Local currencies can successfully increase local cohesion, economic resilience, and environmental stewardship but their small scales result in smaller effects. They are, by design, limited in scope and scale; lacking in the ability to interact more broadly with the global economy. Still, they are more effective at encoding locally beneficial economic behaviour and improving social outcomes for their communities. Today, this scaling limit leaves local currencies as a relatively niche economic practice, despite documented successes.

Capital outflows from these local economies tend to benefit established global currencies and sever connections to local sources of value.

Once capital exits the local currency economy, it loses its connection to locally encoded values as it enters into extractive global systems of wealth through imposed debt-growth obligations. It is a disconnect between the ability of currency to represent values and its ability to transfer and store value in the global economy. Local currencies are capable of encoding social values which globally traded central bank fiat currencies, broadly speaking, are not.

At the same time, this creates a scaling issue as these locally encoded values are not necessarily generalizable.

The value of a community’s well being matters more if you are a part of that community. Some effects, such as those on public goods like clean air, environmental stewardship, and carbon sequestering do benefit others outside of the community but they are more difficult to account for in terms of value. Yet, these connections give us insight into how local currency networks can integrate with broader senses of social value in the same way they have done with their individualized local values.

Contributions to public goods give local currencies intrinsic value, in as far as their use constitutes an increase in public goods or other such positive externalities. 

So, how can we use public goods to scale local currencies while maintaining their encoded values? Stablecoins offer some potential solutions.

DAI is a stablecoin whose value consists of collateral demand for ETH and other approved assets. Greater demand for DAI is met by the supply of ETH collateral and is used to stabilize natural fluctuations in the exchange value of the underlying collateral and produce stability for the end users of DAI. In doing so, DAI abstracts the demand for stable collateral, and produces collateral demand for ETH.

ETH holders benefit from DAI as a lending product, they are safely able to store ETH as collateral while holding its value in a stable asset. This corresponds to an underlying encoded value in DAI itself, as its growth relies on and fluctuates with the local economy of the Ethereum network.

If the same were to occur with the encoded values of the economies of local currencies, then those values too would be passed into its stablecoin lending product.

Going further, what if multiple local currencies act as collateral for a stablecoin, acting together as a currency co-operative? The stablecoin would then be capable of representing collateral demand for each local currency in accordance with the size of each of their local economies. Such a stablecoin would share in the underlying values and monetary policy of those currencies, while distributing their exposure to economic turbulence and extraction from the global economy. From this shared value base, it becomes possible to amplify shared values across currencies by modifying the ratio of treasury held assets.

While a pure and impartial implementation would allow all currencies to drive supply growth, this creates an outcome that is still most favourable to extractive and debt-growth based currencies, and allows such currencies to arbitrage out most of the value from expanding the supply of stablecoins. The result is the same issue as above with central bank fiat currency. If, instead, the ratio of assets held by the treasury were to be determined democratically, then this would allow greater extraction of value for currencies that contribute most meaningfully to public goods and other sources of shared value.

Instead of pure arbitrage, this creates seigniorage by conferring the right to derive value from arbitrage to currencies in accordance with their contribution to public goods and democratically shared values.

Given that the ability to profit from the expansion of the stablecoin’s money supply is now linked to the monetary policy of the voted assets, and that such assets expand their own supply given contributions to public goods, this ideally directs treasury funding towards the expansion of public goods themselves.

Considering that the benefits of public goods tend to be highly asymmetric, for example open source software facilitating markets which now deliver trillions of dollars in value, this feedback effect should benefit local economies accordingly.

Expansion of the money supply based on predefined actions allows for local currencies to define what its community needs are, and for those values to be encoded inclusively in a stablecoin’s monetary policy.

If we define common ideas of value through means of accounting such as tokenization, this allows markets and economies to form around them. Subjective value and intrinsic value are meaningfully scarce, as are the preferences which individually define them, when they are defined over a specific period of time and quantity such as through voting. As such, by expressing preferences for tokenized values we can abstract the broader social impact of public goods. Through this process we may identify common stores of value to which we can direct funding accordingly.

Ultimately, the greater effect of a stablecoin co-operative is that it creates a Schelling point between local interests and wider society.

It reduces the necessary coordination to adopt social incentivization through currency by allowing one currency to represent a vast array of preferences for social incentives. Instead of needing individual buy-in for each social incentive currency or local currency initiative, a co-operative shares potential liquidity between a basket of currencies. Since this immediately extends an exchange value to each new currency, the degree of individual buy-in required drops immensely. If you know that your currency will directly support public goods, then rather than buying, holding, and spending dozens of different currencies, all the coordination that’s needed is to express your preferences. This is the foundation of democratic expression through currency.

The work we are doing at TriumphDAO is to create the tools to scale local currencies while funding public goods. If you’re interested in our goals or have feedback, you can reach out to us at TriumphDAO@protonmail.com or @TriumphDAO on Twitter. If you think what we’re doing is worth funding, then please contribute to our Gitcoin Grant here: https://gitcoin.co/grants/6126/triumphdao

Michel and Hudon, 2015

“Community currencies and sustainable development: A systematic review”

https://doi.org/10.1016/j.ecolecon.2015.04.023

Buterin, 2014

“MARKETS, INSTITUTIONS AND CURRENCIES – A NEW METHOD OF SOCIAL INCENTIVIZATION”

https://bitcoinmagazine.com/markets/markets-institutions-currencies-new-method-social-incentivization-1389412608

Local currencies can successfully increase local cohesion, economic resilience, and environmental stewardship but their small scales result in smaller effects. They are, by design, limited in scope and scale; lacking in the ability to interact more broadly with the global economy. Still, they are more effective at encoding locally beneficial economic behaviour and improving social outcomes for their communities. Today, this scaling limit leaves local currencies as a relatively niche economic practice, despite documented successes.

