Will Holley
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Bootstrapping a City

11/11/21
This essay originally appeared in the CityDAO forum, of which I was a member.
TLDR: We should build Prada Marfa or Storm King v2.
Since joining CityDAO a few days ago, I have been thinking about mechanisms to bootstrap. Bootstrap is commonly used in the context of startup fundraising and describes the process of creating value starting from very little or nothing, specifically value that is financially sustainable, in order to grow.
From my reading of the Discord, most of us agree that we should utilize the Project 1 Land towards a productive end in order to finance its maintenance and enable further experimentation. However, we do not agree on what that productive utilization is. Well, how do we maximize the probability of achieving our long-term goal of building a city on-chain? There’s a first principal to keep in mind when answering this question: small-scale sustainability and large-scalability are mutually exclusive insofar as we choose the wrong productive utilization. Put another way, we can have our cake and eat it too if we design the right system.
The core sociological requirement of a city is a network effect. In other words, how is social value created and then compounded as a function of population density v=f(d)? How can social value be created when d=0? Because of the monopolistic nature of modern real property law [1], what social, legal, and cultural structures and incentives must exist as a pre-condition in order to avoid concentrations of power that will ultimately limit scale? These are the chief questions we must consider.
In thinking about these questions, there is a clear parallel to exploration elsewhere within our Web3 ecosystem, for example by Nouns, a DAO that “attempt[s] to bootstrap identity, community, governance and a treasury that can be used by the community” [2]. To do so, Nouns capitalized on the memetism that has driven the NFT market in the last year and has auctioned randomly-generated avatars. The purchaser of an avatar (“Noun”) gains membership in the DAO (our equivalent of citizenship) and their sale proceeds are deposited into the DAO’s treasury. Members are incentivized to evangelize and grow the DAO in order to maximize the potential of their investment. In November alone, Noun hammer prices have ranged between $250k and $1.1m USD. There is an opportunity for us to learn from Nouns’ successful bootstrap and its shortcomings.
Nouns was able to bootstrap so effectively because creating and selling culture can be extremely low cost relative to its potential ROI. Nouns’ upfront smart contract, web development, and promotion costs have clearly paid off as their treasury now contains $69m USD. At the same time, because each Noun is privately owned and deflationary pressures are few [8], there is a strong incentive to rent-seek, which concentrates capital away from optimal allocation efficiency. However, historical alternatives to private property – despotism, socialism, and other political systems that marginalize individual volition – disincentives individual investment. To grow, we must maximize the allocative efficiency of our land while not cannibalizing its investment efficiency. If correctly designed, this ensuing balance of economic interests can create the positive network effect we need to sustainably scale.
I propose that we place a talisman on our land which pilgrims will seek out due to its intrinsic cultural value in spite of great cost and difficulty. Sustained intrinsic demand in spite of this great cost and difficulty will cause the market to direct supply to make our land more cheaply & easily accessible. This supply will require access to peripheral land and resources, which we lease under a Harberger taxation system to fund the expansion of our land’s cultural value, creating a growth flywheel. We price the Harberger tax to account for the negative externalities created by the supply.
That was dense, so let me break it down:
[A] we place a talisman on our land talisman which pilgrims will seek out due to its intrinsic cultural value in spite of great cost and difficulty
Prada Marfa [3] is the perennial example that comes to mind. It’s located in the desert near the Texas-Mexico border and is a 7 hour drive from Austin. Yet around 40,000 people visit it each year [4]. Right now, the transportation and lodging infrastructure to access our land is scant. Accessing it requires purposeful effort. Think in terms of a Richard Serra sculpture [5][6]; land art has a strong appeal in Western culture [10][11], and you know Kanye would be there every day for his morning coffee.
[B] Sustained intrinsic demand in spite of this great cost and difficulty will cause the market to direct supply to make our land more cheaply & easily accessible
If we do A well, people will want to visit our land. Tourism requires water, power, transportation, lodging, easements, access to food, etc. Let’s encourage the development of these infrastructures because they improve accessibility and create network value that we can capture. At first this probably looks like a luxury destination for the rich. Perfect (hear me out).
[C] This supply will require access to peripheral land and resources, which we lease under a Harberger taxation system to fund the expansion of our land’s cultural value, creating a growth flywheel.
If we do B well, we will have created a cultural destination that’s accessible to a small group of people who are willing to pay to access it and the network infrastructure to scale access down market. Eventually demand will arise for vacation houses, boutique hotels, stores, supermarkets, gas stations, etc. Ideally, we purchase as much of the surrounding land as possible ahead of this. This a) allows us to hedge against externalities which would be detrimental to our value proposition (more on this in D) and b) capture the value that we’ve created. Partial Common Ownership [7] is designed exactly for these aims. It maximizes allocative efficiency and investment efficiency and allows us to capture value while maintaining the incentives for a people to grow a community around our land.
[D] We price the Harberger tax to account for the negative externalities created by the supply.
We now have a small town founded around a commons - our land and its talisman. If we haven’t already considered the tragedy of the commons, the inverse relationship between d and v, our growth will be stunted. We need to ensure that our community flourishes with access to low pollution, clean water and energy, low traffic, cleanliness, etc. It must be a normatively safe place to exist. Otherwise, the quality of our offering will be diminished, stunt demand, and slow our growth flywheel. Harberger taxation should be priced on an individual basis proportional to the marginal cost a member imposes on community. This creates incentives for sustainable behaviors on an individual level which are aligned with their long-term desire for an appreciation in their value of their lease on the secondary market.
This probably sounds fanciful, or radical, or down right impossible, but 2 years ago billions of dollars worth of economic value being coordinated around JPEGs would have sounded the same.
I am not a lawyer, but to the best of my knowledge in the American law system, of which we are subject, maintained ownership of private property is absolute outside of eminent domain.
I previously worked modeling the art market. Valuations at the top-end weathered the global 2008 economic recession relatively unscathed because owners weren’t forced to liquidate.