How Coops can Save Crypto

Redbeard
4 min readMar 13, 2023

At the latest ETHDenver Event, Vitalik Buterin emphasized that the next stage in the development of the crypto economy is to improve the user experience (UX) so that we can use crypto for everyday transactions.

This led me to ask myself: why don’t I use crypto for everyday transactions?

The reasons I came up with include:

  1. I don’t like high transaction times and fees;
  2. I view my crypto assets as an investment, not cash; and
  3. There isn’t much to buy with crypto.

There are other reasons, but these were the first to come to mind.

Regarding issue #1, I happen to believe that eventually, some combination of technologies will eventually make crypto transactions fast and cheap. So we will just have to wait.

Regarding issue #2, I think this problem is more or less resolved with stablecoins, whether they be fiat-backed stablecoins or, eventually, the Icewater protocol.

There is more to be said about these two issues, but I want to focus on the third issue: how can we get crypto more integrated into the retail environment?

This might end up being a bigger issue than most people think for two reasons: vendors don’t want to support another payment system (especially a weird one that they don’t trust) and customers don’t want to keep track of another payment system if the one they are using (i.e., credit cards for many of us) works for more vendors.

In other words, there is a chicken and egg problem. Vendors won’t support crypto unless customers demand it, and customers won’t demand crypto if enough vendors don’t accept it.

Crypto Consumer Coops

So how do we avoid getting stuck? My answer: crypto consumer coops.

A crypto consumer coop is simply an organization that offers goods to members who earn rewards by purchasing from the coop.

To understand how they work, consider the non-crypto consumer coop REI. REI members purchase outdoor goods from the coop, and at the end of the year they get rewards based on how much they purchased. REI has many loyal customers because they provide quality goods and maintain a strict focus on serving their customers (because as a coop, they are essentially owned by their customers).

A crypto coop may or may not offer a set of related goods (i.e., like how REI offers outdoor gear). It may start out offering things that require a smaller logistical footprint, like digital content. But eventually, a crypto consumer coop could offer virtually any type of goods or services.

Coop Rewards and Seigniorage

One interesting application of the coop model is that coop members could be entitled to seigniorage for a new cryptocurrency like icewater. In many cases, the value of a cryptocurrency goes up as more people use it. This is why many cryptocurrencies have any value at all.

But many cryptocurrencies seem to depend on people valuing them as investments rather than currency. To put the emphasis back on users (rather than investors) a protocol like Icewater could have at its foundation a consumer coop that is entitled to some of the rewards that come from growth of the protocol (i.e., new coins will be issued to those who coop members instead of, say, miners).

In the Icewater protocol, the smart contracts attempt to stabilize the value of the primary token, H2O, while volatility (and rewards) are issued to an equity token, STM. If the coop owns a substantial amount of STM, those who use H2O by purchasing goods through the coop can be rewarded for helping the protocol succeed.

Coops and Securities

Another advantage of coops is that membership in a coop can be exmempt from securities laws. Remember the old Howey test that says a security is an investment of money in a common enterprise with the expectation of profit to be derived from the efforts of others? Well, in members of a coop aren’t deriving profit from the efforts of others, but from their own participation as consumers. Although there are still a lot of questions surrounding the application of securities laws to cryptocurrencies, securities laws have traditionally not been applied to coops.

Of course, this might make it harder to raise money (because when you raise money, you typically have to give ownership to investors, as opposed to giving “patronage” shares to members as in a coop). But perhaps the lessons from recent trouble in the crypto industry suggests that developers should be looking for options other taking millions from VCs and pumping the value of an equity token.

Concentrate Buying Power to save Decentralization

Ultimately, a crypto consumer coop is a way for people to concentrate buying power. Up till now, crypto enthusiasts have mostly been developers and investors. But to be truly successful, crypto needs to have a devoted base of users. A coop is a way for people who are interested in crypto to manifest their power as consumers to expand the use cases for crypto.

It is unlikely that crypto will solve the chicken-and-egg problem of monetary convenience without selling out to the traditional centralized financial system. The alternative is to concentrate our own buying power to enable the building of use cases from the ground up.

We need to build our own vendor (the coop) that takes advantage of the natural way for crypto protocols to calcuate and distribute rewards to those who participate. By doing so, we can focus on supporting protocols and currencies that are truly decentralized and develop organic use cases within our own community without the requirement of immediate mass adoption.

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Redbeard

Patent Attorney, Crypto Enthusiast, Father of two daughters