MakerDao: 18th Century Edition

Land Banks, DAI, and Colonial Money Supply

Hunter Gebron
Published in
9 min readJul 15, 2019


This article assumes the reader has a basic understanding of MakerDao and the DAI stablecoin. If you are unfamiliar with DAI and how it works you can learn all about it here.


There hasn’t been a lot of comparative analyses between cryptocurrency and colonial times. This is surprising given that one is a centuries-old agrarian period of American history when people wore funny shoes, and the other is a technologically driven form of digital currency that involves computers, cryptography, and the Internet.

OK, maybe it’s not that surprising. But maybe its time we start!

This all began when I came across an arcane paper by Theodore Thayer titled “The Land-Bank System in the American Colonies.” In it, Thayer describes a system that thrived in all Thirteen Original Colonies in the first half of the 18th-century.

I became fascinated by the number of similarities that this little known slice of American monetary history bore to MakerDao and the DAI stablecoin running on the Ethereum blockchain.

The following is an exploration into colonial Land Banks and the similarities it bears to the DAI stablecoin.

Lack of gold and silver coins: A hard money problem to solve

The dilemma to keep gold and silver coins from fleeing overseas to Great Britain was a struggle that plagued the Thirteen American Colonies all the way up until their dissolution in 1783.

The cause of this gold and silver flight was a matter of simple accounting; the colonies imported more finished goods from Great Britain than the unfinished raw materials they exported. This was by design as the colonies operated under a system called Mercantilism, which essentially meant their entire purpose was to enrich Great Britain’s wealth through a trade imbalance.

Compounding the coinage issue was the fact there had not been any significant gold or silver discoveries in America by that time and there wouldn’t be until the California Gold Rush of 1848.

But the colonies despite being, well…colonies were rather self-sufficient and perhaps, more importantly, they were pretty self-sovereign. This self-sovereignty led to what is often referred to as the ‘American Spirit’ and it would come back to bite the British later when they came for blood in the American Revolutionary War.

At various times and in varying fashions all of the respective Colonial governments tried to inject an alternative money supply into their economies, one that was divorced from specie.

Massachusetts in 1690, in what would ultimately become an American tradition, issued the first known example of government-backed fiat currency in the Western world in order to fund the King Williams War.

In Virginia, Maryland and North Carolina- Tobacco was used as a form of commodity money.

In Virginia, the Tobacco was stored in warehouses and paper slips that represented the tobacco’s value were used by colonialists to facilitate commerce with greater ease and portability.

Outside of the British domain, in present-day Quebec and what was then the colony of New France, colonists periodically relied on playing card money in lieu of French livres.

Tobacco Note from 1771 © Colonial Williamsburg Foundation
New France’s Playing Card Money

As we can see, there was always a shortage of hard money and colonies did their damndest to come up with creative solutions to mitigate the problem. This constant lack of ‘good’ money can largely be attributed to Gresham’s Law.


Colonial Sovereignty

It may seem strange to us now, but there was no such thing as a singular ‘American’ identity during the Colonial era. That wouldn’t emerge until the events leading up to the American Revolutionary War in 1775.

Prior to that, the colonies acted like independent nation-states with allegiances held to the specific colony of birth or that was decidedly claimed. Ironically, it was their common ties to Great Britain that kept the colonies connected at all. Each colony was responsible for its own affairs.

As a prominent Pennsylvanian, Benjamin Franklin knew that the money supply was a necessary lubricant for the economic engine of his colony to run properly. Not enough money in circulation meant not enough capital to grow a business, get a loan, buy a home, or take an entrepreneurial risk; it meant economic stagnation. Franklin postulated in one of his more famous papers that “A plentiful Currency will occasion a less Consumption of European Goods, in Proportion to the Number of the People, so it will be a means of making the Balance of our Trade more equal than it now is”.

Franklin spent much of his time writing, ruminating, and arguing for monetary policies that he believed would stimulate economic growth. But as will come to find out when it came to creating a uniquely colonial medium of exchange; one that wouldn’t flee overseas, certain colonies had an Ace up their sleeve in something known as the Land Bank system.

Land Banks: A novel colonial invention

Colonial Land Banks were public institutions that granted paper money loans in exchange for collateral such as land, houses, townhomes, or farms. They existed in every colony between 1712 up through the French and Indian War (1754–1763) and into the Revolutionary War (1775–1783). They proved to be an invaluable mechanism for the creation of unique colonial money supply, especially in the Middle Colonies.

The first colony to institute a Lank Bank was South Carolina in 1712, but every colony eventually followed suit. It appears the logic of the system and the need for an alternative money supply that was decoupled from gold and silver coins proved to be too enticing to resist.

