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Edges 2.0

Matt Prewitt, Jack Henderson

December 19, 2024

An ∈dges market.

At Edge City Lanna, the ∈dges project took a significant step forward, facilitating more meaningful and valuable transactions than in its first iteration at Edge Esmeralda. We also learned exciting lessons about how to use this infrastructure to encourage more value creation.

The most important lesson is that ∈dges-style systems might better stimulate value creation by aggressively applying many of the lessons of traditional central banking. When we issued democratically-sanctioned, ∈dges-denominated rewards—i.e., “stimulus”—to activities that developed the ∈dges economy, we increased the value of ∈dges more than we diluted it.

In future iterations we plan to double-down on this approach and systematize it, making stimulus programs larger, more formalized, and better publicized. Such programs will help create strong internal markets: they encourage people to invest conventional money in providing services to the community, for which they receive ∈dges; and conversely, give other ∈dges holders more opportunities to buy useful things with their ∈dges.

Key facts and mechanics

In October-November 2024, at the monthlong Edge City Lanna event in Chiang Mai, Thailand, RadicalxChange conducted its second “plural money” experiment. The first experiment occurred in June 2024 at Edge Esmeralda in Healdsburg, California. These projects aim to advance the art of creating complementary currencies that stimulate collaboration and mutual support within communities.

We use an in-house, open-source platform called ∈dges. It is a simple, non-blockchain application (i.e., using a database on the back end) that allows users to send and receive units of currency called ∈dges, and track them in a ledger.

Most aspects of the ∈dges system are left intentionally open to modification during the event. For example, ∈dges members can vote at governance meetings on new monetary or fiscal “policy” ideas, such as increasing the money supply, changing the app interface, or altering the community’s rules. In this respect we partly “build the airplane as we fly it.”

However, there are two key features of the system design that we have been (softly) committed to keeping in place: an onboarding process based on “mutual vulnerability”, and an “exit tax” to discourage value removal. Here is how these work.

When Edge City Lanna guests join ∈dges, they are asked to contribute $20 or the local equivalent (600 Thai Baht) into a shared “trust pool”. This takes the form of a physical box into which people can place cash, and/or an ethereum/paypal/venmo address to which people can send those funds. All of these options were available at Edge City Lanna. When people make the deposit, they are added by the admin as a “member” of ∈dges, and credited 100 ∈dges. They can always quit ∈dges by removing their deposit—in this case they become a “non-member”, but they keep their ∈dges balance. Moreover, they can remove more than their trust deposit, up to 5x or $100. Removing more than the deposit runs against the norms of the community: it is made explicit that this is a violation of the community’s trust, but that the admin will not prevent it. Thus, everyone who joins the system knows that they can lose their deposit. They are “trusting” the other members of the community in an unsecured way. The goal is to filter out users who do not intend to use the system collaboratively and in good faith, and to set a tone of shared interest.

∈dges members can send ∈dges to one another freely through the app’s Venmo-like interface. They can also send ∈dges to non-members’ email addresses. However, these transactions outside the system are “taxed” at a rate of 100%, meaning that if one wants to send 1 ∈dge to a non-member, one must also pay 1 additional ∈dge to the “community bank” (a special ∈dges account owned by the whole community and managed by the admin). Non-member ∈dges holders can only send ∈dges to ∈dges members. I.e., in each transaction, one or both parties must be a member.

Exit taxes also apply to certain transactions between members, as reported on an honor-system basis. Namely, when people use ∈dges to purchase private, durable goods—such as another currency, like dollars—they also pay an exit tax.

The aim of exit taxes is to discourage people from exchanging their ∈dges for conventional currencies or goods that can readily be transformed into conventional currencies. Our hypothesis is that this helps to keep ∈dges value circulating internally, discourages transactions that push down the value of ∈dges in conventional currency terms, and discourages people from mentally “translating” the value of ∈dges into conventional currency terms, making it a more meaningful yardstick of value provided within the ecosystem.

Value of Edges

At Esmeralda, we assessed that by the end of the month, the value of an ∈dge had increased from $0.20 (given the onboarding fee of $20 in exchange for 100 ∈dges) to at least $1 if not more. What did we learn about the value of ∈dges from the new transactions at Lanna?

The Lanna transactions fit into three categories. First, perishable goods: local fruit consistently went for 1 ∈dge, and coffee from the co-working space went for 5 ∈dges. Next, durable goods: branded glasses valued at $40 went for anywhere from 5-80 ∈dges (the wide range due to the glasses being sold on a bonding-curve), and NFT art valued at more than $30 went for 4-5 ∈dges. Lastly, services: storytelling went for 1-4 ∈dges, 15-minute salsa lessons went for 4 ∈dges, VR sessions went for 5 ∈dges, and 30-minute technical or business meetings went for 5-10 ∈dges. While the perishables correspond to a 1:1 exchange rate with USD, durables and services suggest that an ∈dge may be worth much more than a dollar.

Value Creation

At Esmeralda, we tracked the “velocity” of each member’s account, which was determined by summing the number of ∈dges sent and the number of ∈dges received, and multiplying that by a slowly depreciating rate of X. A limitation with this approach is that it did not keep track of the number of people involved. For example, if one person received 100 ∈dges from another individual, they would have the same velocity score as another person who received 10 ∈dges each from 10 different individuals.

