Tokenized Public Goods — A New Store of Value

What would the world look like if we stored the economic value of our public goods?

It’s not an intuitive problem, but the fact that public good value isn’t stored has been devastating for society. Our public goods are severely underfunded because we’re dependent on government spending and donations to finance them, and from a strict financial returns perspective, these are terrible investments.

A public good whose value was stored, on the other hand, would allow investors to put capital down that contributed to the creation of that good, and then later sell their investment for market value, maybe even for a profit. Imagine how much more likely you’d be to invest in your city’s parks, schools, or libraries if you could expect that your investment would both hold its value and contribute to the public good. In practice, building this type of token is quite challenging since the underlying asset by definition is unowned, but it’s still feasible in the laws of economics and finance. This is the scope of the proposal for Tokenized Public Goods (white paper link), a financial asset where private organizations compete to issue digital tokens that simultaneously incentivize public good creation and function as stores of value.

This concept of public good tokenization has emerged in recent years thanks to cryptocurrencies, which have pushed us to rethink what we understand about finance and economics. In fact, several digital tokens exist now that could be considered Tokenized Public Goods:

• ECO Coin distributes tokens to people that prove they did some sustainable action, like riding a bike to work
• SolarCoin distributes tokens to solar energy producers (the token reached a market valuation of over $100 million at the peak of the 2017 crypto bubble)
• UNICEF launched Boost Token as a way of incentivizing “positive actions” like volunteering or donating food

The basic concept of each is that by tokenizing some type of behavior, you incentivize people to do it. However, none of these tokens offer any justification for the long term value of the token. No economic or financial rigor has been applied to controlling its supply, balancing the interests of investors and public good creators, or assuring investors of a governance structure that will effectively adapt to changing market conditions over time. They seem to have been built with the mindset of “if you tokenize it, they will buy it,” and will probably end up acting more like donations as a result.

Two recent online posts, Purpose-Driven Tokens by Shermin Voshmgir and Open-Source Finance: From Scarcity to Abundance by Alexander Blum, both give more thought to the economic basis for a working public good token. Of these two, Blum’s piece is stronger with his focus on the tokens as a store of value, as opposed to Voshmgir’s piece which is more focused on the behavioral economics. A critical component of a financial asset designed to tokenize a public good is its ability to function as a pure store of value. This is because the underlying public good is unowned and cannot be used as collateral.

Creating such a token is not a simple task. An effective store of value needs to have limited supply, but funding public goods requires issuing tokens to incentivize work that can be expensive. A balance must be reached between compensating workers with new tokens and attracting investors who benefit from a restricted supply. A token should maximize value for both investors and public good creators.

The proposal for Tokenized Public Goods — A New Store of Value lays out the architecture and initial considerations for an effective token whose value is based on its ability to fund non-excludable goods. Unlike other white papers, this isn’t being published along with a token offering — its purpose is to serve as a starting point for entrepreneurial bankers, economists, and public good financiers to build their own assets responsibly and effectively.

The end goal is to bring about a world where the most valuable institutions aren’t producing technology and energy — they’re producing a better understanding of our universe and a thriving life for all people. When this happens, our financial markets will more closely match what we as people actually value, and our society will progress more quickly.