Building the “Decentralized World Bank” Through Blockchain Based Community Currencies and Social Impact Finance
In an interview between Shanzhai City co-founder, Chris Gee and Dr. Shawn Conway, project manager of its spin-off organization Impact Data Consortium Chain (IDCC), Gee mused about using blockchain technology and social impact finance to build a global decentralized development bank:
“the story of decentralizing development finance…[is] a story of decentralizing the World Bank. Nothing against the world bank, Its just I feel like there are gaps to overcome. And this is something that plays very well now that we are talking to much larger investors, much larger pools of capital. To them doing things like micro finance, doing things like direct donation aid. Yeah these are cool things to do, but if we are saying that we can actually make a decentralized development bank out of the aggregation of all of these tools we are putting together, they are very much behind that”.
Originating from a blockchain project focused on social impact called iO2, Shanzhai City is a service provider for data-centric social impact projects in China, primarily focused on Hong Kong. In 2018, it merged with the IXO impact verification protocol, expanding the scope of its projects beyond China, and in August 2020, it launched IDCC, which is being billed as a revamping of Shanzhai City to become suitable as a global organization.
In the Medium post announcing its creation, Shanzhai City asserted its belief that “the Singularity of human civilization has occurred and [is] pointing us toward an exciting and unpredictable future,”
With IDCC, we aspire to contribute towards the advancement of a totally new framework for impact management with more decentralized and participatory frontline impact validation, micro-services, and verifiable data flow that dramatically improves the resolution, accuracy and accountability of impact measurement in order to help accelerate meaningful innovation, responsive policy-making, and precision investment not just for Hong Kong, but for Southeast Asia as well as the entire global impact industry
As with Shanzhai City, IXO remains the primary technology partner to IDCC. IDCC is commissioned by the Hong Kong government through the SIE Fund and cyberport, a technology business park.
The majority of executive staff and advisors for IDCC hail from Chinese NGOs, Universities, or international finance based in China, all of whom have social impact as a main focus in their career.
Featured above holding the signed agreement between IDCC and the Hong Kong SIE, Dr Tat Lam was the Chief social scientist and cofounder of iO2. He sits as one of seven directors of IDCC and formally advises IXO as of 2020.
IDCC director James Leung, worked at the The Boys and Girls Center of Hong Kong for twenty years, which launched a NGO called Guangzhou Growth Dynamics Social Work Professional Development and Resource Centre, where Leung also worked for several years. The Chinese government and Accenture are the primary funders for the Guangzhou NGO, and the Target foundation is also a partner.
Accenture is one of the largest technology and consulting companies in the world. They are a major driver of the digital revolution and wields a heavy hand in the impact investing world.
As part of the launch event for Trust Over IP, Accenture’s head of Decentralized Identity and Biometrics, Christene Leuong, talked about the “networks of networks” emerging to connect disparate identity silos across industries. Trust Over IP is an linux foundation initiative for global standards around interoperable digital wallets, credentials, identity and data verification.
The Accenture Development Partnerships acts as their international innovation and impact arm that works with “iNGOs, INGOs, private foundations, international financial institutions, bilateral and multilateral donors, and corporations to seize the promise of change and create positive social impact in developing countries”. One of their leaders Louis James is on a steering committee for the World Economic Forum’s Technology and Social Justice Community.
The Target Foundation is the non profit arm of the Target corporation, which puts major emphasis on philanthropy in their hometown Minneapolis-St. Paul Minnesota, however they do operate globally and are connected to the elite establishment of international philanthropy. In 2021, The Target Foundation awarded a grant to the British Asia Trust, one of the main operators for the Quality India Education Development Impact Bond that IXO participates in. They also support an global aid organization called co-impact whose primary funders include the Bill and Melinda Gates Foundation, Rockefeller Foundation, IKEA Foundation, MacKenzie Scott (Jeff Bezos ex wife), and Jeff Skoll.
One of their seven directors is Johnson Kong, an investment steward analyst for Blackrock. The Investment Stewardship arm of Blackrock focuses on determining executives and leadership for the companies they have a stake in. He is in part responsible for voting decisions throughout China. Before Blackrock, he worked as a researcher for Our Hong Kong, an arm of the Chinese government focused on the long term transition of Hong Kong in the ‘one country two systems’ paradigm. There he published numerous papers on social impact finance and ESG related topics. Kong is also part of the World Economic Forum’s global shapers program.
