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12 MIN. READ

Lessons Learned from Circles Berlin Pilot's Subsidy Program

The Circles Berlin Pilot is getting attention from all over the world as a real-life experiment aiming to implement a UBI system through a complementary currency. Since its inception, the program has utilized a subsidy program, offering incentives to exchange incoming Circles (CRC) for EUR to a select group of businesses to encourage the creation of offers within the network. It is now time to assess the effectiveness of the Pilot, particularly the subsidy program. We must analyze what aspects of the program are working and what are not, and why we have chosen to continue with this approach despite the arguments against subsidies. Furthermore, we must explore how we can establish an economic network using a cryptocurrency like Circles.

This article outlines our rationale for employing a subsidy system, our past experiments, the insights we've gained, and our future plans.

GETTING THE BERLIN PILOT STARTED

In 2021, as we launched Circles, we made the decision to jumpstart the Circles economy in Berlin by providing select businesses the opportunity to convert their CRC back into EUR with specific terms. This was aimed at reducing risks for businesses and enticing them to join, despite the limited range of goods and services available for purchase with CRC at the time. To facilitate this process, we collaborated with a few businesses that sold to the rapidly growing and popular network of Circles users in Berlin. Our efforts primarily focused on markets we organized and a chat group for Berlin users, which acted as a preliminary marketplace.

A big and heartfelt THANK YOU goes out to all of you who have believed in our project and joined us in the experimental first stages, despite the challenges we faced. Your support has been invaluable, and we are grateful for your willingness to try out our project.

From the outset, we were well aware that exchanging all the CRC earned by businesses back into EUR was not a viable long-term strategy for building a sustainable economic network and flow. However, it was crucial for us to gain insights and practical know-how from our partners, which cannot be obtained through mere theoretical analysis. These invaluable lessons are now being utilized to expand the network, raise awareness, allay concerns about legal issues associated with using CRC, and more.

Circles Berlin Assembly & Market - May 2023

SOME WORDS ON SUBSIDIES

Subsidies are a form of financial support extended normally by public institutions to individuals, groups, or businesses which does not have to be reimbursed. Its purpose is to help carry out an activity that requires a high investment or that beneficiaries would have a hard time coping with on their own. Subsidies are normally part of broader social and economic policies and generally aim at achieving a positive impact on members, communities, and networks connected to the subsidized actors. While subsidies can have negative effects such as being expensive, potentially creating the wrong incentives, establishing dependencies, or supporting an artificial economic environment that may be unsustainable, they can also be a useful tool in creating a secure framework for businesses to participate in an innovative proposal like Circles.

SUBSIDIES IN CIRCLES - LEARNINGS, BENEFITS, AND PITFALLS

By subsidizing the Circles economy in this way, we not only provide businesses with an initial incentive to offer their products and services in the network but also have a means of guiding and shaping the value system of this new economy we are striving to create.

We see this as a crucial step towards reaching the tipping point where the local Circles economy becomes self-sustaining, with enough products, supplies, and services available for CRC exchange. At this point, local exchanges and B2B loops can evolve, allowing businesses to use their CRC to pay for major expenses without the need for our exchange. Our vision is to aim high.

The ultimate goal is to achieve sustainability for Circles and establish a critical mass, where the network can operate without subsidies.

To attain this, we made the decision to reduce the monthly exchange limit for businesses from €4000 to €2000 a year ago, to broaden the program's reach to more businesses. This also necessitated the establishment of a set of regulations, criteria, and agreements that we are constantly revising based on our experiences and requirements. If you would like to know more about the specifics, please contact us at hello@joincircles.net.

Our experience has shown that retailers find it easier to spend their earned CRC in the network, which is not surprising considering they can order supplies from other businesses in the network and then sell or process them. However, service providers face a greater challenge since they require fewer business supplies. Unfortunately, we still cannot use CRC to pay for our major expenses such as rent, electricity, internet fees, water, and taxes.

Despite this, service providers can still benefit by saving EUR in other aspects of their daily lives and business expenditures. For example, they can pay themselves a salary in CRC and use the saved EUR to cover expenses such as rent and electricity, while using their CRC for necessities such as food that can already be obtained within the Circles network.

We have found that it's beneficial to include services that all businesses require in our network. This includes tax advice, business consulting, graphic design, web services, and payroll accounting. Therefore, we have been actively seeking out businesses that offer these services and encouraging them to join our network. (Contact us if interested) However, we also remain committed to prioritizing basic needs such as food and healthcare to ensure a diverse range of offerings in the network that support circular value flows for both users and businesses.

