. MiamiCoin,107 the first CityCoin launched in August 2021, raised over $21 million in just a few months, a financing size that is nearly one-fifth of the

106 CityCoins. 2022. “Mining CityCoins.” https://docs.citycoins.co/core-protocol/mining-citycoins

107 Brown, Dalvin. September 30, 2021. “Crypto tax: ‘MiamiCoin’ has made the city $7 million so far, a potential gamechanger for revenue collection” The Washington Post. https://www.washingtonpost.com/technology/2021/09/30/ crypto-miamicoin/

city’s tax revenue.108 In this model, the value of CityCoin is contingent on two factors: 1) supply and demand for a coin backed solely by speculation; and 2) the city’s decisions regarding the allocation of the coin. As such, a withdrawal of $5.25 million made by Mayor Suarez for a rental assistance program in February 2022 depleted the city’s digital wallet and led to an abrupt 80% reduction in MiamiCoin’s value, sparking concerns among token holders.109 This dissatisfaction prompted CityCoins to adopt a DAO for governance, using token-based voting for city budget allocation.

The transition to a token-based DAO governance model exposed a number of inherent flaws in the system’s design, which adversely affected equitable participation. First, lack of an identification layer meant that CityCoins allowed anyone to join the network pseudonymously, many of whom might not have ties to Miami. This disconnect leads to investment decisions being made without considering the interests of actual Miami residents who would be impacted by such decisions. Second, the absence of a concrete use case meant that CityCoins depended entirely on speculation, with their value becoming divorced from the actual value of the cities, further intensifying potential conflict of interest between token holders and actual residents. Third, as some critics argue, the technological barriers of the project exclude individuals from participation and allow non-residents to vote on city-related issues, creating wealth concentration benefitting only those with crypto expertise or substantial financial resources.110 Lastly, CityCoins’ top-down go-to-market strategy which focused on obtaining support from city figureheads rather than local residents, while successful at capturing headlines and rapid fundraising, primarily attracted crypto-natives without a real stake in the city. This uneven dynamic results in misaligned values, incentives, and expectations, and erosion of trust between token holders and the city, drastically deviating from its initial goal of “empowering everyone to take ownership in their city.”

108 Drucker, David. January 26, 2022. “How Miami Coin works and why people should keep an eye on it.” Florida International University News. Available at: https://news.fiu.edu/2022/fiu-faculty-weigh-in-on-the-future-importanceof-miami-coin

109 Redman, Jamie. February 10, 2022. “City of Miami Gets $5.25M Disbursement From Miamicoin as MIA Flounders 88% Lower Than Price High.” Bitcoin.com https://news.bitcoin.com/city-of-miami-gets-5-25m-disbursement-frommiamicoin-as-mia-flounders-88-lower-than-price-high/

110 Crypto Research and Design Lab. 2022. Spring Report: Cities and Crypto. https://docs.google.com/presentation/ d/1mhPJSTJ1i_rl0QkJyUwoPU6lgG3-pUPan6ViiGaTmvw/edit#slide=id.gfe346ab4c3_0_481

Community-Centric Solutions

While CityCoins serves as an example of how crypto-based city currencies can pose potential threats to cities instead of promoting their sustainability, other emerging efforts adopt an alternative community-driven approach to address challenges related to local economic prosperity and community engagement in cities. We explore a few intriguing examples in the following section.

City3’s $OAK: Community-First Local Currency to Create Driving Cities

In stark contrast to CityCoins’ approach to creating a crypto community currency is the nonprofit project city3. City3’s pilot project, $OAK, is a digital community currency in the form of a stablecoin pegged 1:1 to the USD, aiming to empower communities in Oakland, California by developing and governing a pool of shared community assets. Through leveraging partnerships with the Ethereum Foundation, Gitcoin, and the Oakland Fund for Public Innovation, $OAK envisions: (1) a city-wide community currency that draws inspiration from Lugano’s LVGA; (2) a 0.5% transaction fee to promote recirculation; and (3) a community endowment managed through a local participatory budgeting process.

The project aims to create new pathways for community self-sufficiency through a merchants payments network, community governance system, and community ownership. City3 harnesses the power of distributed ledger technology to scale decentralized trust, which would lead to more affordable and expedited transaction solutions and trustworthy governance mechanisms. Without financial intermediaries, city3 intends to provide communities with an alternative, decentralized payment rail with a much cheaper transaction fee.

Prior to developing the blockchain technology stack, city3 prioritizes researching and learning from existing solutions, educating local communities – particularly in neighborhoods of color – about cryptocurrencies, digital wallets, and stablecoins, and gradually enlisting merchants into its network in partnership with Oakland’s tourism department, Visit Oakland. Over the past year, city3 has onboarded more than 1,100 Oakland residents to use digital wallets for crypto payments using off-the-shelf stablecoins like USDC. As part of the initial pilot, city3 partnered with Web3 crowdfunding platform Gitcoin to experiment with

quadratic funding111 as an alternative participatory budgeting model.112 City3 currently plans to assemble a team to develop a white-label, purpose-built app that facilitates stablecoin transactions and design the city-wide stablecoin $OAK deployed on Coinbase’s Base protocol by 2024.

