The mayor and one council member in Berkeley announced last week that they are partnering with the startup Neighborly and the Blockchain Lab at the University of California, Berkeley, to attempt the first-ever tokenized municipal bond. They hope to make the process faster, cheaper, more transparent and more accessible to community members.
Basically, they want to sell city debt the same way cities always have — to fund projects that the regular budget can’t or won’t cover — but they want to digitize the process and record it on the blockchain. That means recording it digitally in a public ledger constructed with mathematical proof backing up every transaction. The people behind the initiative want to open the bond to investors using both U.S. dollars and some as-of-yet-unspecified cryptocurrency.
It’s not an initial coin offering, exactly. It will be explicitly labeled as a security, and follow all the regulations that govern municipal bond issuances.
Since it’s just an idea at this point and still needs more support from the city, the details aren’t all clear yet. But Ben Bartlett, the council member pushing the project along with Mayor Jesse Arreguin, wants to put the money toward programs to help the homeless.
An early 2017 estimate put the city’s homeless population close to 1,000. Bartlett says it’s about to get worse.
“That number is going to grow exponentially due to the federal budget and the corporate tax cuts,” said Bartlett, who is running for the state Assembly. “Because corporate tax equity is used to fund affordable housing.”
Kiran Jain, Neighborly’s chief operating officer and the former chief resilience officer for the city of Oakland, said there are a lot of reasons blockchain-based municipal bonds (“munis,” in investor-speak) might be better than the status quo.
One simple reason: The traditional process is slow.
“It’s a paper-based, laborious process, and we’re saying let’s digitize that process and put it on the blockchain,” she said.
Making the process faster might also drive down the cost to the city of issuing a bond.
Bartlett and Jain think a blockchain-based muni bond issuance would also open the door for cities to pursue smaller bonds, and to break those bonds up into smaller chunks so the average person can afford to invest in them.
“The average [muni bond] investment is $5,000,” Jain said. “With a tokenization of a municipal bond we can lower that.”
Although the pilot project is aimed at homelessness in one city, blockchain is a technology Neighborly is looking to for strategic growth, so the company will be looking for more ways to do this in more places in the future.
There’s one more reason that Bartlett is excited about the idea. If a person were able to buy into a municipal bond issuance for, say, $1,000 instead of $5,000, it would open the door for Berkeley citizens to invest in the issuance rather than just wealthy people and institutional buyers.
“It’s more fun because it involves community,” Bartlett said.