With regulations enhanced to push the margin of profits that cryptocurrencies lower, innovation is building around to find a new path.
This time, the developer is cooperating with municipalities to help fund a social program.
City Coins is one of the ideas that shine its spotlight in front of people.
As Miami wants to become a Bitcoin hub and its Mayor supports Bitcoin and actually plans to pay their workers with Bitcoin. It is no-brainer that the City of Miami will issue its own crypto currency at some time in the future.
Therefore, the birth of MiamiCoin or $MIA is coming out as one of the City Coins projects that help municipalities to fund their city programs.
Before we dive into City Coins, let’s talk about how cities used to fund their projects.
How to fund projects in cities?
There are generally three types of ways to fund the money: taxes, ask from higher ranking jurisdictions and muni.
Through Taxes
This method is the most unpopular method. Businesses need to pay sale taxes, property owners need to pay property taxes and many other special districts that require additional taxes like school taxes for building local school facilities, creational centers need taxes to maintain their operation.
Ask from higher ranking jurisdictions
Federal government or State governments may help local municipalities to fund their projects along with their own projects. For example, the state highway program that passes through cities may be paid by the State Gas Taxes while cities benefit from the program.
Muni
Muni is short for municipal bonds. Municipal governments can issue bonds to attract investors as a loan for interest rates of fixed year in order to complete projects first and pay off later.
New method of PPP
There is one more method that attracts investment called PPP or Public-Private Partnership. By that I mean, the private will fund the program to do public projects so that they can be paid off later.
Risks of Traditional Funding
Just like any investments, there are risks involved.
There are 5 risks involved: social risk, political risk, interest rate risk, credit risk and liquidity risk.
Social risk
This one is obvious as more taxes are put into local residents, it decreases the morale of people to work and reduces the local economic dynamic.
Political risk
Federal or State governments may not want to invest in municipalities or PPP programs that only benefit certain types of business entities.
Interest rate risk
Muni is usually issued at 15 years or 30 years. If interest rates rise while bond’s price will go lower, investors may lose bond’s value if they want to sell it.
Credit risk
This one is also related to the bond market as possible bond issuers may default or whoever issued bonds as financial companies may go bankrupt in any time possible before bonds mature.
Liquidity risk
Again, bonds may not find many buyers or sellers in the market that cause the entire investment to sink.
What is MiamiCoin?
It is a new way for mint city’s coin to fund city projects. Unlike other cryptocurrencies, Miami Coin is a bit different.
There are two main functions of MiamiCoin: miners and stackers. Miners are operators in the blockchain and stackers are who rewarded the coins.
The MiamiCoin will run on the Stacks Protocol which enables smart contracts on Bitcoin or in the other word, the Coin potentially backed by Bitcoin. You can also transfer coins into Stacks Wallet.
You can obtain the coin by either mining it or buying it to stack. So you got both Proof of Work and Proof of Stack on the blockchain.
Total of 30% coins will become a reserve wallet that benefits the city of Miami and the rest of 70% will be given to Stackers.
Okcoin is the only platform where you can buy MiamiCoin now.
Risks of MiamiCoin
Compared to traditional funding, municipalities may eliminate social risk, political risk, interest rate risk and assume SEC will not consider such crypto to resemble DeFi.
Since you are not asking to pay taxes to fund MiamiCoin, you do not have social risk.
There are no political struggles between Federal and State governments.
MiamiCoin is not fiat currency leveraged assets such it does not impact by interest rate risk.
Although you cannot eliminate both credit risk and liquidity risk, you introduce another technology risk.
Credit risk
Although it does not peg with fiat currency directly, it is indirectly influenced by the market performance. The price of MiamiCoin may be as volatile as Bitcoin did since it is backed by Bitcoin.
Liquidity risk
Again, there is potential that MiamiCoin will become zero one night because people suddenly sold off their coins.
Also, the supply of coins seems to be unlimited, similar to Dogecoin. It may further decrease its valuation and increase future risks with inflation.
Technology risk
Such projects prone hackers to challenge its security and constantly update software may need to prevent loss of any coins.
In conclusion
It is such an exciting project that we may see how the government actually involved the crypto projects. Although there are still risks and uncertainties that projects will bear with, this is definitely an awesome start with cryptocurrencies adoption and its technology integrated into daily life. Also, it may contribute to social goods by helping communities to fund projects that they may never would've done before.