Unlike CityCoins, city3 intentionally refrains from involving city figureheads during its initial launch stages and focuses instead on securing local community buy-in. Adopting strategies from the success of BerkShares, which prioritized community outreach and local support, city3 aims to build resistance against regime changes and political volatility. This approach tackles common obstacles encountered by many community engagement projects such as Colu, which focused exclusively on local government actors. Although city3’s process is much slower than that of CityCoins, it ensures the growth of a robust base of local consumers and merchants, ultimately laying the foundation for the acceptance, sustainability, and longevity of the community currency.

City3’s Q2 2022 onboarding workshop with the Oakland community (Source: city3113)

111

112 City3. June 8, 2022. “City3 & Gitcoin pilot

https:// mirror.xyz/0xcity3.eth/8ZgDDZcixWbLW9Jb79Vuc5illbB5IiKU-c-NyCfabEQ

113 Ibid.

Despite its potential, city3 faces several obstacles, particularly in the wake of the numerous fallouts experienced by the crypto industry in 2022. One significant

Quadratic funding (also known as plural funding), is a mechanism for allocating funds to projects in a fair and efficient way, taking into account the preferences of a community or group of contributors by weighting matching allocations by the number of donors rather than by the amount donated. See: Buterin, V., Hitzig, Z., & Weyl, E. G. (2019). A flexible design for funding public goods. Management Science, 65(11), 5171-5187.

better community governance with quadratic funding in Oakland.”

challenge is overcoming negative public perceptions and devoting time to educate people about the technology’s potential benefits. Additionally, city3 must navigate the complexities of regulatory changes, such as California’s possible prohibition of algorithmic stablecoins,114 which could affect asset-backed stablecoins like the one proposed by city3.

Ibiza Token: Supporting Local Tourism of Ibiza Island

Ibiza Token, developed by Spanish startup Defi Proxima SL, is a project focused on developing a local utility token for a focused use case. It strives to help the island of Ibiza, a major tourist destination, to retain more of the economic wealth it generates. With many local artists and small businesses on the island lacking global market access, the Ibiza Token Web3 ecosystem aims to boost revenue for these local entities and connect tourists to distinctive, locally-crafted experiences.

Designed as a fungible token under the Ethereum ERC-20 token standard,115 the Ibiza Token ($IBZ) is a utility token that grants access to an exclusive NFT marketplace featuring NFTs created by local artists, as well as discounts in local shops and tickets to local events. Similar to city3, the Ibiza Token team invests significant efforts to educate and onboard local traditional artists to Web3 technologies. These efforts enable local artists to benefit from the growing demand for art NFTs. However, the subsiding NFT hype questions whether efforts should concentrate on developing the NFT marketplace or prioritizing and supporting the more tangible aspects of local art and craft.

Broader adoption and sustained interest are also essential for $IBZ’s success. Post-lockdown events have attracted around 400 people, which is a modest number compared to the island’s over 40,000 residents and millions of annual visitors. As $IBZ is not pegged to any assets, its value is vulnerable to cryptocurrency market fluctuations, rendering it unsuitable as a currency. However, it does establish a crypto-friendly user base and prepares the community for a future digital community currency launch. Consequently, the project team intends to introduce a Euro-pegged stablecoin as a local community currency in later development stages, facilitating fee-free local transactions.

114 Light, Joe. September 13, 2022. “An Under-the-Radar California Bill Could Transform Crypto Nationwide.” Barron’s. https://www.barrons.com/articles/crypto-legislation-california-51663007295

115 Ethereum. January 20, 2023. “ERC-20 Token Standard.” https://ethereum.org/en/developers/docs/standards/tokens/ erc-20/

3.4.2 From Extractive to Regenerative Economies

Within the current Web3 ecosystem, the synergy between tokenization and the circular economy gives rise to a new concept called “Regenerative Finance” (ReFi), which seeks to align financial practices and incentives with principles of regeneration, resilience, and abundance. The foundation of Regenerative Finance lies in “Regenerative Capitalism,” a term first introduced by economist John Fullerton in 2015, representing an emerging economic paradigm that shifts from exploitative and extractive business practices to restorative and regenerative ones.116 Although Fullerton’s initial proposition was unrelated to decentralized technologies or cryptocurrencies, it was embraced by impact-driven practitioners within the space who drew upon Fullerton’s eight principles of regenerative economy117 to design systems that incentivize actions that increase systemic health and disincentivize those that degrade it.

Adopted from Bill Reed’s “Trajectory of Ecological Design.” (Source: The Capital Institute118)

116 Fullerton, J. (2015). Regenerative capitalism. Capital Institute: Greenwich, CT, USA.

117 The eight principles of regenerative economy are: (1) in right relationship; (2) views wealth holistically; (3) innovative, adaptive, responsive; (4) empowered participation; (5) honors community and place; (6) edge effect abundance; (7) robust circulatory flow; and (8) seeks balance. See: Capital Institute. “8 Principles of a Regenerative Economy.” https:// capitalinstitute.org/8-principles-regenerative-economy/

118 Fullerton, J. (2015). Regenerative Economies for a Regenerative Civilization. The Capital Institute. https:// capitalinstitute.org/wp-content/uploads/2014/08/FINAL-Regenerative-Economies-for-a-Regenerative-Civilization-wCase-Study_John-Fullerton.pdf

As a whole, the ReFi movement aims to promote ecological regeneration, social justice, and economic resilience by aligning financial investment incentives with values of sustainability, equity, and justice, and connecting the material world with the financial realm through token-based collection, verification, and valuation of the underlying material reality. By allowing communities to create and leverage new types of assets (such as natural resources), ReFi encourages economies to advance based on environmental stewardship and responsible resource management. In what follows, we highlight one specific ReFi project that combines modular blockchain components in monetary management, governance, and data management of natural capital to transform localized community self-sovereignty in the Global South.