In each colony, there was an administrative loan office with a board of directors or a group of trusted citizens chosen by the legislature. The loan office would assign assayers to determine the value of a person’s land before any loan was to be given out.

“Generally the Land Bank laws prohibited a loan of more than one half the value of the property given in a security… The land banks were established to help as many people as possible especially poor farmers. Surviving records indicate that the majority of all loans granted in 1774 were granted to yeoman farmers and mechanics.”

The loan was to be paid back in a specified time frame (usually one year) with interest and the interest on the loans was typically used by the Colonial government for public works, thus lowering taxes overall for the populace.

The colonialists could use the freshly generated capital to invest in their farms, pay workers, or buy goods and services in town, etc. and if the borrower defaulted on the loan, their collateral would be sold off to pay the outstanding debt and the difference (if there was any leftover) would be given back to the original borrower.

Some colonies did better than others

As you might expect the Land Bank system worked more satisfactorily in some colonies versus others. Colonies where land was more valuable and where the governments kept a strict cap on the total supply of money fared better.

Furthermore, much like DAI aims to maintain parity with the US dollar — the colonial notes issued via the Land Bank system aimed to maintain parity with the Britsh Pound Sterling.

In New Jersey, Pennsylvania, and New York the peg did not deviate much. Pennsylvania’s currency was kept at a rate of 1.34 to 1 in 1723, 1.5 to 1 in 1729, and 1.79 to 1 in 1739, with New York and New Jersey following a similar trajectory. This proves how effectual the system was in the middle colonies, relatively speaking.

Others, like the Carolina’s and Rhode Island where land was less valuable and the Colonial governments issued too much money, did much worse. The devaluation in North Carolina was 10–1 and in South Carolina, it was 8–1.

As a way of keeping the public’s confidence in the notes, the colonial governments limited the total supply of money to a fixed amount. They also limited the loan amount that any individual person could borrow — usually set at 100 pounds.

There was also the matter of the interest rate to contend with. Private money lending practices in the colonies were usually around 8% and so to create more favorable borrowing conditions for their citizens the Colonial legislatures set lower interest rates for Land Banks. “Most of the colonies set the interest on land-bank loans at five percent, but Maryland charged only 4 and Connecticut but three percent.”

Did the MakerDao team channel colonial spirits?

Those of us familiar with MakerDao will immediately recognize the similarities between how DAI is created and how the Colonial Land Bank system worked. Of course, the impetus and objectives are different, as well as the implementation, but at its core, it is the same basic idea.

As is often said about the cryptocurrency space, it’s not that we are inventing anything new, just new ways of implementing things in a more efficient and transparent manner.

Single Collateral Dai allows people to use their Ether and to lock it up in a Collateralized Debt Position (CDP). Once the Ether is locked they can draw out DAI (a stablecoin pegged to USD) against it. And much like the Land Bank System, CDP’s holders can only draw a portion of new funds against the collateral, in Maker’s case 150% ratio must be maintained between the underlying collateral and the outstanding DAI loan. This restriction wasn’t as strictly enforced in the Land Bank System as it is in MakerDao, but the general rule applied; colonialists could only draw out new paper money at a value around one half the amount of the land they put up as collateral.

The difference, however, is the DAI stablecoin has the intended benefit of being codified in smart contracts on the Ethereum blockchain. Therefore, hard rules such as triggering a liquidation event if the underlying collateral falls below the 150% threshold are automatically executable via the distributed code contracts. The magic of the blockchain makes having a public office of appointed officials handling the loan operations a thing of the past.

Compared to the Colony-specific interest rates that arose out of the Land Bank System, it will be interesting to see how a similar occurrence might play out in MakerDao when other currencies besides USD enter into the system, especially in the context of Multi-Collateral DAI where different Stability Fees will be set for different collateral types and their corresponding currency peg. For example, Gold, Silver, and Platinum backed “DAI” pegged to CNY, or Zcash and Monero backed “DAI” pegged to JPY (I put quotations around DAI because the name will likely be different when the peg changes to currencies other than USD).

The Colonial Land Bank system took a hit when Great Britain passed the Currency Act of 1751 to prevent any further devaluation of colonial currencies to the pound sterling.

But Benjamin Franklin would end up advocating for a Continental Land Bank as a way to replace the wildly unpopular Stamp Act in an attempt to stave off political unrest and public contempt for the British (at this time Benjamin Franklin was still pro British). It was an attempt that would ultimately fall short but the legacy of Colonial Land Banks presents a fascinating epoch of American History that deserves more attention.









8.Thayer, Theodore. “The Land-Bank System in the American Colonies.” The Journal of Economic History, vol. 13, no. 2, 1953, pp. 145–159. JSTOR,

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Hunter Gebron

I'm a content designer, strategist and I run a blockchain UI/UX design studio