3. A Survey of Crypto-Based Community Currencies

In this section, we will dive into four recent community currency case studies that employ Web3 technologies: CityCoins, City3, Ibiza Token, and Kolektivo. These cases were chosen due to their diverse strategies, encompassing a range from crypto-native-first to community-centric approaches, as well as differences in volatility (Figure 1).

3.1 Crypto Native-First Experiments

CityCoins: Top-Down Approach to City-Branded Tokens

Undoubtedly, the most high-profile and well-funded project in the realm of city-branded cryptocurrency is CityCoins, which has raised over $40 million for Miami and New York tokens. Despite being not formally affiliated with city governments, the project has received strong endorsements from the mayors of both cities. CityCoins began as an alternative funding mechanism created by a private enterprise of the same name, aiming to assist cities in generating additional revenue while also offering financial incentives for those who hold and mine the tokens. The idea is that anyone can mine CityCoins on behalf of any city. A user can acquire a CityCoin (e.g. MiamiCoin) by obtaining a native token (STX) of the Stacks blockchain, forwarding the STX to CityCoins, allowing CityCoins to mine on behalf of them, and then claiming the minted CityCoin tokens. Distribution of the CityCoins works in the following ways: 30% of the STX tokens forwarded to the CityCoins smart contract is allocated to the participating city’s multisignature wallet that is linked to its treasury to provide a new stream of revenue for the city, while the remaining 70% is distributed to holders of CityCoins who choose to “stack” their tokens (Figure 2). Stacking requires holders to lock their CityCoins for a given amount of “reward cycles” and later receive a portion of STX spent by miners as rewards.

For cities, this 30% “voluntary tax” approach appears to be an attractive means of raising funds with minimal effort, requiring only endorsement and the creation of a city-specific wallet. The first CityCoin was launched in Miami (MiamiCoin) in August 2021. A long-term crypto proponent, Miami Mayor Francis Suarez was proud to proclaim that the city earned more than $21 million in the months after Miami Coin debuted, or nearly one-fifth of its tax revenue.11 The price of CityCoin is determined by two factors: 1) the supply and demand of an unbacked coin which rests on speculation; and 2) how the city decides to allocate the coin. In February 2022, Mayor Surarez withdrew $5.25 million disbursement from the MiamiCoin wallet to fund a rental assistance program. However, this has sparked concerns among MiamiCoin token holders because the withdrawal has depleted the city’s wallet which ultimately reduced the value of the token by over 80%. One Discord member notes:

“How would you stop mayors spending that money on political stunts like Miami mayor did on rental assistance programs? Well you can’t. The CityCoin contract needs to be changed. Or is our plan to let them deplete the wallet on useless things like that? So we can continue to mine and lose our money?”12

The community’s dissatisfaction with the allocation of funds has prompted revisions to CityCoins’ model.

In response to increasing concerns surrounding governance, CityCoins adopted DAO (decentralized autonomous organization) governance to enable the MiamiCoin community to oversee the distribution of raised funds. CityCoins employed a token-based voting system, allowing token holders to participate and vote on city budget allocation. However, this unveils a fundamental flaw in the system’s design and raises potential equity concerns. From the get go, CityCoins’ setup did not include an identification layer, meaning that anyone could join the network pseudonymously, many of whom might not have originated from or lived in Miami. This leads to a significant disconnect between the MiamiCoin community members and the actual residents of Miami. Essentially, CityCoins’ new model suggests that investment decisions are made for cities without considering the opinions and interests of the actual residents who would be impacted by such decisions. Without a concrete use case, CityCoin relies heavily on the speculation of its tokens and has limited connection to actual value created within cities. Critics further argue that the technological hurdles associated with participating in CityCoins exclude individuals from involvement and permit non-residents to vote on city-related issues, giving rise to a novel form of wealth concentration that benefits only those who possess crypto expertise or substantial financial resources.13 12

CityCoins demonstrates a top-down approach to city-branded cryptocurrency, concentrating on obtaining support from city figureheads as its go-to-market strategy rather than engaging with adoption from local residents on the ground. While this approach has proven effective at capturing headlines and rapid fundraising, it has primarily attracted crypto-natives who hold no real stake in the city beyond the coin’s value. This uneven dynamic results in a fundamental misalignment of values, incentives, and expectations between token holders and the city, leading to poor execution and deviation from its intended goals of “empowering everyone to take ownership in their city.”

3.2 Alternative 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 will next explore a few intriguing examples. Many of these projects are in the early stages of development; but their approaches are well-considered and merit the attention of those interested in this area.

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. $OAK envisions three main components for its community currency: 1) a city-wide community currency, drawing inspiration from Lugano’s LVGA; 2) a nominal 0.5% transaction fee that goes into a city-wide treasury, promoting recirculation of the currency; and 3) a community endowment that can be managed and governed by local community members through a participatory budgeting process, leveraging crypto-native tools in partnership with the Ethereum Foundation, Gitcoin, and the Oakland Fund for Public Innovation. Through offering a merchant payments network, community governance system, and community ownership, the project aims to generate new pathways for community self-sufficiency. City3 seeks to harness the capabilities of distributed ledger technology to establish decentralized trust at scale, leading to more affordable and expedited transaction solutions, as well as a foundation for trustworthy governance mechanisms. By removing financial intermediaries, City3 intends to provide communities with an alternative, decentralized payment rail with a much cheaper transaction fee.