Case Highlight – Kolektivo Curaçao: Backing Ecological Tokens With Nature in the Global South

Initiated by Kolektivo, Kolektivo Curaçao is a pilot ReFi initiative that aims to tokenize natural assets (such as food forests and coral reefs) on the island of Curaçao in the Southern Caribbean Sea, in order to foster local community self-reliance and economic resilience. Headquartered in Curaçao, Kolektivo (formerly CuraDAO) is an impact network dedicated to developing crypto-institutional frameworks and tools that support local communities in establishing regenerative economies.119 These frameworks strive to enhance local collaboration and amplify regenerative impact through the tokenization, co-governance, and co-management of natural assets, ultimately fostering local impact and eco-entrepreneurship.

Leveraging the ReFi-focused Celo blockchain,120 Kolektivo proposes to deploy a DETS (Decentralized Exchange Trading System) to bolster environmental and ecological resilience while addressing interdependent financial and biospheric risks through a natural capital system. Using the geospatial smart contract standard Astral Protocol,121 Kolektivo allows communities to register ecosystem assets and geographic zones on the Ethereum blockchain as non-fungible tokens (referred to as GeoNFTs), forming the foundation for a Natural Capital Currency

119 See Kolektivo’s blue paper “Kolektivo Framework: Regenerative Finance at Institutional Scale” (2022). https:// assets.website-files.com/5fcaa3a6fcb269f7778d1f87/63297723f700491a0698ab5a_Kolektivo%20Bluepaper. pdf; and “Kolektivo Framework: Decentralized Exchange Trading Systems” (2021). https://assets.websitefiles.com/5fcaa3a6fcb269f7778d1f87/60d98b3c2e36c87bfdecadc9_The%20Kolektivo%20Framework_%20 Decentralized%20Exchange%20Trading%20Systems%20v.1.pdf

120 For more information, see: https://celo.org/

121 For more information, see: https://astral.global/

(NCC) system collateralized by ecological assets and services. Kolektivo’s innovative pilot project in Curaçao aims to tokenize all ecosystem services, natural resources, and commodity assets as GeoNFT collateral, with the collateralization ratio decreasing as nonrenewables are exhausted, thereby creating an incentive for ecological preservation or non-depletion.

This approach fosters protection of natural capital and discourages natural resource extractions, such as deforestation, since the DETS’ money supply relies on the amount of natural resources available. The protection of ecological assets results in the allocation of ecological credits to local communities, following the OpenEarth conservation credits122 principles. These credits can then be sold as impact claims to ESG-focused companies and investors, addressing the growing demand for nature conservation goals and carbon offsets driven by corporate net-zero commitments and government regulations. The Kolektivo framework thus seeks to galvanize transformative localization such that communities can assert self-sovereignty in their socioeconomic affairs vis-à-vis foreign speculation and control.

By utilizing tokenization tools and programming mechanisms to broaden the carbon credit market beyond merely carbon, encompassing a more diverse range of natural assets, Kolektivo establishes a framework that enables smaller communities of landholders to participate in a market that previously had a high barrier to entry. This approach is especially advantageous for smaller countries and regions with underdeveloped land that have been historically excluded from traditional carbon markets, allowing them to finally access the untapped value of their ecological assets and services by prioritizing their preservation. Tokenized ecological assets in Curaçao’s local reserve are then used to back Curaçao’s community currency called Kolektivo Guilder (launched in late November 2022), which can be circulated locally as a valid currency of exchange.

Although the project is still in development and its potential impacts are yet to be evaluated, Kolektivo’s proposed framework demonstrates innovative uses of DTTs and tokenomics that has the potential to address broader ecological challenges of climate change, pollution, biodiversity crisis, and sustainable development issues. Nonetheless, concerns pertaining to ecological interdependencies warrant

122 OpenEarth. November 2022. “Marine Ecosystem Credits: Advanced credit class design to scale ocean conservation finance.”

attention, as the safeguarding of ecological assets often transcends the capacity of local stewardship. For example, pollution originating from industrialized nations may percolate through the environment and adversely impact the ecologies of developing regions. The crux of the issue is in constructing an incentive structure that effectively engages a global network of stakeholders in the preservation of ecological assets, rather than relegating the responsibility exclusively to local communities whose efforts to protect their regions might be undermined by external factors and forces beyond their control.