At Lanna, we used a new “value creation” score that was quadratic/plural: it was calculated by summing all the transactions a participant received from each sender, taking the square root, and adding up all the square roots. This meant that participants who received ∈dges from many different senders scored more highly than participants who received ∈dges from only one sender. This served as a better metric of who was creating broadly-distributed value in the community. Value creation scores also depreciated by 5% every 24 hours, rewarding more recently active users.

The “value creation” score became a useful way of moderately “gamifying” ∈dges use, so that the users creating the most value most recently appeared at the top of what amounted to a kind of leaderboard.

Market Creation

At Lanna, we focused for the first time on intentionally creating markets. This took the form of three “∈dges Markets”. These were located in a high foot traffic area, near the center of gravity of the pop-up village just outside the main co-working space. Residents could set up tables or blankets at the market and sell whatever they wanted for ∈dges. This included:

The ∈dges markets were a powerful way of encouraging more substantial transactions. They provided an incentive for ∈dges users to invest in the economy with the promise of actually earning meaningful numbers of ∈dges, and they also provided tangible goods on offer for ∈dges. The most successful instances of the ∈dges market were the ones in which we (the system administrators) put in the most active efforts to encourage vendors to show up with fun ideas. We did this, first, with elbow grease—contacting people and letting them know about the market—and second, with “fiscal policy”.

An ∈dges market.

Governance resolutions were passed at Lanna that empowered the administrators to use the “community bank” to stimulate the ∈dges economy. For example, everyone who showed up at an ∈dges market with an offering was rewarded with 25 ∈dges from the community bank; a few vendors, who did more legwork, were rewarded with up to 50. Two other specifically-approved rewards were more “virtue-based”: everyone who volunteered for squads to help with local flood cleanup efforts could claim a 25 ∈dges reward; and ∈dges members who had brought children to Edge City Lanna could claim a 20 ∈dges (per child) reward for going to the effort of helping the community be more family-friendly.

These efforts were somewhat limited and ad hoc, but it is safe to say that the fiscal rewards were a good return on investment from the point of view of the community. They created goodwill toward the ∈dges project, encouraged contribution to the community, and in the case of the vendor rewards, led people to spend time and in some cases money on offering things for sale denominated in ∈dges—thus making everyone’s ∈dges more valuable. If anything, we feel this “fiscal stimulus” should have been more aggressive.

This led us to conclude that central banking—that is, democratically-guided stimulus of the internal economy from the community bank—should become an even more central part of what we are experimenting with and refining in ∈dges and similar community currency projects. Markets are built not only from the bottom up, but also from the top down. The latter is even more important in bootstrapped projects like this one, where the primary objective is to stimulate a circle of economic activity that did not exist before.

In the next iterations of the project, we will test two new hypotheses.

First, that it is better to try too much stimulus rather than too little. The primary limitation of ∈dges is that there is not enough to buy with ∈dges. Therefore, next time around we would rather “miss high”—i.e., engage in so much fiscal stimulus that the value of ∈dges are diluted or inflated—than “miss low”, i.e., allow the economy to be too stagnant. Once we’ve missed high, we’ll have more data about how to strike the right balance. For example, we’ll have more transactions that we can use to estimate the effective inflation rate in the system, and thus try to target an inflation rate—likely somewhat higher than the 2% central bankers talk about in the real economy—that feels right for the community and context. Getting to the right level of inflation may be a better way of testing demurrage than directly devaluing the currency (another thing we’ve been meaning to try, but didn’t get around to at Lanna).

Second, the “what” of stimulus is important, as well as the “how much”. In the future we plan to develop more formalized proposals for how central banking should work, instead of approving stimulus initiatives ad-hoc. One thought about how to do this is to make it more explicitly constitutional and democratic. For example, instead of making the system admin / treasurer also the central banker, we might try “electing” a central banker, who will run on a platform. They might, for example, propose different central banking plans, and run for election to one-week terms (a quarter of the typical month-long Edge City experience). If they win, they will essentially be handed control of the ∈dges Community Bank account, and permitted to spend it down on stimulus programs. If their methods of stimulus do not prove effective, they’ll lose the next election and someone else will have a go at it.

Community Banking

The ∈dges experiments have taught us that running a community currency system is about banking, as much as anything else. We believe that the main principles of the currency design—beginning with an unsecured trust pool and taxing “exit”—are working: ∈dges members are interacting in good faith and with substantial alignment about the goals of the project, and are not trying to “remove” value that they create in the system. In fact, with just a couple negligible exceptions, no one has exchanged ∈dges for global money; our present exit tax is more than enough of a deterrent.

Therefore, the next step toward animating the community currency—helping people see real value in it, and ensuring that there are enough things to buy with ∈dges—is encouraging economic activity through community finance. And if we can master this, the lessons of our project will begin to apply not only to community currency creators, but also to community bankers: credit unions and similar institutions may learn from us about how to use their deposits as an effective anchor not only for local real-money activities, but also for true, meaningful closed-loop economies based on community currencies.

If we scale up ∈dges in this regard, a new obstacle will present itself: ∈dges will begin to look somewhat like a bank. If we accept deposits larger than $20 and/or promise more than mere participation in an experiment, local regulations may become applicable to ∈dges. This, we think, points toward the possibility of ∈dges becoming more like a formal fintech product. We are not there yet. But if we continue to increase the economic value within ∈dges systems, we will also want to be able to accept more than just experimental $20 deposits as part of the maturation of the project.