An IDCC advisor, Edmond Wong, headed the Hong Kong branch of Raiffeisen Bank International AG, the international subsidiary of Raiffeisen Zentralbank Österreich AG, one of the largest banking groups in Austria.
Another director, Terence Yuen, founded and serves as executive director for Hong Kong institute of Social Impact analysis. They work with b-Labs, which the Rockefeller foundation funded in 2008 to create standeried impact metrics. Several academics, highly involved in data analysis, social impact and entrepreneurship, advise IDCC as well.
Tokenizing Time
Publicly, three core initiatives comprise the IDCC’s work. The Impact Intermediary Capacity Building workshops, System Library of Impact Management (SLIM), and Decentralized Development Finance Framework (DDFF).
The purpose of the workshops is to train organizations to operate in this new paradigm of social work. SLIM refers to a whole suite of standards related to impact investment management. Shanzhai City supports these activities as well as the various impact organizations in partnership with IDCC.
The first major social impact project is encompassed in the DDFF, to study and digitize local time banks in Hong Kong. Traditionally, time banks are small scale organizations where people can offer their time, in the form of their skills or labor, as a means of payment for local goods or services. These time credits were recorded in a paper ledger and often served people who could (or would) not participate in the money based labor markets. Described as a form of mutual aid, Local communities formed their own culture about the rules and details of the time bank.
The Hong Kong Council of Social Services (HKCSS), along with several NGOs have worked on tokenizing local time vouchers with Shanzhai City since 2019. The end of 2021 concluded the early phase of the operation, and now they are looking to expand to the entire city.
In an ethnographically-framed report, titled Blockchain for Time Bank Vouchers & Community Currencies, Hong Kong, the DDFF provides an overview and rationale for digitizing and consolidating time banks. This was in part funded by the Interchain Foundation, the Swiss foundation behind the Cosmos blockchain, which undergirds the IXO protocol. The IDCC asserts that a major problem with the current state of time banks is the lack of scalability and integration into the larger economy.
A large gap in the time bank model is that it does not design workforce development and upward mobility, providing little support and without an ‘exit strategy’ from the time bank community, providing little incentive to graduate towards more robust ways of building capacity and financial improvement.
They explain how they plan to achieve this by subsuming each time bank into a digital network that’s directly tied into the impact investors and established social services.
“Specifically, we aim to create a common technology stack that horizontally links different time vouchers programs together as a network of users as well as products and services, and vertically connects time vouchers programs with critical funders such as corporates (CSR), philanthropists and impact investors who are interested to contribute resources to the ‘reserve’ backing the time vouchers.”
Creating a ‘reserve’ of traditional currency from donors backing the community currency, as well as the use of digital identity to create impact profiles, mirrors the Red Cross project with Grassroots Economics. While the full details of the financial modeling are not available, they basically operate on a fractional reserve banking principle, where donors and corpartes funds can have a wider economic reach by minting money backed by their initial capital.
IDCC onboards target populations onto a mobile application which contains a DID (Decentralized Identity), an e-wallet where the tokenized time vouchers can be minted and exchanged, and access to an online marketplace where people can sell goods and services with the tokens.
An administrative bureaucracy adds people to the system. A consortium of NGOs and governments generally sit at the top of the hierarchy. These onboard local service providers, who then onboard local community leaders, who in turn, grant access to the target users. Data acquisition occurs throughout the entire process. The chart below shows the various levels and roles throughout the hierarchy.
Shanzhai City/IDCC developed a model for compliance to onboarding people without formal identities called ‘Progressive KYC’. In short, this principle means identifying people through their social groups rather than purely personal information. These aggregate social groups are then managed by a system of hierarchical managers, starting with a community leader, then NGO administration, etc. As individuals begin to use the system more, they are progressively able to provide the type of information traditional compliance laws require. This model seems to be prevalent in the blockchain aid programs that target people without formal identities.
Progressive KYC can happen top-down or bottom up. For large organizations like governments, development banks and INGOs, the trusted institution will be onboarded with the highest level of KYC Administrator who can create a Social Group in the system and invite people like program managers, village heads and community workers to become Community Delegates, who can then invite more people into the group as Community Members.
