IONs Financial Instruments

Economies are not as inclusive as 21st century technology allows them to be. There are still billions of unbanked and informally employed. In addition, the remaining masses are underserved. Only 0.5% of entrepreneurs in the US receive venture capital. Most small businesses seek loans under $100,000 while banks are increasingly avoiding requests below that level. Ironically, all the money created by central banks at unprecedented rates is failing to translate into inclusive markets and growth.

SocialCogs provides theory and open-source code for a novel financial instrument, IONs, which can create purchasing power regardless of existing monetary conditions and independent from existing wealth distribution. This makes IONs radically inclusive of those who lack savings, financial connections or history, or anyone in a troubled economy. IONs do not require new currencies, system disruptions, and can even work over SMS.

Economic exclusion and under-serving too often happen in absurd conditions where enough skilled people want to find jobs, enough businesses want to create jobs, and enough people want to become sellers or buyers; yet the economy still fails to connect all of this into a working network.

Money too often fails to be sourced where the economic potentials are, or to flow well within the network. Such liquidity flow problems have been acute since the Great Recession and are recently escalating into a liquidity crisis (FT 2020)(WSJ 2020)(HBR 2020). Even today's unprecedented money supply from central banks is failing to flow to those who need it the most. 

Liquidity problems are particularly acute for informal workers and marginalized groups who have less access to financial connections, collateral, and co-signers. Liquidity problems are also much worse for developing nations who lack liquid bond markets and credit profiles.

21st-century science and tech is beginning to understand all this as network/information flow problems. But today’s economic systems are not based on network/information flow technology. 

IONs are a radically different approach to creating purchasing power, in a way that is not limited by existing wealth distribution, existing monetary conditions, or the lack of credit history. Importantly, IONs create purchasing power without increasing debt. IONs achieve these seemingly counterintuitive features by using network algorithms to compute how supply-demand relationships could unfold in the future.

Debt-less creation of purchasing/payment power based on future economic flows is actually well proven with futures contracts used in commodity markets for centuries, and with Liquidity-Saving Mechanisms (LSMs) used between banks for decades. However only partially, because capital from the past still has a required role somewhere in those systems. 

IONs achieve a complete liberation from past constraints by adding algorithms similar to those powering the Internet. The result is an economic network that solves credit and liquidity problems similar to how the Internet solves connectivity problems. Each economic activity generates its own IONs as packetized financial instruments. The present demand for this activity by others is what gets converted into purchasing power, and thus free from the past. Importantly, the network deletes the IONs when they close a supply-demand loop, which makes them inherently non-inflationary (unlike over-printing money).

IONs are for all who have evident economic potential but lack savings, collateral, co-signers, or are in an economy with liquidity problems in credit and payment systems. 

With as little technology as phone SMS, economic participants can list offers and demands, while ION algorithms continually weave a smart network connecting them all. The present demand for an offer is converted in real-time into spending power anywhere in the network, regardless of the economic past or profile of those making the offer. They start finding themselves having new purchasing power, usable even with sellers unaware of this system. 

When implemented in a community or an economy, IONs impact various economic participants as follows:

Entrepreneurs & Existing Businesses

The vast majority of entrepreneurs (83% in the US) and the majority of small businesses (51% in the US who need loans under $100,000) do not benefit from all the capital available in the banking and investing sectors. The reasons are complex, from funders rejecting them or ignoring those channels, to information disconnect, to avoidance by applicants due to previous bad experiences, unfavorable terms, etc. The point is, this majority is excluded from the main credit systems. These businesses start and grow using funding sources that are personal or interpersonal (credit cards, family and friends, home equity, etc.). Those who lack such sources are fully excluded, even with viable business potential and even in an economy awash in capital. The exclusion is worse in struggling economies and is uneven across geographic, racial, and gender barriers. 

With IONs, if a business B joins an ION network which includes those interested in B’s products and services, B will find itself having purchasing power across the whole network, all of it mathematically grounded. All the complexity is hidden behind the scenes however, and B can pay anyone freely, even sellers who don’t know B or want its products and services. Anyone can accept B’s new payment instruments with zero trust because IONs are novel “flow-through” instruments which deliver their payment value without the payee having to keep the instrument itself, or even be aware of it passing through. 

IONs allows entrepreneurs and businesses to get an operating budget without getting a loan or going into debt, simply by having a connected community of their customers, which today is almost a given with social networks (even simple SMS-based messaging networks). The business does not have to manage the connectivity of their customer community, only to invite them into the same ION network. Once the business posts its market offers and operating expenses into the network, the algorithms weave everything across the network. 