Instead of diving straight into developing the blockchain technology stack, City3 prioritizes on researching and learning from existing solutions, educating local communities about cryptocurrencies, digital wallets, and stablecoins, and gradually enlisting merchants into its network in partnership with Oakland’s tourism department, Visit Oakland. Over the course of 2022, City3 successfully onboarded more than 1,100 Oakland residents to use digital wallets for crypto payments using off-the-shelf stablecoins like USDC. With over a decade of experience as a community organizer and activist, City3’s co-founder and CEO, Darrell Jones III dedicates significant time to engaging with communities on the ground, particularly in neighborhoods of color, to introduce local residents to Web3 tools such as wallets and stablecoin payments. As part of the initial pilot, City3 partnered with Web3 crowdfunding platform Gitcoin to experiment with quadratic funding14 as an alternative to existing participatory budgeting models. In 2023, City3 plans to assemble a team to develop a white-label, purpose-built app that facilitates basic stablecoin transactions and design a city-wide stablecoin $OAK deployed on Coinbase’s Base protocol, in collaboration with local residents by 2024.

Unlike CityCoins, City3 intentionally refrains from involving city figureheads during its initial launch stages and instead focuses on securing local community buy-in. By learning from successful community currency projects such as BerkShares, which prioritize community outreach and local support, City3 aims to build resistance against regime changes and shifts in political winds. This approach tackles the obstacles encountered by many community engagement projects such as Colu, which faced the problem of short-lived pilot projects as a result of emphasizing support from local government actors exclusively. 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.

Despite its potential, City3 faces several obstacles, particularly in the wake of the numerous fallouts experienced by the crypto industry in 2022. One significant 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, which could affect asset-backed stablecoins like the one proposed by City3.

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

While City3 plans to back its $OAK stablecoin with traditional fiat currency, numerous projects in the Global South are exploring the concept of nature-backed tokens to address regional liquidity issues. Kolektivo Curaçao is one such example that proposes to back its community tokens using natural assets such as food forests and coral reefs. Headquartered on the island of Curaçao in the Southern Caribbean Sea, Kolektivo (previously CuraDAO) is an impact network that focuses on developing frameworks and institutional tools to assist local communities in creating regenerative economies.15 These frameworks aim to strengthen local collaboration and boost regenerative impact through tokenization, co-governance, and co-management of natural assets, thereby promoting local impact and eco-entrepreneurship.

Leveraging the ReFi-focused16 Celo blockchain, Kolektivo aims to transition from a traditional LETS (Local Exchange Trading System) into a DETS (Decentralized Exchange Trading System). It proposes to use DETS to enhance environmental and ecological resilience, addressing interdependent financial and biospheric risks through a natural capital system. Using the geospatial smart contract standard Astral Protocol, Kolektivo allows communities to register ecosystem assets and geographic zones on Ethereum as non fungible tokens (what they refer to as GeoNFTs), which establishes the basis for a system of Natural Capital Currencies (NCCs) collateralized by ecological assets and services. Kolektivo’s innovative planned pilot in Curaçao proposes to tokenize all ecosystem services, natural, and commodity assets as

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

16 ReFi = regenerative finance.

GeoNFT collateral, with the collateralization ratio decreasing as nonrenewables deplete.

This approach promotes protection of the natural capital and disincentivizes natural resource extractions such as deforestation since the DETS’ money supply depends on the amount of natural resources available. The protection of ecological assets results in the allocation of ecological credits to local communities, which follows the OpenEarth conservation credits principles. These credits can then be sold as impact claims to companies and investors to address the growing demand for nature conservation goals and carbon offsets, driven by corporate net-zero pledges and government regulations. By leveraging Web3 tokenization tools and programming mechanisms to expand the carbon credit market beyond just carbon, Kolektivo sets up a framework to include smaller landholders to participate in the market that typically has a high barrier of entry. This particularly benefits smaller countries and regions with underdeveloped land, which were previously excluded from traditional carbon markets, allowing them to finally harvest the latent value of their ecological assets and services. Employing a system that allows accounting for the ecological state’s economic value, Kolektivo is able to create a stable Curaçao community currency called Kolektivo Guilder (kGuilder) that is backed by natural assets in Curaçao’s local reserve, which has been launched in late November 2022.

While the project remains under development and its potential impacts are yet to be assessed, the proposed framework showcases innovative applications of decentralized technologies and tokenomics. These advancements could transform community currencies beyond simple financial transactions, but potentially addressing broader challenges such as ecological pollution, biodiversity crisis, and sustainable development issues. However, concerns pertaining to ecological interdependencies warrant attention, as the safeguarding of ecological assets often transcends the capacity of local stewardship. For example, pollution from industrialized nations may have downstream impacts on developing regions across borders. Thus, the incentive structure needs to engage a global network of stakeholders to preserve ecological assets as opposed to relegating the responsibility to local communities, whose efforts may be undermined by external forces beyond their control.

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 to retain more of the economic wealth it generates as a renowned tourist destination in Spain. 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, 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 and Kolektivo, the Ibiza Token team invests significant efforts on the ground in educating and onboarding local traditional artists to Web3 technologies and assisting them in converting their works into digital assets that can be accessed by a wider global market. This caters to the growing demand for art NFTs and enables local artists to benefit from the digital art revolution. However, with the NFT hype having significantly subsided in recent months, it remains to be seen 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 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 help establish a local user base familiar with digital wallets and crypto payments, preparing the community for a future digital local 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.