RootProject’s Currency-Nonprofit Feedback Loop

You’ve Missed the Most Important Part of Cryptocurrencies.

The author, Dr. Nicholas Adams Judge, is a cofounder of RootProject.  The other cofounder is Chris Place, a Y Combinator alumnus.  Their nonprofit’s pre-ICO started July 10, 2017.

I’m a political economist.  I wrote my doctoral dissertation on models of currency markets.  The power of cryptocurrencies is greater than even those in the cryptocurrency community have understood.  

I write ‘political economist’ instead of plain ‘economist’ because I focus on institutions as well as markets.  Institutions determine who wins wars, what countries get to be free, and the pace of economic growth.  The best way to think about cryptocurrencies?  Ask what new institutional capacities they create.  

To do that, put away your theory, put away your ideology.  No one cares.  Instead, think about feedback loops.  Raise .99 to a large number, you get zero.  Raise 1.01 to a large number, you approach infinity.  If each day an institution’s efforts multiply its last day’s effects by 99%, it fails.  If that number becomes 101%, it scales, it becomes a Google or Apple – until something pushes that number back below 1.

The genius of cryptocurrencies is that a liquid asset can be designed along with a new institution to create a currency value—institutional size feedback loop.

feedback loop    

Call it the Feedback Loop theory of cryptocurrencies.  Its most exciting consequence:  Value can be created for investors from non profit-seeking behavior.   The cryptocurrency brings the power of markets, and investor self-interest to the table; the nonprofit brings the moral relevance.

That does create dangers for nonprofits – but that’s like saying bitcoin can be used by smugglers, so let’s give it up.  It misses the bigger story.

Let’s illustrate the major story here by what we’re doing at RootProject, whose pre-ICO is currently under way.  Each part is simple.  How they come together is illustrated in the figure above.    

  • A crowdfunding platform lets people and institutions raise money for projects that help the neighborhood or local businesses.  Instead of a typical crowdfunding fee, 10% of funds raised gets put into purchasing our currency, ROOTS, on the open market, driving price up.   We call this the currency-as-fee model.  
  • A nonprofit is based on a new set of programs in American cities.  We know from recent data that these day-work programs are very effective at lifting people out of extreme poverty.  Importantly, it also lets most donations be tax deductible, which in the United States is effectively a 30-40% government subsidy.  
  • Workers (and one manager) get paid to complete the project out of the other 90% of funds (this 90% project spend rate is typical for the very best-run nonprofits).  Workers get paid in USD, but then on top of that get 50% of that deposited in a medium-term pension fund that holds (only) our cryptocurrency.  Like the 10% fee, the currency for the pension fund is purchased on the open market – again, driving prices up.  
  • As the price of our token goes up, the nonprofit can expand, creating more demand for our cryptocurrency.  Larger crowdfunded projects with bigger institutions involve burning currency.  

Organic demand enters a system.  That’s good:  People who need jobs and exposure to things like shelters and medical care get them (more on that in our whitepaper).  But what makes it really exciting is that that demand doesn’t just go away in a one-off event.  It enters, by design, a feedback loop where it grows and grows, multiplying off itself.  

It wouldn’t be possible without a cryptocurrency, and that fundamentally changes the institutional economics of nonprofit activity.  Help us get this off the ground, and we’ll prove out a model where nonprofit work has the same market power as massive global profit-seeking corporations.

Our Pre-ICO runs this week.  It’s a great investment for you and it will save people from freezing to death on the street. Be cynical if you want. Or help us build a new world.

  • Coenraad Loubser

    Only slightly more thought out than the typical ICO… 10% to “employees”… don’t you think that that’s enough to siphon off that 1% you need to “grow to infinity”…!?! Come on, be more modest, and collaborate with more international non-profit activity in this space to build your credibility before you label yourself as just another ICO. Sure, maybe the poor can be helped by people out to get rich quick too… but for the most part they’re helped by people who don’t care much about money. Why do your funders have to trust that your “employees” will not put undue price pressure on the tokens when you can build in that certainty? If you are this great economist, show us the formula you used to calculate the 10%… looks and sounds too much like a thumb-suck. But good luck and I’m sure you’ll do more good than the other “ICO’s”…. Still, this makes me excited because it’s a baby step toward smarter and more equitable cryptocurrency.

    • Nicholas Judge

      Hey Coenraad. Thanks on the baby step, at least 🙂 This is Nick one of the two cofounders. To address your concerns:

      1. The two cofounders, myself and Chris, are not taking any share of tokens at all.
      2. The ten percent will be vested out over a very long schedule (5+ years), so there’s no ‘pump or dump’ ability.
      3. 10% was chosen because that is an industry norm that we were familiar with when investors are looking for manager-investor interest alignment. For instance, in a commercial real estate deal, if the manager doesn’t have at least 10% of the equity portion of the capital stack, investors sometimes raise questions. You can get away with 5, but there’s got to be some reason. In short, industry norms as opposed to some great model.
      4. We say in the white paper that we may not be able to take the 10% for employees, as it may interfere with our ability to obtain and keep nonprofit status. If that happens, it will return to the contingency fund

      Hope that helps. Thanks for taking the time to think about the project. Lots of exciting stuff happening.

  • Natalya Artamonova

    I think this is a worthwhile project