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Zone Out: A new way to own land on Ethereum

What’s Coming in the New Dether App: Part 1.2 — Using the Harberger Tax to create seller zones through continuous auctions

In a series of articles prior to our next release, we will detail upcoming aspects of the new Dether app, including decentralized certification, and what will change in the Dether wallet. In our last Dether app progress update, we detailed the purpose of having a system of zone ownership for sellers and the technical aspects of how we will use a geohash-based system to define them. But how will the property management of these areas take place?

How does the current Dether zoning system work and what needs to change?

Dether is a p2p ether and ERC20 network, where users can buy and sell crypto for fiat in over 140 countries. This means that crypto sellers need to be easy for potential buyers to locate. Sellers must stake DTH to appear on the map as a kind of “insurance” that they’re a serious seller, and they are then placed on the Dether map, indicated by a blue icon as a point of sale.

The current Dether mapping system doesn’t actually use a zoning system for tellers and shops, but a simple lat-lng system associated with a country code, and registered in a smart contract. Using the current solution, the potential Dether seller declares a lat-lng and a country (using country code of two characters). By using country mapping to verify if Dether is open in the country, we can then accept their registration on-chain. While it’s a good jumping off point for the app, it doesn’t meet all of the future needs of Dether. For one, it’s impossible to check if the lat-lng is included in the declared country, which is problematic because the smart contract could be used in an alternative way.

With the current system, users create their own point of sale using a lat-lng system, and are then placed on the Dether map.

This why we plan on using a geohash system to solve zoning issues in the upcoming version of the Dether app.

Once we are able to create zones, how can we decide who gets to claim which zone? What’s the most equanimous way to allows ownership of these zones? That’s where the Harberger tax comes in.

What is the Harberger tax?

The Harberger tax was proposed by economist Arnold Harberger in 1965. With the Harberger tax, property owners would self-assess the value of their property, and pay taxes on said valuation. However, they would in turn have to sell the property at the self-assessed price if anyone wanted to buy, thus increasing incentive to value it honestly. Under this system, buyers can force sales, and property owners can only hold on to their property if they self-assess it at a high value.

Many of Harberger’s UCLA course documents on taxation are available online here.

This self-assessed value would serve two purposes, corresponding to the events of sale and purchase in the Cramton–Gibbons–Klemperer scheme (1987). On the one hand, the owner would be required to sell any asset at the value listed in the cadaster to any buyer willing to pay this price. On the other hand, the owner would pay a tax on the asset at a specified rate.

This concept has more recently been brought into the spotlight by the recent work by Weyl and Posner, in “Property is another name for monopoly” and Radical Markets. They summarize the problem, saying :

“The existing system of private property interferes with allocative efficiency by giving owners the power to hold out for excessive prices.”

According to them, the solution is to “propose a remedy in the form of a tax on property, based on the value self-assessed by its owner at intervals, along with a requirement that the owner sell the property to any third party willing to pay a price equal to the self-assessed value.”

The Harberger Tax and blockchain applications

Vitalik Buterin brought attention to the concept as in Radical Markets, noting how “Ethereum-style smart contracts are ideal for the kinds of complex systems of property rights that the book explores.”

Simon de la Rouviere also wrote an in-depth post citing Harberger taxes as a possible remedy to gaps in economic equality, and the potential for blockchain technology to render certain aspects of the tax more “fair” — namely, the forced eviction that would come from being forced to sell your property. Citing projects like Decentraland, he outlined the possibilities for experimentation in on-chain, closed-loop economies.

Using the Harberger tax in the Dether app

Before getting into a detailed explanation of how the auction system will work, it’s important to define a few terms:

  • Zone: An area of 1,2 km x 0,6 km on a map, based on the geohash coordinates of 6 characters. (If you zoom here, you can see a representation of a geohash of 6 characters).
  • Licensing fees: To be able to own the zone, you’ll need to stake a certain amount of DTH as a license. This amount has a floor price of 100 DTH, and can go up if there is an auction for the zone. There will be yearly taxes taken on the licensing fees. The taxes will go to the tax collector contract.
  • The tax collector: A contract able to handle the taxes taken on licensing fees. (For now, it will only be able to send taxes to the 0x0000 address, but it could later be changed to a DAO address.)
  • Zone owner: An address, which owns the zone in the smart contract. This address has staked the licensing fees, and thus gets the zone ownership benefits.

Zone ownership benefits: When you own a zone, you have:

  • The assurance of being the only seller present in the zone.
  • The possibility of renting space to shops accepting crypto on the map.

How to own a zone when no one else is present

To own a zone that’s free, you’ll need to stake the licensing fees (the minimum being 100 DTH) or add more to discourage other people from entering in an auction for the zone. You can always release a zone and get your DTH back (minus the taxes).

At any time, someone can come and bid on the zone to become the new owner of the zone, and get the associated benefits.

A look at the upcoming auction screens: placing your bid (left) and winning your bid (right)

How to own a zone that’s already occupied

Let’s imagine user A own zone u33d8r (Potsdamer Platz, Berlin). He or she has staked 1000 DTH on this zone, and they’ve owned the zone for two months. User B can come and bid 1100 DTH to become the new owner. They will need first to pay a one time bid fee to start an auction (this mechanism is in place to discourage ill-intentioned people). Then user A, (or anyone willing to enter the auction), can bid more than user B to get the zone over a period of twenty-four hours.

If user A loses his zone, he will get his staked DTH minus the taxes he’ll need to pay in pro rata of time he gets the ownership.The taxes will go to the tax collector contracts.

(**You can find most of the auction function in this solidity file.)

The end result

With this system, we expect to achieve resources allocation efficiency, as opposed to just a property land system. Zones will go to people who could get the most out of it, and not to people wanting to participate in an auction just for speculation purposes. With this, we add the maximum value to the system to the end user. The end-user looking at the map would only see zones with sellers who have “skin in the game” and are willing to act rationally during a trade.

In the next article, we will continue to talk about the improvement to the new Dether Protocol, so stay tuned!

Become a Dether seller today, and start selling ETH and other ERC20 tokens for cash.

Further reading

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