Once the initial system gains momentum, all users begin to generate more and more data which increasingly ties them to the traditional KYC systems. Their partners in the progressive KYC research include:
| Implementation Partners | Knowledge Partner | Technology Partners |
| Brazil Ministry of Social Development (MDS) – Early Childhood Development policy | Chinese University of Hong Kong Alumni Charity Foundation | Kyokan – DID & Wallet |
| China Research Development Foundation (CDRF) – Early Childhood Development program | University of Hong Kong Sustainability | XWings – Progressive KYC, decentralized transfer and exchange |
| Hong Kong Council of Social Services – Time Bank | Columbia University | BlockScience |
| Malaysia Ministry of Human Resources & Liberty Shared – Human Rights Auditing | Grassroots Economics | |
| Myanmar Yangon Municipality – Municipal Bond | IXO Foundation | |
| Laos Ministry of Agriculture & World Food Programme – Seed loss prevention | ||
| Papua New Guinea Ministry of Agriculture – Coffee Trade |
Announced in February 2022, they are extending the initial pilot with several NGOs and The Hong Kong Council of Social Services, into a city wide project involving:
In response to the problems identified, we extend our partnership of time vouchers program among 4 NGOs to a broader pool of stakeholders including more social purpose organizations who facilitate community-based mutual support, corporates who are interested in donating their products and services for corporate social responsibility (CSR), and charities who intend to improve the sustainability of their funds. In short, we are building a collaborative program
The Time Consortium
They are also working with Grassroots Economics, thus BlockScience, to optimize their “fractional reserve” for the community currencies, as well as implementing IXOs alphabonds.
IXO developed alphabonds in the Quality India Education Development Impact Bond, with multinational bank UBS, BlockScience, Interchain Foundation, and edtech platform Chimple, covered by Silicon Icarus in The New Face of Colonialism Part I & II . Alphabonds are a smart contract based financial instrument that they describe as
the world’s first cybernetic Sustainable DeFi mechanism which is built into the Internet of Impact. Alphabonds dynamically adjust the blockchain state in response to real-world risk signals.
This helps the social impact investor manage risk for their investment.
The general structure of an impact bond bases the investors profit and return of initial investment on verified outcomes from the project. IXO has completed extensive work on tokenizing this basic structure and creating the communication systems between an impact project’s smart devices and the blockchain to enable automatic verification. For example, in the project with Chimple, test scores and other data from the children’s phones would create the ‘verification proof’ showing the students meet an arbitrary benchmark. This would automatically trigger a payout to the investors who purchased the tokenized impact bond.
However this structure does not allow an investor to bet against the success of the impact project. The secondary market for these tokenized bonds would likely know the same information as the investor, making it difficult to sell. To maximize returns for investors they needed to figure out how to let investors bet against the project. Understanding their solution requires a brief overview of blockchain finance.
Bonding Curves – Precision Finance
A major part of blockchain based finance hinges on a structure called bonding curves. Somewhat difficult to grasp intuitively, bonding curves are a mathematical function that determines the exact price a token sells for based on how many tokens have already been bought. The function forms the ‘curve’ determining what price the token sells at a certain supply. This creates essentially a controlled marketplace where the future price is known.
The shape of the curve reflects the designers desire, they could decide to heavily benefit early buyers (many shenanigans occur in the unhinged defi world), or make a more stable less speculation prone market. The slide below presented by Blocksciences Shruiti Appiah, shows an example bonding curve. Think of the Y axis as the money put into the system, and the X axis as the token supply. Based on this curve, as more people buy, the price per token increases.
In impact finance, the risk of a project’s success or failure determines the value of the bond, if a project does not meet their outcome goals then the investor loses out on profit or even suffers a loss. Information about how well a service provider trends towards the desired outcomes informs this risk. Regular bonding curves can not change as more information about a project emerges, so they cannot price the project accurately. Alphabonds provide a mechanism to adjust the bonding curve based on a live assessment of risk in the project.
Alphabonds ‘solve’ the problem by creating an internal prediction market where the investor can stake their tokenized impact bonds on either the project’s success or failure. They are rewarded or penalized depending on whether they guessed correctly. Live information generated from devices used in the project, for instance children’s reading test scores, informs the investor on whether the project will likely reach their outcome goals.