Job Seekers

The above purchasing power created by IONs for businesses is just as usable for paying staff or contractors. They can seamlessly accept IONs as income instruments because of the “flow-through” nature, i.e. the staff/contractors do not need to keep the IONs in order to get the income value as long as they are also part of that ION network. Job seekers simply need to post their skill offers and market demands into the network. 

Too often qualified job seekers sit unemployed not because there is no demand for them but because businesses cannot scale their budgets to hire them. Systemically this is often a network problem: unemployed job seekers are also inactive consumers, lowering business revenues, and many variations of such network loops. The IONs network algorithms break the deadlock of such loops and free up the stuck economic potentials for employers, for job seekers, and for consumers. 

Consumers and Traders

One part of the consumer segment overlaps with job seekers and is impacted as described above. Another part of the consumer segment may not be looking for employment but they may be selling items on markets. For example, a consumer C wants to buy business B’s product and is also selling something S on an open market. C may lack the funds to buy B’s product, and potential buyers of S may also lack the funds to buy it from C. By being part of an ION network, algorithms could simultaneously open up the ability for C to buy from B and for the market to buy from C. By being part of connected ION networks, consumers and traders open up economic potentials that are invisible or blocked in conventional markets because they only see one hop at a time, not the full flow. 

Banks & Investors

IONs do not take away anything from banks and investors because wherever their conventional methods are succeeding there is no need for IONs. IONs open up only additional opportunities for people and opportunities that are missed by conventional methods. Today, credit created by commercial banks is limited by monetary conditions and the credit history and profile of the borrower. Monetary stimulus by central banks is also limited by bond markets and the nation’s profile, or it risks hyperinflation. IONs work beyond these limitations.

IONs actually expand opportunities for banks and investors because they can profit by taking on the role of market-makers in the new ION network. Similar to market-makers in stock markets, they can use their capital reserves to buy and sell IONs in ways that facilitate more transactions. Market-makers make it possible for ION users to use their new purchasing power even with sellers/payees outside ION networks, i.e. sellers/payees who may not even be aware IONs exist. 

Unlike conventional investing where banks and investors transfer capital in bulk into the business itself, ION market-makers buy up the business’s IONs from the network itself, which means the business (the supply side) does not get any of that capital. Instead, the investment capital “streams” into the demand side of the network. In other words, the business never gets control of the funds even though its business activity is powered by it. This in effect solves information asymmetry, one of the biggest risk factors for banks and investors. 

Impacting Society in General

IONs is a wide-spanning systemic solution, making society in general its target population in some aspects. One of those is the wealth gap. IONs can address the gap without any wealth redistribution, because IONs introduce a way to create new wealth without touching previously created wealth.   

Another contentious issue addressed by IONs is taxation. Using IONs, governments can finance growth without additional taxation (or debt) because IONs can create operational budgets for projects without needing a piece of previously created national wealth. 

The features of IONs are particularly relevant after the COVID-19 impact to economies, which now need to somehow grow faster than has been possible while carrying unprecedented debt. Fortunately, governments are now engaging in unprecedented experimentation to deal with COVID-19 impacts, including “sweeping, structural changes to how their economies work,” which creates more openings for new approaches like IONs. 

IONs also address one of the key causes of economic crises, which is consumptive or asset-inflating credit creation. IONs avoid this because they create only productive spending power, because each ION can be created only as a result of a unit of progress in a specific economic activity. Moreover, it is always tied to networked demand on the other end of its loop.

Engaging Stakeholders and Understanding their Needs and Preferences

The many iterations and design changes for IONs over the past 3 years have been driven principally from engagements with likely users and opinions outside our technology-focused team. For example, in the beginning IONs expressed prices only as high-dimensional vectors, simultaneously relating the value of any IONs to many other IONs in an economy. This gave the algorithms unprecedented computational power, however candidate users found it unwieldy and overwhelming. In today’s version, users do not see any of this complexity and see prices in the format everyone expects today. 

In the beginning we also expected users to have a more active role in observing and controlling the network flows. After similar reactions as above, today all of this is hidden in the back, available only to more interested users or to financial engineers. Regular users can use IONs in the same ways we use shopping carts on the Internet or sell things on online markets, even from the same apps they already use (by integrating through APIs). 