Business Partner Meeting - February 2022: Regular meetings with business partners are crucial part of the project.

For a couple of months now, we have been working constantly with around 20 onboarded businesses in Berlin, offering products and services with a diverse selection of food producers and providers, consulting services of different kinds, artists and artisans, therapy, books, massage, bike repairs, and deliveries. Check out a comprehensive list of our current business partners on our website, as well as a unique one-week with a basic income experiment based on the Berlin Pilot here. Our online marketplace is also a crucial part of the program.

The graph below shows the subsidized partners in the network, the arrows standing for the direction of the flow of CRC amongst them. The size of the orange sphere is proportional to the amount of transactions held by the partner. Please note, subsidised partners are asked to transfer the CRC they want to exchange into EUR to the Circles Coop wallet. This explains why the Circles Coop wallet centralises the biggest amount of transactions and connections. The graph visualises where B2B offers and demands match closing an economic loop.

Plot representing the transaction summaries among business partners part of Berlin Subsidy program.

Using subsidies has been an effective temporary measure in jumpstarting the local economy, and the success of Circles in Berlin is attributed to this approach. However, challenges arise when extending financial support becomes necessary in order to reach the desired tipping point, as withdrawal of support may negatively impact the network. To reach this point, it is essential to increase the base of beneficiaries to generate enough offers to close economic loops in CRC, resulting in greater pressure to raise funds for sustainable growth. For a cooperative like ours, this is not a viable option. We, therefore, need to restructure our subsidy program to maximize the use of limited funds while continuing to support early adopters and current business partners, while also allowing new partners to join the program.

Emma from Circles Team presenting Circles at the Zero Waste Festival in Berlin- September 2022

A NEW PHASE

In order to allocate more budget towards bringing on new partners, we have reduced the monthly exchange limit to half of its previous value. Additionally, we have implemented a gradual phasing-out procedure for our subsidy program. Under this scheme, partners can redeem a maximum of 10,000 CRC (equivalent to 1,000€) per month for the first six months, after which the exchange limit will be lowered by 20% for the following three months, and then by 50% for the last three months. This gradual reduction in the exchange limit promotes movement within the partner structure of the subsidy program, while also allowing sufficient time to identify and establish necessary connections to close economic loops within the Circles ecosystem. We established two additional categories: the first category is for partners who play a particularly important role for the network and have a high demand, we support them with a higher exchange limit. The second category is for partners who face more difficulties to spend their CRC within the community, we support them with a fixed limit for the duration of a year. Finally, we have introduced an incentive to acknowledge exceptional engagement. Partners who redeem less than 71% of their monthly CRC income within a three-month period are granted an extension, providing an additional month in the subsidy program with the limit in effect at the time of achievement.

The introduced model enables a more flexible allocation of resources within a fixed total budget, which we can commit to as a cooperative for the time being until more sustainable alternatives are found. This approach mitigates risks for both parties by preventing us, as the cooperative and main structure, from being trapped in a continuous cycle of fundraising, and also by avoiding dependency issues that may arise for partners if the project experiences any disruptions.

Roots Radicals, one of our business partners in Berlin Subsidy program offering their products at our monthly market & assembly.

TOWARDS A COMPLEMENTARY ECONOMY

Recognizing Circles as a complementary currency, it is probable that there will be an ongoing need to convert a portion of CRC into EUR to cover certain expenses that cannot be met within the network. However, our objective is to devise sustainable strategies for redeeming and redistributing resources within the community, with the aim of establishing a reliable and substantial support system for our members, whereby fiat resources are allocated in a way that allows for the growth and sustainability of the Circles economy. If you have any relevant experience, ideas, or knowledge of models that could help us achieve this goal, please do not hesitate to contact us.

Above all else, we have come to understand that our subsidies, Euros, and care work alone are insufficient to entice businesses to participate in Circles. Rather, it is an inherent motivation to explore Circles, based on shared values and a belief in the potential of an alternative economy, recognition of the urgent need for UBI, and a desire to address the severe social repercussions of our present economic system, or simply practical economic incentives, that drives their interest.

We strongly believe that these are all compelling reasons to join Circles, if not the only ones.

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CIRCLES UBI

Circles UBI is an alternative currency that works something like a basic income. We launched in Oct 2020. Read our whitepaper: https://handbook.joincircles.net/docs/developers/whitepaper Or find out more at: https://joincircles.net

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