3.4.3 Lessons From Current Practices

Lessons for Building Local Resilience Through Digital Local Community Currencies

1. Decentralized Trust-Building Technologies hold the potential to address challenges faced by traditional community currencies, but they require careful design with appropriate social and governance goals. Historically, paper-form community currencies have provided crucial support to local communities during periods of economic adversity. Regrettably, their sustainability has been hindered by factors such as limited circulation, circumscribed acceptance, inadequate technological infrastructure, insufficient marketing efforts, challenges in scaling, and an absence of an enduring vision and support. Presently, DTTs paired with mobile-friendly apps offer promising avenues for addressing scalability and adoption issues by enabling secure instant settlement and low transaction fees through disintermediation. However, the ultimate success of these systems hinges on conscientious design that foregrounds ethical considerations, which ought to be incorporated within the social stratum of the design, rather than being confined to the technological layer.

2. Tokenized public funding ought to avoid volatile cryptocurrencies in favor of being fiat-backed or asset-backed. The primary objectives of community currencies are to promote economic stability, inclusivity, and a localized focus. Volatile cryptocurrencies introduce considerable value fluctuations, which can divert attention from local transactions, engendering speculative behaviors. In the case of CityCoins, the absence of a connection between the funds available for cities to use and the value of tokens held by investors engenders significant volatility for these tokens. Conversely, community currencies that

employ fiat-backed or asset-backed stablecoins provide the requisite stability for a currency while concurrently facilitating the incorporation of innovative mechanisms within their design to stimulate wealth generation over time, ultimately benefiting the community. Experimental endeavors from the Global South, such as Kolektivo, suggest that alternative forms of assets, including ecological assets, could not only augment liquidity circulation in financially constrained developing regions, but also incentivize nature conservation and democratize the involvement of smaller landholders in the carbon credit market.

3. Digital community currencies should prioritize community-centric adoption over endorsements from municipal figureheads. The goal of community currencies should be to establish a resilient financial system that yields both economic and social benefits for cities and their residents, rather than devolving into ostentatious speculative instruments. Although rapid, top-down implementations may appear alluring, adopting a gradual, bottom-up approach can yield more sustainable and long-lasting outcomes. Ensuring community buy-in takes precedence over mayoral backing is vital, as it fosters resilience in the face of fluctuating political landscapes and evolving policy priorities.

Mapping of selected case studies based on volatility and user group (Source: author)

4. Integrating an identification layer is recommended to prevent token speculation resulting from permissionless participation. In the CityCoins model, the lack of an identification layer proved to be problematic during the transition to DAO governance, as pseudonymous members were given the right to vote on public funding allocation that would affect actual local residents. In contrast, city3 intends to adopt an alternative approach by incorporating KYC (know your customer) functionalities within its purpose-built application. This identification stratum enables the execution of more adaptable programming to deliver benefits to local communities and becomes especially valuable when implementing governance models centered on collective decision-making concerning public goods.

5. Community digital currencies should prioritize local residents over crypto-native users. Entrusting a group of unaffiliated Internet users with no genuine connection or stake in the local community to make decisions regarding public resource allocation can lead to adverse consequences. The network state thesis, which champions global collaboration and connection, can pose challenges when the virtual and physical worlds converge. Community currencies should concentrate on engaging local users, many of whom may lack technical proficiency or familiarity with cryptocurrencies. Consequently, adoption may be incremental, requiring patience to educate people, build both value-based and interaction-based trust, onboard users, and cultivate enduring relationships, a strategy used in multiple projects we have surveyed, such as city3, Unit Network, Ibiza Token, and Kolektivo.

6. Token-based on-chain voting leads to plutocracy; emphasizing alternative voting methods that incorporate locality and equity should take precedence. This entails ensuring that financial stakes and governance power are not conflated. Consideration of alternative voting mechanisms, such as quadratic voting as discussed earlier, is warranted. Factoring in residency or identity for residents can further help mitigate the sway of affluent non-residents who hold tokens from dominating decision-making processes related to public goods fund allocation.

7. A city-branded stablecoin can help create a sense of community and identity, thereby encouraging local spending and local value capture. In transitioning to digital currencies for payments, it is possible for cities to take advantage of

the economic benefits of instant settlement and low transaction fees provided by off-the-shelf stablecoin solutions like USDC. However, the city branding of a local currency (i.e., $OAK) offers a strategic approach that can more effectively encourage local spending and local value capture, ultimately benefiting the community. Encouraging local spending in a designated local currency can facilitate the implementation of smaller transaction fees that can accrue to that currency, which would be more challenging with a basic stablecoin. Instead of attempting to impose community-oriented transaction fees on a regular stablecoin such as USDC by whitelisting merchant wallet addresses, a more elegant technical solution involves inverting that approach. By tying transaction fees and the velocity of money to the financial incentives provided to consumers, a connection is created. As more money is returned to consumers, they are further incentivized to spend locally, earning greater rewards in the process.

