Value Adoption and Network Effect
Traditionally, the value of a currency is derived from two sources: a reserve of another asset that serves to collateralize and provide a market for the currency; and, secondly, through intrinsic value as a medium of exchange and store of value. G$ coins are backed by a reserve system (the GoodDollar Reserve smart contract) that allows immediate liquidity and convertibility with the underlying assets, and are designed to gain value through user adoption.
We believe the G$ coin will gain acceptance according to the following theory of change:
- 1.The requirement to claim G$ on a daily basis creates a natural filter that sifts out those who would perceive claiming G$ coins as not “worth the effort”. This means that those who claim G$ will be those who perceive even such fractional quantities of cryptocurrency as worth the effort. We call this Proof of Need (see UBI Equilibrium and Proof of Need)
- 2.Communities across the world suffer from “money scarcity”, or a hole in the money supply that leaves them without tools for collaboration and commerce. This can happen at a nation-state level, where the fiat currency is unstable or untrusted, or on a local level, in recession-strapped neighborhoods.
- 3.In communities where there are limited tools for collaboration, there tends to be more rapid adoption of new currency tools. We believe that the Proof of Need filter will lead to geographic clusters of individuals making daily claims in these regions.
- 4.Referral marketing strategies will also encourage GoodDollar adoption in community clusters. Eventually, as the adoption of G$ grows due to online and offline network effects, a critical mass will be reached. Bottom-up, peer-to-peer marketplaces conducting commerce in G$ have already emerged since the 2020 launch of the GoodDollar Proof of Concept and we foresee this trend accelerating as the GoodDollar community expands.
- 5.As community purchasing power in G$ increases, local vendors and merchants will face growing pressure to accept it in exchange for goods and services. As G$ will be liquid from day one, we can envision it operating as a complementary currency alongside fiat currencies in these clusters. This will accelerate adoption and network effect.
- 6.In what we expect will be a self-reinforcing circle, merchant acceptance of G$ coins will lead more people from the local and surrounding economies to buy/claim G$ and start accepting it as a medium of exchange