From Community Currency to Crypto City Tokens: Potentials, Shortfalls, and Future Outlooks of New Old Ideas

Executive Summary

Tailored to specific geographic areas, local community currencies are alternative monetary systems designed to empower local businesses and foster engagement while promoting a greater sense of unity of a place. Although these community currencies have never become mainstream practice throughout history, they have repeatedly risen in popularity during times of economic crisis or instability. In the wake of the pandemic, a resurgent interest in community currencies—now powered by blockchain and Web3 technologies—is reshaping the way cities approach local financing and engagement of their constituents. Over the last two years, mayors from major U.S. cities such as New York City, Jackson, Tampa Bay, Miami, and Austin made headlines by openly endorsing cryptocurrencies and embracing the idea of city-branded tokens in hopes of unlocking alternative ways of fundraising and boosting local economic growth during the crypto market’s heyday. With a rich history rooted in times of economic turmoil, community currencies offer both inspiring success stories and cautionary tales of the challenges that lie ahead as cities navigate the evolving financial landscape. As we consider the possibilities of community currencies powered by crypto, we ask: Are they just a temporary fad that poses potential risks and little value, or do they hold the potential to truly offer a synergistic solution to the problems facing cities today? Could they digitally revolutionize the age-old practice of local community currency and elevate public purpose value and social impact?

In this paper, we will survey the recent landscape of community currencies powered by cryptocurrency and Web3 technologies. Our investigation and evaluation will delve into cases that represent both top-down and community-oriented approaches, uncovering the potential benefits and pitfalls of combining Web3 technologies with the time-honored custom of community currency as place-based solutions to address urban challenges concerning public financing, local economic stimulation, and community engagement. Indeed, while some of these “crypto-native” projects that lack intrinsic value and use could reiterate or even exacerbate the same systemic inequities cities are trying to address, other more nascent and less well-known attempts that adopt a community-centered approach suggest alternative paths forward that could more thoughtfully tackle urban challenges through technology.

Drawing from a combination of gray literature review, archival analysis, semi-structured interviews with founding teams of some selected projects, and digital ethnography of online activities, we have mapped a landscape of current projects in this field. While the surveyed projects do not encompass a comprehensive overview of the entire landscape, they represent a diverse array of examples with different scales and approaches, illuminating what has been successful and what has fallen short on delivering their intended impacts. In the remainder of the paper, we will first delve into a brief history of community currency, followed by an overview and analysis of a selection of recent case studies that employ Web3 tools. Finally, we will conclude by highlighting key takeaways from these experiences that cities, communities, and anyone interested in this topic can learn from. (Disclaimer: The authors of this paper are academic researchers who have no financial interest or stake in the cases presented in this work. The content of this post is for informational purposes only and does not constitute legal or financial advice.)

Key Takeaways

Decentralized technologies can potentially address challenges faced by traditional community currencies, but they require careful design with appropriate social and governance goals.
Digital community currencies should avoid volatile cryptocurrencies and explore fiat-backed or asset-backed stablecoins.
Digital community currencies should emphasize community-first adoption over endorsements from city figureheads.
Permissionless participation in digital community currency can lead to speculation; incorporating an identification layer is preferred and recommended.
Community digital currencies should prioritize local residents over crypto-native users.
Current token-based on-chain voting leads to plutocracy. Alternative forms of voting that integrate locality and equity should be prioritized.
A city-branded stablecoin can help create a sense of community and identity, thereby encouraging local spending and local value capture.
Regulatory risks like stablecoin bans create challenges for innovations, requiring cautious evaluation from policymakers.