We’ve recently seen governments moving to embrace the blockchain technology in a number of sectors, but the City of Berkeley may be taking it to a whole new level: Berkeley is considering becoming the first United States city to hold an ICO. The ICO, which the city has termed an “Initial Community Offering,” would be used fund solutions to local issues with homelessness and affordable housing.
Most people in the blockchain world are familiar with the concept of Initial Coin Offerings, a common way for cryptocurrency startups to raise capital. Questions, however, linger about where ICOs fall regarding financial regulations, and with Facebook recently banning ICO advertisements entirely, the future of the crowdfunding method has become less certain. Berkeley’s plan might create a clearer blueprint for future ICOs to follow, or, at a minimum, help rehabilitate their image. Either way, it’s encouraging for those in the blockchain space to see its potential being recognized in a range of settings. Berkeley Councilmember Ben Bartlett spoke specifically on the qualities of blockchain technology, commenting “Blockchain’s benefits, such as security, efficiency, transparency and speed, are not only applicable, but much needed at the government level to deliver better and more streamlined services to the people who need it most.”
Berkeley’s Initial Community Offering, however, has some important material differences from other ICOs. What Berkeley is doing is effectively using a blockchain to tokenize the sale of municipal bonds. To do so, Berkeley is teaming up with financial technology startup Neighborly, whose Chief Operating Officer and general counsel, Kiran Jain, clarified that the tokens will represent real security instead of potential future values, describing the process as “similar to what you’d see for a municipal bond.” Jain didn’t refer to the offering as an ICO, but rather a “tokenized municipal offering,” which is similar to a traditional ICO but explicitly “fully compliant with all U.S. regulations and for low-cost tax-exempt debt rather than equity or utility token.”
Nevertheless, it’s the first time a US city has explored a tokenized and blockchain-based fundraising system, and the implications are intriguing, in part because of the reason Berkeley is turning to such a fundraising concept: the new federal tax bill signed into law has made major changes to aspects of the tax code, and some of those changes have made it less rewarding for companies to develop affordable housing. This poses a serious issue for Berkeley, which, along with much of the Bay Area, is experiencing significant housing shortages.
In anticipation of less federal support, Berkeley is looking for novel ways to independently finance future housing initiates, and the direction Berkeley is taking could create a pathway for other local governments in the future. In a press release announcing this potential ICO, Mayor Jesse Arreguin suggested as much, and did not shy away from addressing the impetus for the new venture. “Cities must look towards innovative funding mechanisms to solve our most intractable problems, especially in the face of diminished federal support,” he wrote in a press release.