8. Regulatory risks like stablecoin bans create challenges for innovations, requiring cautious evaluation from policymakers. Regulatory uncertainty remains one of the most significant hurdles for DTT-related innovations worldwide. Innovations such as stablecoins are not currently governed by any existing financial services legislation. In regulating stablecoins, it is crucial to recognize the nuanced differences between stablecoins issued by centralized entities and collateralized algorithmic stablecoins that do not have an entity managing their token issuance. Blanket solutions, such as prohibitions of all algorithmic stablecoins, could severely jeopardize the development of asset-backed stablecoins and create enormous compliance challenges for projects involving either type of stablecoin. Regulators must be attentive to the nuances of the technology and offer different ways to comply with the same regulatory objectives, including considering technological solutions that can be recognized as regulatory equivalent to existing legal protections.123

123 A perspective expressed by Dr. Primavera De Filippi. See: Rong, Helena and Sarah Hubbard.“Event Recap: Policymaking in Web3.” Perspectives on Public Purpose, December 16, 2022, https://www.belfercenter.org/ publication/event-recap-policymaking-web3

4. Key Takeaways and Future Outlooks

4.1 Overarching Lessons: Opportunities, Risks and Call for Action

The preceding section outlined lessons learned in the three impact areas of government-led e-governance, DAO ownership and governance of real-world assets, and digital local community currencies. In this following section, we present seven overarching lessons applicable to general innovations in Decentralized Trust-Building Technologies, with the goal of enhancing social institutions, cohesion, and democratic governance.

1. Decentralized Trust-Building Technologies (DTTs) offer a technical infrastructure to provide a tamper-proof source of truth, but this does not automatically lead to trust. In all the cases surveyed, it became evident that technology implementation alone does not foster trust or replace trust among parties in a trust relationship. Although the continuous auditable trail offered by DTTs, such as distributed ledger technologies, contributes to a tamper-proof source of truth that can help enhance the accountability of institutions and individuals involved in a trust relationship, it is not the sole factor in building trust. Since DTTs inevitably interact with off-chain institutions and actors, it is crucial to consider the social, cultural, and institutional contexts in which these technologies are deployed, as well as the necessary conditions for cultivating trust.and conditions required for building trust. Preconceived notions of trustworthiness of actors responsible for designing, developing, and deploying a technology or product can heavily influence end users’ perception of ability, benevolence, and integrity of the institutions associated with these technologies. The reputation of the technology itself further affects its adoption; negative reputation can result in resistance, requiring considerable time and resources to educate end users about the technology, ultimately empowering them to make informed and judicious decisions regarding its use.

2. DTTs hold the potential to innovate across a range of social institutions, including identification, voting and governance, titling and rights management, collective ownership, financial transactions, record keeping, civic participation, and regenerative economies. As illustrated by our selected cases, DTTs may possess transformative potential for innovating within our social, political, and economic institutions. However, the outcomes of projects utilizing these technologies can range from detrimental to beneficial, depending

on the approach and priorities. It is therefore crucial to establish a clear set of values and a theory of change for utilizing DTTs for democratic innovations, as well as to develop guidelines that align with those criteria in order to minimize risks of harm and subjugation.

3. DTTs can help enable wider participation and coordination at scale, but they should balance between undifferentiated mass involvement and particularized local control. DTTs aimed at promoting participatory democracy should balance between centralization and decentralization, leveraging both collective intelligence and expert knowledge. By employing coordination models such as DAOs, DTTs can help facilitate scalable trust and effective coordination among multiple publics. Nevertheless, it is imperative to achieve equilibrium between inclusive participation and focused local control, while differentiating between operations and governance. Operations pertain to granular, tactical, and recurrent decisions that necessitate limited participation, whereas governance involves overarching, occasional, and strategic choices that demand more comprehensive and representative engagement from the constituents of a group. The argument in favor of decentralization rooted in subsidiarity – based on the principle of solving problems through the federation of ‘local’ units, clustered around the social contexts most relevant to the decision at hand – suggests that adopting this approach could lead to more effective and contextually relevant decision-making processes in DAOs. By empowering local units to address issues that are most pertinent to their specific situations, a subsidiarity-based model of decentralization can potentially enhance the overall efficiency and responsiveness of DAO governance.

4. DTT applications can be driven by institutions, grassroots initiatives, or collaborations among stakeholders to achieve different goals. The sociotechnical imaginaries of DTTs can differ significantly depending on the driving force behind each effort. Institution or public sector-led projects tend to favor permissioned blockchains over public ones, emphasizing technological decentralization for security over governance decentralization for democratic decision-making. These initiatives typically aim to enhance trust in the institution through increased accountability and transparency, reduce corruption, and improve service delivery efficiency. Conversely, grassroots initiatives prefer public blockchains and are ideologically driven to reduce the power of centralized official institutions, advocating for self-reliance based

on decentralized trust among group members. By promoting decentralized decision-making, these initiatives aim to create more democratic and equitable systems that empower individual members or citizens. However, both institution-led and grassroots initiatives can benefit from DTTs by leveraging the privacy, transparency, and trust they provide, which are essential elements for democratic governance. Ultimately, the effectiveness of DTTs in enhancing democratic governance depends on the context in which they are deployed and the values and priorities driving their implementation. By understanding the potential benefits and risks associated with different approaches to deploying DTTs, stakeholders can make informed decisions about how best to use these technologies to achieve their desired outcomes.