Capital outflows from these local economies tend to benefit established global currencies and sever connections to local sources of value.

Once capital exits the local currency economy, it loses its connection to locally encoded values as it enters into extractive global systems of wealth through imposed debt-growth obligations. It is a disconnect between the ability of currency to represent values and its ability to transfer and store value in the global economy. Local currencies are capable of encoding social values which globally traded central bank fiat currencies, broadly speaking, are not.

At the same time, this creates a scaling issue as these locally encoded values are not necessarily generalizable.

The value of a community’s well being matters more if you are a part of that community. Some effects, such as those on public goods like clean air, environmental stewardship, and carbon sequestering do benefit others outside of the community but they are more difficult to account for in terms of value. Yet, these connections give us insight into how local currency networks can integrate with broader senses of social value in the same way they have done with their individualized local values.

Contributions to public goods give local currencies intrinsic value, in as far as their use constitutes an increase in public goods or other such positive externalities. 

So, how can we use public goods to scale local currencies while maintaining their encoded values? Stablecoins offer some potential solutions.

DAI is a stablecoin whose value consists of collateral demand for ETH and other approved assets. Greater demand for DAI is met by the supply of ETH collateral and is used to stabilize natural fluctuations in the exchange value of the underlying collateral and produce stability for the end users of DAI. In doing so, DAI abstracts the demand for stable collateral, and produces collateral demand for ETH.

ETH holders benefit from DAI as a lending product, they are safely able to store ETH as collateral while holding its value in a stable asset. This corresponds to an underlying encoded value in DAI itself, as its growth relies on and fluctuates with the local economy of the Ethereum network.

If the same were to occur with the encoded values of the economies of local currencies, then those values too would be passed into its stablecoin lending product.

Going further, what if multiple local currencies act as collateral for a stablecoin, acting together as a currency co-operative? The stablecoin would then be capable of representing collateral demand for each local currency in accordance with the size of each of their local economies. Such a stablecoin would share in the underlying values and monetary policy of those currencies, while distributing their exposure to economic turbulence and extraction from the global economy. From this shared value base, it becomes possible to amplify shared values across currencies by modifying the ratio of treasury held assets.

While a pure and impartial implementation would allow all currencies to drive supply growth, this creates an outcome that is still most favourable to extractive and debt-growth based currencies, and allows such currencies to arbitrage out most of the value from expanding the supply of stablecoins. The result is the same issue as above with central bank fiat currency. If, instead, the ratio of assets held by the treasury were to be determined democratically, then this would allow greater extraction of value for currencies that contribute most meaningfully to public goods and other sources of shared value.

Instead of pure arbitrage, this creates seigniorage by conferring the right to derive value from arbitrage to currencies in accordance with their contribution to public goods and democratically shared values.

Given that the ability to profit from the expansion of the stablecoin’s money supply is now linked to the monetary policy of the voted assets, and that such assets expand their own supply given contributions to public goods, this ideally directs treasury funding towards the expansion of public goods themselves.

Considering that the benefits of public goods tend to be highly asymmetric, for example open source software facilitating markets which now deliver trillions of dollars in value, this feedback effect should benefit local economies accordingly.

Expansion of the money supply based on predefined actions allows for local currencies to define what its community needs are, and for those values to be encoded inclusively in a stablecoin’s monetary policy.

If we define common ideas of value through means of accounting such as tokenization, this allows markets and economies to form around them. Subjective value and intrinsic value are meaningfully scarce, as are the preferences which individually define them, when they are defined over a specific period of time and quantity such as through voting. As such, by expressing preferences for tokenized values we can abstract the broader social impact of public goods. Through this process we may identify common stores of value to which we can direct funding accordingly.

Ultimately, the greater effect of a stablecoin co-operative is that it creates a Schelling point between local interests and wider society.

It reduces the necessary coordination to adopt social incentivization through currency by allowing one currency to represent a vast array of preferences for social incentives. Instead of needing individual buy-in for each social incentive currency or local currency initiative, a co-operative shares potential liquidity between a basket of currencies. Since this immediately extends an exchange value to each new currency, the degree of individual buy-in required drops immensely. If you know that your currency will directly support public goods, then rather than buying, holding, and spending dozens of different currencies, all the coordination that’s needed is to express your preferences. This is the foundation of democratic expression through currency.

The work we are doing at TriumphDAO is to create the tools to scale local currencies while funding public goods. If you’re interested in our goals or have feedback, you can reach out to us at TriumphDAO@protonmail.com or @TriumphDAO on Twitter. If you think what we’re doing is worth funding, then please contribute to our Gitcoin Grant here: https://gitcoin.co/grants/6126/triumphdao

Michel and Hudon, 2015

“Community currencies and sustainable development: A systematic review”

https://doi.org/10.1016/j.ecolecon.2015.04.023

Buterin, 2014

“MARKETS, INSTITUTIONS AND CURRENCIES – A NEW METHOD OF SOCIAL INCENTIVIZATION”

https://bitcoinmagazine.com/markets/markets-institutions-currencies-new-method-social-incentivization-1389412608