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Index Wallets <> Healdsburg Experiment Writeup
Index wallets are a new kind of payment method that can cause Healdsburg’s local public goods to receive more funding.
You can read about their theoretical attributes and the work that we’ve done to understand them here:
The key idea of index wallets is quite simple: when a community adopts them as a method of payment, they’re agreeing to always transact with multiple currencies within the bounds of their community, instead of with only a single currency. We’ll skip over the details of how the mechanism exactly works, you can read about it in that link above. The benefit of this approach is that it allows local businesses to compete on an additional axis of customer affinity: values.
This is important because we’re already quite used to the ways in which businesses can compete on price and quality. And it’s exactly that competition that has given rise to the vast proliferation of products and services that make our lives much richer. However, we’re also quite familiar with the ways in which markets fail. Economists call these failures externalities, essentially goods that aren’t profitable for companies to produce (like parks, infrastructure, disaster preparedness) and things that have social costs not priced into their production cost (like addiction, pollution, forced labor). This problem of public goods funding means that markets are quite limited in what they’re capable of producing.
However, with index wallets it seems possible to expand the range of goods that can be funded with market dynamics, and thereby get more funding for local public goods. Our work so far points that that being true:
These results give us some expectation that if a community adopts index wallets it will result in increased funding for public goods. Essentially, here’s how the whole index wallets experience works for a typical customer:
Healdsburg and Edge Esmeralda
Healdsburg is a beautiful city in Sonoma County, California well known for its world-class wine and warm weather. Edge Esmeralda is a community organizing company that every year runs a one month long pop-up city in partnership with the city of Healdsburg.
A pop-up city is sort of like a temporary city within a city, wherein many people from all over the world fly in to the same place to spend quality time with one another. The vibe is a bit like a university campus for professionals.
Typically, each week during a pop-up city has a theme, last year if I remember there was a public goods week, a longevity and bio week, a governance week, and an AI week. The idea is that the themes help people to coordinate when they want to arrive so that they can make relevant connections. But plenty of people end up staying the entire month.
For the city of Healdsburg, this is an economic boon, as it brings in over 1400 often high net-worth young professionals to the city to buy and experience what the city has to offer.
For a project like Index Wallets, Edge Esmeralda in Healdsburg is an especially promising opportunity because index wallets can only work if a community agrees to give the payment method a shot.
There are several reasons why Healdsburg makes perfect sense as a testing ground for index wallets, and then I’ll briefly cover the reasons why the experiment will likely fail. Starting with the reasons to be excited:
The Promise of Index Wallets in Healdsburg
Two Sided Markets
The key hurdle that Index Wallets need to overcome is what’s known as a two-sided market problem. A two-sided market problem comes about whenever you need both a buyer and a seller to show up in order for a product to be useful. For example, had a two sided market problem when they were just starting up: they had to have vendors selling things, and customers who were buying things. If they don’t have customers, the vendors have no reason to sell, and if they don’t have vendors the customers have nothing to buy.
Index Wallets have the same problem, if no one is willing to accept an index payment as compensation for a good then there’s no way customers can use them. And if no one wants to pay with them then there’s no reason for vendors to accept them.
What makes Edge Esmeralda particularly special is that it attracts people who believe in the ability for better systems to bring about better outcomes, and they’re willing to try out some experimental ideas to see what effects they have. Plus, many of the attendees are prosocially minded, they’re oriented not just toward their own good but toward the good they can create with their lives and their work.
What this means is that Healdsburg + Edge Esmeralda is a particularly special context for this sort of experiment, as it’s highly likely that these friendly ambitious nerds will want to use it. And that means that there’s a reason for vendors to accept it.
Nomads, Pop-up Cities, and Taxes
As the world becomes more mobile, there’s a new question that’s starting to emerge: is it fair to tax the residents of a place at a higher rate than the visitors who might come and stay for a month to a year? After all, the visitors to a place are benefitting just as much from the infrastructure, but they’re not paying nearly as much (per day) as residents to build or maintain it.
A promising property of index wallets is that they might offer a new way in which visitors to a community have a selfish reason to support local public goods: the receipts associated with the local public goods will have higher value that the ones in the visitor’s wallet. Which means that the visitor might have a good reason to donate to the local cause in order to pick up some of the more valuable local currencies — a win win for both them and the community.
How We’ll Likely Fail
However, it’s not all roses. There’s very good reason to think that this experiment is likely to fail. Here are the key problems we could run into:
Second-step Recipients
Community currencies are only sustainable if the money ends up having a good amount of circulation. But that can only happen if the business can spend the payments it earns with someone else. That means that other people will also have to accept it as payment.
How we can mitigate this:
The best way to mitigate this is to get broad buy-in from the city, including buy in from many businesses and residents. In an ideal world, this would include landlords, employees, and local grocery stores opting in to accepting this payment.
This is a key reason why this experiment is likely to fail. It’s highly unlikely that employees, suppliers, and landlords will accept this as a form of payment, and if we ever want long term usage of the system then this is a necessary prerequisite.
The only way to mitigate this issue is to do the hard work of broadly getting buy-in from the community and understanding their needs.
Poor Selection of Projects and Initiatives
The process of creating the currencies that people use requires that residents and users first donate to an associated public good, that’s how they come to receive the currencies in the first place. If we choose poor public goods for Healdsburg then the system won’t work at all because no one will donate in the first place.
We’ll attempt to mitigate this issue in several ways:
Setting discounts
In order for this system to work, vendors must set their discounts and premiums for the various causes that they care about. If they don’t do this step, they won’t get the benefits of attracting new customers to their shop based on values alignment. However, this process of setting their discounts and premiums requires them to somewhat regularly (once a week?) check in on their valuations.
We’ll attempt to mitigate this issue in two ways:
Long Term Usage
In order for the currencies in index wallet to retain their purchasing power there must be some expectation of long term usage and support for the system and for the product. This is very hard to achieve right now with just a short term experiment. Ironically, this means that it may be due to the expectation that the experiment will fail that the experiment will fail.
In an ideal world, users could have some expectation that the money they were paid with would continue to have purchasing power far into the future. While we can’t make any sort of claim that the money will be useful for buying goods beyond the experiment, we can offer three ways to potentially mitigate this issue:
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