5. DTTs hold the potential to help foster a shift from extractive to regenerative economies, ultimately providing sustainable economic benefits to local communities. The emerging field of Regenerative Finance exemplifies innovative DTT and tokenomics applications, offering the potential to address ecological issues such as climate change, pollution, biodiversity loss, and sustainable development challenges. By creating and leveraging new asset types, such as natural resources, ReFi promotes economies built on environmental stewardship and responsible resource management. However, given the nascent stage of most ReFi projects, it is uncertain whether they can deliver on their theory of change. Safeguarding ecological assets requires consideration of ecological interdependencies that often surpass the capacity of local stewardship. The key challenge is to design an incentive structure that engages a global network of stakeholders effectively in ecological asset preservation.

6. To enhance the trustworthiness of both technology and institutions, it is crucial to build systems not just for the community, but collaboratively with the community in participatory design processes. Successful examples from the surveyed cases have shown that building trust through technology alone is inadequate without on-the-ground engagement, education, and deliberation that reduce the distance between parties and align them on shared values. In contrast, those that failed often did not engage with the right audience or neglected to involve the community. Thus, the adoption of technology itself must be participatory and inclusive. While the traceability and immutability of DTTs are beneficial, fostering trust between institutions and constituents

requires a culture of trust cultivated through open dialogue, collaboration, and transparency embedded not only in the technology and data, but also in the decision-making process.

7. Policymakers should provide innovation-friendly environments for DTTs while prioritizing the public interest of local citizens and residents. Regardless of whether efforts are institution-led or grassroots, the success of technological experimentation is influenced and constrained by policies and regulations. Policymakers must strive to comprehensively understand both the risks and benefits of DTTs, in order to effectively integrate them into our existing systems. This involves establishing policies that strike a balance between promoting innovation and safeguarding public interests. Policymakers should also recognize the need for flexible and adaptable regulatory frameworks that can keep pace with the rapid developments in DTTs, while ensuring that ethical and equitable standards are met. By doing so, policymakers can facilitate the realization of the potential benefits of DTTs for their constituents, and support a sustainable and equitable transition to a technologically advanced future.

4.2 Future Outlooks

It is clear that achieving a governance utopia remains a challenging if not impossible project. Nevertheless, ongoing experimentation with new tools and possibilities to address the challenge of trust, governance and human coordination holds promise for discovering innovative governance mechanisms and novel ways of integrating democratic governance within decision-making processes, thereby guiding socio-technical systems towards the pursuit of the common good. This report is an attempt to lay out the landscape of Decentralized Trust-Building Technologies’ applications in social institutions and the material reality of our society. We hope to invite technologists, policymakers, designers, and users to engage in future collaborative research and discussions to continue building, designing, testing, and refining these governance innovations while considering their regulatory, normative, and cultural dimensions. As we move forward in this rapidly evolving technological landscape, it is imperative that we remain vigilant and intentional in our pursuit of inclusive and responsible governance innovations.

A. Toolkit for Analysis: An Assessment Framework

For each of the selected projects, we employ the following assessment framework to help guide our data collection through archival research, digital ethnography, and semi-structured interviews. We separate our analysis into two categories:

I) project design criteria, which assesses the intentions of the design; and

II) project evaluation criteria, which evaluates the outcomes of the project.

I. Project Design Criteria

Project Goals and Development

Mission and Values

Project Timeline

What does the project claim to do? What are the project’s intended impacts? Does the project have an explicit public purpose value? What problem is the project trying to address? What is its theory of change?

How did the project get developed? What were its major milestones? Were there any major pivots? If so, what are they caused by? Does the project have plans to scale? Has scaling been successful? Why or why not?

Technology and System Design Considerations

Blockchain Mechanism What does the project’s protocol specify? What consensus mechanism does the project use (i.e. PoW, PoS, PBFT, PoB)? What layer 1 infrastructure is it built on (i.e. Ethereum, Bitcoin)? How does the project use blockchain? What type of blockchain is it? Is it open (public permission-less or public permissioned), or closed (consortium or private permissioned enterprise)? How decentralized is the system? What are the technical limitations (i.e. scalability, energy consumption)? Are there any other pros and cons of the system?

Token Issuance and Circulation

Who is issuing the tokens? How are the tokens issued? Is it a stablecoin (backed by real assets)? Or do they fundraise through ICOs? Have the coins fluctuated in price? What kind of tokens is it (i.e. payment vs. utility vs. security)? What can the tokens be used for? How do people acquire tokens? Are the tokens fungible or non-fungible? Is the tokens limited in quantity (i.e. token burn)?

Tokenomics

Unique value-add of blockchain/ Web3 technologies

Tools and Interfaces

Data Ownership, Identity, and Privacy

People Stakeholders

What is the “tokenomics” behind the design of the project? How is incentive built into the system? What do stakeholders gain from the system? What are the motivations of people’s participation?

What is the value-add of using blockchain? To what degree is the system decentralized? Is decentralization desirable? What are the tradeoffs of decentralization? Technologically, is it unique and irreplaceable by existing Web2 technologies? If not, what is the appeal? What was the main reason for choosing to use blockchain? How about other more qualitative values?

How does the project interface with its users? What kind of tools are used? Are these tools decentralized or centralized? If it’s a DAO, what is the DAO tooling stack124 the project uses?