Actually, the whole IONs concept can be completely hidden from end-users in extremely simple implementations. End users would not know that anything has changed, while market administrators, investors, and financial regulators would get to work with the novel features enabled by the IONs algorithms. For implementations that do expose the IONs concept to end-users, we have natural-language processing (NLP) methods which allow them to ask for and to offer IONs without having to know exact ION IDs, but simply by describing what they are trying to do in natural language. For example, instead of knowing the ION ID of a particular chocolate, a user can say “fair-trade chocolate made by a producer near town X”. Our NLP methods are based on state-of-the-art machine learning and improve the more they are used.

All of the above design changes have made it possible to run an ION network even for users who have only feature phones without Internet access and with only SMS texting capability.

SocialCogs’s IONs are a novel financial instrument for both people and small business, which works uniquely well for those who lack savings, predictable income, collateral, or financial history, which overlaps significantly with those unbanked and informally employed. 

IONs create a new layer of a networked digital economy where users, with as little as SMS phones, get debt-less purchasing power computed out of future economic outputs, and therefore independent from existing wealth distribution or existing monetary conditions. This means IONs also can uniquely serve the vast majority who are under-served today due to global liquidity problems in credit and payment systems.

We have a complete theoretical design of the solution, a beta software implementation of it, and simulation results showing it works in principle. We have not deployed IONs in any communities yet.

IONs are the first solution, proven theoretically and in software experiments, that overcomes the following limitations that have always been taken for granted:

1. An entrepreneur or business can get spending power only by either going into debt or by first saving up.

2. A consumer can purchase something only by either first saving up or going into debt.

3. Banks and investors can finance an economic activity only by transferring their capital to a business operating the activity. 

4. Creating new wealth must be in some way related to the distribution of existing wealth.

5. Governments can finance growth either by taxation, or by cutting spending, or by increasing some form of debt, or risking hyper-inflation by over-printing money.

6. When a payer gives a payment instrument to a payee, the payee must keep it in order to keep the financial value of it.

IONs invalidate these assumptions by creating spending power based solely on the future. IONs use network algorithms to compute how supply-demand relationships can unfold in the future, and find network flows that are self-consistent (i.e. form loops) so that they do not need to depend on the past. 

Our solution could have been contemplated only in the last decade or two, with recent advances in network technology and computer science on network algorithms. Economics as a science can only now begin to consider such possibilities, and we believe that our solution can catalyze more cross-breeding between these sciences, and more advanced financial instruments of this new breed.

0 currently - IONs have only been used in experiments and simulations. 

On one extreme of predicting within a year, if even one municipality or nation chooses to run a pilot the number could be in the hundreds of thousands with a single implementation. Given the number of municipalities globally and the state of the world’s economies, this is not hard to imagine if we can get enough attention and backing within a year. 

On the other end of possibilities, the number of users within a year is in hundreds or single-digit thousands. This estimate is based on a few use cases for which our team has local knowledge and connections. Two of these are small communities off the coast of British Columbia: one island with a population of roughly 11,000 and another with a population of 4,000, with over 1000 local businesses across the two. Both have vibrant local economies with a culture of supporting local economic relationships, experimenting with economic systems (local currencies, co-ops, etc.), and self-governance. Another considered use case is an association of hundreds of small producers in Bangladesh. 

Within 5 years, we hope to have the technology scalability and organizational profile to be able to work with larger economic networks and multiple municipal and national economies. The number of users would then go into millions. 

Adoption of our technology by a large social network, some of which have or are designing their own economic platforms, could mean IONs features conceivably reaching billions within 5 years.

For impact goals 1, 4, and 5: 

1. Measured per user and per groups:

   1. Increase in purchasing power without additional debt (always accounting for inflation). Related to SDG indicator 2.c.1 on food price stability

   2. Lowering of debt level under equivalent purchasing power. Related to SDG indicator 17.4.1

   3. Increase in income in dollar-value equivalent. Related to 7 SDG indicators (10.2.1, 10.1.1, 10.4.1, 1.2.1, 1.2.2, 2.3.2, 8.5.1)

   4. Increase in access to credit without increasing conventional debt. Related to SDG indicators 9.3.x

   5. Increased integration into value chains and markets for small-scale enterprises. Related to SDG indicators 9.3.x

2. Measured per ION network and its administration/government:

   1. Increase in spending power for government projects without increases in debt, taxation, or inflationary money stock. Related to 11 SDG indicators (1.a.x, 1.b.1, 14-a-1, 15-b-1, 15-b-2, 17-1-1, 17-17-1, 17.19.1, 2.a.x, 8.b.1, 9.5.1)

