Berkeley, California, the progressive playground, is taking steps to pioneer the first application of blockchain technology in the municipal bond market that could transform the industry.
Effectively, Berkeley wants to crowdsource funding for community improvements. But those contributors wouldn’t be making a donation, like with GoFundMe, – they’d ultimately receive their money back, with interest.
Muni bonds are the lifeblood of our communities today. Clean drinking water, roads, bridges, public transportation, and even stadiums are built with funding from the $3.8 trillion municipal bond market. Cities, states, towns, counties all issue debt to finance projects to provide the services we use every day.
Blockchain technology, or a distributed digital ledger, will allow for cost-savings and increased disclosure of secondary market trades and ongoing bond administration. It would change the way munis do business and could make them a direct-to-consumer product.
What Berkeley’s planning could change that. First, by using blockchain, the bonds could be sold direct to the consumer. It would also lower a major barrier to entry for muni investments – munis are frequently sold in denominations of at least $5,000, and Berkeley is considering “microbonds” with denominations as low as $100 to maximize investor participation. Other cities, including Denver, have already issued “minibonds” – a term synonymous microbonds.