Who owns the data produced on the platform/network? Where does the data go? Who can use the data? Who can profit from the data? Are users anonymous? What are the privacy protocols of the project?

Who are the key stakeholders involved in the project? Is it initiated by private sector players? Government? Community organizations? Or a consortium of stakeholders? What is each entity’s involvement or role in the project? Who is operating the project? How formalized is it (i.e. community of volunteers in a DAO vs. a registered company with paid employees)?

Aragon. 2022. How to build your DAO tooling stack. https://aragon.org/how-to/build-your-dao-tooling-stack

Category Metric Considerations

Community Outreach Engagement

Management Governance Model

How did the project reach its audience? What strategies did they use to gain buy-ins from relevant stakeholders? What are ways employed to increase user trust in the technology?

What is the governance model? Who can join the network? How do people participate? What are the levels of participation allowed? Who gets to vote? How are votes counted/weighted? How are decisions made? How are the stakeholders identified above involved in the governance of the project? Who has the permission to read? To write? To commit? Who has the permission to change the protocols? How is conflict resolved?

Policies Relevant Policy and Regulations

What is the policy and regulation condition in the area the project operates (i.e. Wyoming law for DAOs)? What kind of policies are relevant? What are the effects of the policies on the project? What protections or constraints do these regulations or policies provide?

II. Project Evaluation Criteria

Category Metric Considerations

Project Outcomes Impact

Key performance metrics/ effectiveness

Engagement and participation levels

Equity and fairness, diversity and inclusion

Efficiency

What did the project succeed in doing? What did it fail at? What are the reasons for its success or failure? (i.e. government buy-in; community outreach; successful incentive mechanism; having a “real” use case value)

Does the project have its own performance metrics? What are they? Is the project reaching those targets?

How active is the community? Any measurement of participation? Is the project reaching the right crowd ? Where on Sherry Arnstein’s ladder of citizen participation does the project stand?125

Is the project inclusive? Who has a voice in the project? Who is represented or not represented? How do the proportions of representation compare to a population? How accessible is the project (i.e., how easy is it to participate in the project)?

Is the project efficient? Compared with traditional organizations, does it efficiently manage its resources (time and money) to achieve its goals?

Accountability and Transparency

Long-Term Sustainability

SWOT Analysis Strengths

Transparency is defined as the combination of: (1) information availability (information on the decision process and on the project), (2) information accessibility (relevance of information and information reliability), (3) information quality (platform ease of use, information ease of understanding)126. According to these standards, how accountable and transparent is the project?

Can the project sustain itself overtime? Is it financially viable? What about other sustainability goals (i.e. environmental, social)?

What are the strengths of the project? What are the internal factors that give an advantage to the project?

125 Arnstein, S. R. (1969). A ladder of citizen participation. Journal of the American Institute of planners, 35(4), 216-224.

126 Ietto, B., K. Eisenhut, R. Muth, J. Rabe, and F. Tschorsch. “Transparency in Digital-Citizens Interfaces Through Blockchain Technology: BBBlockchain for Participation Processes in Urban Planning,” 2022.

Category Metric Considerations

Weaknesses

What are the internal drawbacks of the project? What does the project do poorly? What might be the reasons for why it’s not doing well?

Opportunities What are the external factors that could help the project or grow or succeed?

Threats What are the external factors that could harm the project?

B. Other Surveyed Cases

Project Name

Extended Description

RenoDAO In March 2021, the City of Reno, Nevada, announced a project to develop a decentralized autonomous organization for the city known as “RenoDAO”. The purpose of RenoDAO was intended to be for the development of social capital, the development of financial capital, and to ease the process of interaction between citizens and the government. Only citizens of the City of Reno would be eligible for membership in the DAO. To ensure that only citizens participated, it was envisaged that citizens would be required to complete an onboarding process via a Know-Your-Customer portal on the RenoDAO website (or through a co-branded or whitelisted wallet provider). To maintain anonymity, personal identifying information was to be stored with a trusted custodian.

Based on the White Paper dated April 2022, RenoDAO was to issue two tokens being a RenoCoin (RNO) and Reno Governance Token (RGT). The RNO was a token that would be soft-pegged to the USD and would be used for transactions and a store of value, while the RGT would be a voting token used to participate in decision-making in RenoDAO. RNO could be acquired through initial allocation, dividend payments, by providing goods and services to RenoDAO and through project funding. With respect to project funding, RenoDAO would fund RNO projects that benefit the RNO economy, including “physical and digital small businesses, decentralized exchanges, accounting services, universal identity verification, voting mechanism, utilities management, health care insurance, human resource management and other projects proposed by RGT tokens. It was envisaged that RenoDAO would run on the Tezos blockchain which utilizes a proof-of-stake consensus mechanism similar to Ethereum.

It appears that the City of Reno is not currently pursuing the RenoDAO project due to various challenges. Chief amongst this was solving the problem of ensuring that only citizens of Reno could participate in the DAO and preventing unauthorized access to the DAO.

Single.Earth

Single.Earth is a GreenTech company that seeks to develop a virtual ecosystem for the preservation of nature. It partners with landowners and organizations committed to preserving nature. Landowners join the Single.Earth platform, committing to use their land in an environmentally friendly way, receiving financial rewards and incentives in the process. MERIT tokens would be minted and paid to the landowner based on a mathematical calculation and digital twin model representing the amount of carbon dioxide captured by the land and its biodiversity.