   2. Increase in GDP network-equivalents. Related to SDG indicators 8.1.1, 8.2.1

   3. Decrease of unemployment numbers. Related to SDG indicators 8.3.1, 8.5.2, 8.6.1

   4. Indicators of SDG type 10.5.1 for soundness of financial markets 

   5. Exact Keynesian/fiscal multipliers 

3. Overall indicators on funding green energy transitions (SDG 7.a.1, 7.b.1) and climate action (SDG 13-a-1). Today’s doubt is on where could such large sums of money come from. With IONs, the question of where existing money is becomes irrelevant as long as future flows of value are obvious, something which is abundantly clear on these topics.  

For impact goals 2, 3:

1. Size of co-creating and debating community, and activity level in code contributions, Q&A, events, meetings

5 volunteers, 1 intern, 0 paid staff.

Our core team has a cross-disciplinary background across computer science, economics, social sciences, and public policy, which is actually why we have been able to do the cross-breeding that led to this solution’s design and technical implementation. Some of the team members have joined more recently specifically to add to our capacity for the next stage of practical implementation.

Martin Dimkovski:

• Strategist for emerging technology with experience in leading R&D programs that include software development capacity

• Cross-disciplinary education in computer science and social sciences, graduate degrees in AI with a focus on biological relevance and social impacts

Angie Fleming:

• Strategic Foresight and Innovation (MDes) graduate program candidate at OCAD

• Almost a decade of consulting organizations specifically on combining data, design, and dialogue to better understand the people they serve

Kobina Aidoo:

• Harvard Kennedy School graduate, MPP in International Trade & Finance

• A decade of consultancy at the World Bank

• Strategic adviser for the African Center for Economic Transformations

• Combining analytical depth with storytelling through writing, graphics, social media, and videos

Leena Patel:

• Executive leadership across multiple organizations

• Innovation strategy with data analytics and emerging technologies like IoT and blockchain

• Experience in developing CX, organizational & community culture

Fitzgerald Scott:

• Software developer with particular experience in business accounting systems

• MBA, Computer science major.

Cvijo Raskovic:

• Student in the innovation and entrepreneurship program at the Copenhagen Business Academy

• Experience with start-ups and small business, including being a repeat entrepreneur himself

In a way, the reason SocialCogs exists and its non-profit mission are a direct answer to this question. Our team is composed of successful professionals who have been volunteering for a few years. To begin with, we chose to work on IONs precisely because we are motivated about improving equity, i.e. opening opportunities to thrive for people regardless of their financial history or profile or the economic conditions their community has been inheriting. Our motivation is also directly about inclusion, because IONs tries to create an economic environment where everyone’s value surfaces, especially of those under-served or not visible in current systems.

IONs is just our initial and most active project. The larger scope of SocialCogs is about using such intelligent network designs over human relationships of various types. IONs does it over economic relationships. We are also working on designs over trust relationships and decision-making relationships. The former one could result in network solutions that tackle misinformation and the challenge of combining skills and knowledge in communities. The latter one is directly about the point that “everyone should have a seat at the problem-solving table,” i.e. about thriving through diversity. 

The science on cognitive biases is a key ingredient in our future solution, and we have been building up a toolkit of knowledge and practices, and helping each other educate ourselves. Anti-racism is one projection of this capability development. 

As SocialCogs scales, all of this will be part of our organizational DNA, not only our solutions DNA.

The non-financial value provided by the 9-month support program to Solver teams is precisely what we are lacking and would be invaluable for addressing all our discussed barriers. Having a support group and mentorship through a powerful network like Solve’s social impact community would directly address our barrier of “needing more partners” and advisors. It could also set us up early on the right path for our “regulatory” barrier that might surface later on. And it would be invaluable for finding the right resources for “scaling our organization” challenges, especially for our B2B horizontal scaling stage.

The credibility of being chosen in MIT Solve would weigh heavily in our own efforts tackling the “getting visibility and attention” barrier. The exposure in the media and conferences that comes with being a Solver team would be an amazing plus. 

The possibility of getting some funding is of course another value factor.

Financial: Finding partners who are able and willing to undertake innovative investing models due to the way IONs redefine conventional investing concepts. 

Legal / Regulatory: Even though IONs are not a new currency, do not require crypto-currencies, and should fit under existing financial instrument regulation, an increasing number of implementations may result in regulatory attention and challenges, especially for grassroots implementations that do not have their government as a direct partner.