Based on how the investors bet in the prediction market, a probability of success is calculated and then feeds back into the original financial parameters of the impact bond. They consider the investors’ participation in the prediction market a measurement of risk for the impact project, which can be used to determine a ‘proper’ risk/reward balance for the financial parameters of the bond. This helps make the impact fund continuously investable as well.
These types of financial instruments, where investors can both bet against and for an impact project, attract the larger financial space whose needs center on profit. It also benefits institutions with massive datasets about social behavior and access to advanced Machine Learning algorithms. Those institutions theoretically should have a major betting advantage compared to someone just betting based on the project’s data.
Remember all of this occurs in the context of highly complex digital twins systems modeling every possible human and machine interaction. Blockscience also admits it’s not clear who should be allowed to participate in the prediction market, since obvious conflicts of interest emerge, such as service providers betting against themselves.
The possible uses for alphabonds also extends to any tokenized financial instrument that depends on ‘verifiable outcomes’ such as parametric insurance. Hopefully the above helps explain why such a system is required or desirable for large financial institutions investing in social impact finance.
For a more detailed explanation of the highly mathematical and complex world of alphabonds, refer to this presentation from BlockScience.
The Decentralized World Bank
As we saw in the quote at the top of the article, the designers see themselves as creators of a decentralized World Bank. Much of the work to reach this point comes through Dr. Shaun Conway, who has worked in the Gates financed international health system for decades.
Occupying a variety of roles, Conway was a technical director for the WHO for ten years and ended up with the UK’s Department for International Development (DFID), eventually leading “a data-driven global aid transparency and accountability initiative”. The initiative was a third party evaluation of the International Health Partnership (IHP+).
“The IHP was launched in September 2007, bringing together 26 signatories: 7 countries, 18 bilateral and multilateral partners, and the Bill & Melinda Gates Foundation to sign a Global Compact for achieving the health related Millennium Development Goals”
The ‘IHP+ Results’ operated through a firm called Results LAB, that provided these ‘third party’ evaluations not only to the IHP, but the World Bank, WHO, and other high profile agencies. Dr. Conway worked for Results LAB for about five years. Being in charge of evaluating massive programs underscores Dr. Conway’s significant leadership position in international ‘development’.
At the beginning of this evaluation position, Conway began formulating the now manifest future of smart contract-based social impact investments in 2008, before bitcoin even existed. He gave this presentation outlining the fundamental ideas, and was remarkably prescient.
He also went on to launch the ‘The Africa Medicines Impact Investment Fund’, a side project for UK DFID created and funded ‘Southern Africa Regional Programme on Access to Medicines, which has open ties to Soros’s Open Society:
The Africa Medicines Impact Investment Fund (AMIIF) is an innovative purpose-driven investment vehicle that will deliver measurable social and development impacts by increasing access to affordable, good quality medicines and diagnostics in sub-Saharan Africa, through providing capital for initiating and scaling up regional pharmaceutical marketplace innovations
Moving into the mid 2010s, he began working on TrustLabs, the organization which launched IXO’s predecessor, Amply.
Given his significant position as the lead evaluator for a litany of international development programs, strong connections to the Gates network, and long standing involvement in the UK, birthplace of the Social Impact Bond concept, Dr. Conway can be considered a thought leader in these elite circles, and as far as I’ve seen, the furthest along in developing the conceptual framework of how digital technology will revolutionize oligarchy based international philanthropy. So, when he talks about creating the new decentralized international development paradigm, we need to pay attention.
Engineering this system are individuals with long careers studying impact finance, ESG and social work. While I have likely down played the role of the individuals from the Chinese establishment as a result of research difficulties due to the language barrier, some of these individuals hail from the global health and humanitarian aid establishment – Dr. Shaun Conway and William Ruddick, in particular.
As explored in Part I of this series, Ruddick implements community currencies in Africa, and opens people up to impact investors, who rely on digital twins to manage the system, and maximize data collection. Conway served the Gates global health apparatus, British foreign development interests and appears to be one of the first people to conceive of a blockchain-like system to financialize and digitize philanthropy.
In conclusion, a Chinese government-funded operation, the Impact Data Consortium Chain, in partnership with global capital led by Blackrock, created a blockchain social impact infrastructure for the city of Hong Kong, and plan to scale beyond the region. They are implementing the first smart contract based cybernetic financial instrument, to harmonize the data gathered on a social impact project, with the profit-seeking interests funding it.
Comments 1