Single.Earth intends the MERIT token to be both a virtual asset that can be traded, spent and kept as a store of value, thus rewarding the landowner for ensuring the ecological value of the land. For organizations with ESG targets, contributing to Single.Earth can also represent an ESG contribution. In such a case, MERIT tokens equivalent to the amount of ESG contribution would be “burnt” i.e. decreasing the supply of the MERIT token. ESG contributions would thus serve as a form of price support for the MERIT token, similarly incentivizing landowners to manage their land in a manner that maximizes environmental impact. In the long-term, Single.Earth intends for the MERIT token to become a medium of exchange for daily transactions – thus building a regenerative economy as opposed to an extractive economy.

In line with its ecological mission, Single.Earth chose to build its technological infrastructure on the Solana blockchain given Solana’s small energy footprint. At present, the MERIT token does not have a wide user base. In this regard, the main challenge for Single.Earth is scaling the utilization rate of the MERIT token. It is difficult to see why businesses or consumers would adopt the MERIT token as a medium of exchange given the range of other options available (such as fiat currencies or other more established cryptocurrencies) and the relative newness of the MERIT token and the Single.Earth ecosystem (and thus the lack of a trustworthy track record).

EarthFund

The mission of EarthFund is to “use the power of Web3.0 to create the tools humanity needs to build a better tomorrow and have a real meaningful voice in our collective future”. It seeks to be a “crypto-native crowdfunding platform for projects and ideas that can build a better tomorrow”, like a “GoFundMe on the blockchain”. In essence, EarthFund is a DAO-as-a-Service platform that allows anyone to easily establish a DAO via a single platform.

At present, there are three sub-DAOs on EarthFund, being Never Alone (a DAO with a mission to find and fund mental health improvement projects), Female Empowerment DAO (seeking to empower women of color that have faced abuse and trauma) and Carbon Commons (for carbon-removal projects).

Project Name Extended Description

Ethic Hub EthicHub is a peer-to-peer crowdlending platform based on the blockchain where small investors can make microloans to small farmers with financing needs. The platform is native to blockchain technology and allows minimum investments of 20 euros through cryptocurrencies or with credit and debit cards.

Borrowing on the platform is only by invitation via a Loan Originator. A Loan Originator’s role is to identify trustworthy borrowers and to place projects on the platform. Loan Originators are checked by Auditors, who audit Loan Originators to ensure that they are trustworthy. Both Auditors and Loan Originators are required to stake $Ethix (the token of EthicHub) as collateral to align incentives and ensure that they have skin in the game. At present after more than two years in operation, the loans on the EthicHub platform maintain a 0% default rate.

Unit Network: UNIT City Token

The UNIT Network’s mission is to provide a platform such that anyone can build and manage a token economy. Thus, there are many use cases for this project. Individuals can create their own tokens and monetize their artwork or following. Businesses can raise capital and reward early investors. Tokens can be converted to other forms of money such as the US dollar. For the purposes of our project, we examine UNIT’s City Tokens.

City Tokens are open DAOs consisting of individuals, businesses, and communities in the city. The hope is that these tokens and the marketplace that uses them in these cities will attract people who want a sense of ownership in their communities. City Tokens are used to buy goods and services from designated City Token community stores and can be transferred between users. There is a maximum supply for each city token that is issued at higher prices based on the token-USD exchange price.

Anyone can buy a city token, which is a reverse exchange-traded fund, and owns a portion of the shared bank account of that token community. UNIT’s City Tokens is currently active in 30 cities around the world, with their goal to be in around 200 cities across the world. Similar to City Coins, the success of a city’s token requires public and business buy-in. Anyone can also participate, which may hamper the purported local economic benefits that a local currency provides.

Gitcoin Boulder Downtown Stimulus Program

Berkeley Microbond

The Gitcoin Boulder Downtown Stimulus project’s purpose is to raise capital for downtown Boulder’s downtown local businesses during the Covid-19 pandemic using quadratic funding (QF), a fundraising strategy promoted by the Gitcoin Grants Program, a quarterly initiative run by Gitcoin DAO that empowers participants to use QF to support their passion projects. The Boulder project’s used the QF algorithm operating in the background to determine the donation match, and funds were raised based on a combination of size of individual donations and number of unique donors. They raised $43k for Boulder, Colorado’s COVID economic recovery and attempted to prove that QF can work in the mainstream.

Berkeley, California is slated to become one of the first cities in America to incorporate blockchain technology into its municipal bond market through a government-backed initial coin offering. Berkeley City Council voted unanimously in December 2021 to authorize the city manager to contract with a firm to provide professional services with a microbond financing program. They hope to make the municipal bond issuance process faster, cheaper, more transparent and more accessible to community members. Municipal bonds are a vital means for local governments of raising funds for all sorts of projects, like building new schools and hospitals, improving roads, or updating a sewer system. To entice investors, bond issuers will make regular interest payments to bondholders, usually every six months, until the bond matures. The issuer is then obligated to return the bond’s face value to the holder.