A city council in California looks like becoming the first to use blockchain technology to raise money to fund community projects.
Councillors at Berkeley have given city officials the green light to investigate if they can sell municipal bonds powered by the blockchain.
The city – home of the famous university campus that sits across the bay from San Francisco – wants to sell smaller denomination bonds than the standard $5,000 minibonds most municipality’s in the US offer.
Mayor Ben Bartlett believes more investors will sign up if they can buy bonds with a lower face value – perhaps as low as $10 or $25.
But the cost of tracking the bonds is prohibitive unless the blockchain can be adapted to do the work quicker and cheaper than an office full of public workers.
$3.8 trillion market
Blockchain seems to suit the purpose as the technology allows secure digital trading of financial assets.
The blockchain will also allow the council to sell direct to investors rather than employ expensive Wall Street advisers.
Cutting out the middlemen needed to run a bond issuance would cut the costs of raising money for the council, giving them more to invest in community projects.
If the idea takes off, Berkeley will breathe new life into the municipal minibond market that is worth $3.8 trillion in the US.
The first project the city council is considering is raising $3 million to raise funds for the fire service, including new appliances.
Dissenting voice
If this is successful, next on the agenda is an affordable housing project.
“It’s an exciting course to be expanding the market; and also, to be creating new asset classes and opportunities for our people to own new assets, particularly in light of what is happening with creeping poverty,” said Mayor Bartlett.
Although the council vote in favour of exploring the possibility of blockchain technology managing municipal fund raising, there are some dissenting voices.
Councilwoman Susan Wengraf voiced her concerns about using blockchain for micro-muni bond issuance by describing the move as “overkill.”
Several blockchain advisers want to get in on the act – including Neighborly, a fund raiser that wants to modernize access to public finance.