Expanding client base: Getting enough visibility and attention to show candidates that this can work. Our solution is complex, systemic, and presenting it is challenging.

The following organizations have products and services or mission objectives which we believe are symbiotic with IONs:

• Tech organizations who innovate with network models of economies, e.g. Social Trade Organization, Ixo Foundation, Ripple Labs.

• Organizations who help communities implement complementary currencies, e.g. Grassroots Economics, Complementary Currency Resource Center.

• Organizations that work on transformational economic models for social good, e.g. Wellbeing Economy Alliance, Capital Institute, Institute for New Economic Thinking, Rethinking Economics

• Municipal governments involved in Municipalism movements. E.g. Fearless Cities.

• Fintech companies like MasterCard or VISA, who do major R&D in financing and payment evolution, or J.P. Morgan’s ONYX.

Refugee camps can form very potent micro-economies, and data suggests these are more successful if they can also emerge in a decentralized way as opposed to being set up and managed only top-down. One example is the Zaatari refugee camp in Jordan where even though the camp administration creates only 900 jobs, around 50,000 of the 80,000 refugees are employed in endogenously created jobs. In his research on extreme economies, acclaimed economist Richard Davies compares the economy of Zaatari to the Azraq refugee camp, also in Jordan, and points to how Zaatari’s economy outperforms the more-centrally managed Azraq. Of course, informal economic self-organization can have downsides and risks, but this is precisely where IONs could help.

A single or multiple related refugee camps could turn up an ION network and gain a self-reliant economic platform which can surface the decentralized economic potential while lowering the need for informal and shadow economies. IONs can do this because they increase transparency and remove the bottlenecks in distributing purchasing power top-down, from what is already limited aid (e.g. the 44% under-financed UNHCR). Instead, IONs can map the diverse supply and demand potentials that find themselves in close proximities in camps like these, and IONs can put those potentials into motion without needing money from the outside. The internal IONs economy could also be bridged to the outside economy in custom ways. 

With networks like Helium, the cost to connect mobile devices is a lower barrier today for users.

IONs is precisely about increasing inclusion in economic opportunities, because IONs tries to create an economic environment where everyone’s value surfaces, especially of those underserved or not visible in current systems. IONs is also about increasing equity because it opens opportunities to thrive for people regardless of their financial history or profile or the economic conditions their community has been inheriting. 

Any community can start an ION network for itself, and therefore empower itself, without depending on external help. At the same time, inter-network protocols can connect it to the ION networks of other communities, in ways that the community peers design themselves, and which are free from top-down monetary conditions they have no control over or existing distribution of wealth which may not be advantageous to them. The only limitations come from how they can imagine their future inter-relatedness, and not from the past they inherited.

SocialCogs’s mission is to use the latest intelligence algorithms and innovate with smart networks over human relationships of various types. IONs is just our initial and most active project that does this over economic relationships. But SocialCogs is also working on designs over trust relationships and decision-making relationships. The former one could result in network solutions that tackle misinformation and the challenge of combining skills and knowledge in communities. The latter one is about giving everyone one a seat at the problem-solving table, i.e. about thriving through equity and diversity.

The education and background of two of the founders is specifically in AI, machine learning, data analytics, but more importantly, their career records show a clear and persistent focus on human-centric approaches, social applications, and humanizing technical practices. All our technology is made open-sourced.

We currently use graph-network algorithms, deep learning, and NLP, but future solutions also include deep reinforcement learning, causal networks, and probabilistic programming. Our solutions combine these technical abilities with the latest science on socio-cognitive neuroscience, cognitive biases, and cognitive noise.

GSR states that it specializes in liquidity technology for digital markets, and one of the innovative benefits of IONs is the way our algorithms create market liquidity for the ION network users. IONs do not require a blockchain, primarily because they are designed to be non-disruptive and additive to existing systems as seamless digital layers. However, they can certainly combine with blockchain technology and would have more power in doing so. More advanced implementations of IONs would make particular use of smart contracts. 

ION networks scale from the local community level. Any community can start an ION network for itself, and therefore empower itself, without depending on external help. At the same time, inter-network protocols can connect it to the ION networks of other communities, in ways that the community peers design themselves, and which are free from top-down monetary conditions they have no control over or existing distribution of wealth which may not be advantageous to them. The only limitations come from how they can imagine their future inter-relatedness, and not from the past they inherited.