Welcome to the future of decentralized transactions.
The purpose of Fundamental Coin is to facilitate the greater usage and acceptance of cryptocurrencies as an alternative form of payment by providing a system of incentives that support the business goals set for the token, creating a token that provides access to a network of local payments. The FUND token allows financial gateways, developers, and service providers to make payments, exchange between currencies, and provide additional services that address local communities’ needs, thus providing an alternative to traditional financial institutions. Moreover, the goal of community currencies is to be a store of value for local communities, connecting consumers and businesses.
|2. GUIDING PRINCIPLES FOR THE FUNDAMENTAL COIN (FUND) NETWORK AND PROPOSED ARCHITECTURE||5|
|2.1 THE BUSINESS MODEL AND STAKEHOLDERS IN THE FUND NETWORK||6|
|2.2 NETWORK CAPABILITIES FOR ISSUERS AND GATEWAYS||9|
|2.3 PROPOSED ARCHITECTURE OF THE FUND NETWORK||9|
|2.3.1. Products and services layer||10|
|2.3.2. Clients Layer||11|
|3. THE ROLE AND DESIGN OF COMMUNITY CURRENCIES||12|
|3.1 THE ISSUANCE OF COMMUNITY CURRENCIES||13|
|3.2 THE PROVISION OF LIQUIDITY FOR COMMUNITY CURRENCIES||14|
|3.3 THE USE OF COMMUNITY CURRENCIES AS REWARDS FOR ECONOMIC ACTIVITY||16|
|5. Legal Considerations, Risks and Disclaimer||19|
|APPENDIX A — MATHEMATICAL EQUATION FOR THE MECHANICAL MARKET-MAKING CONTRACT||22|
|APPENDIX B — MATHEMATICAL FORMULATION OF THE ISSUANCE OF A COMMUNITY CURRENCY AND THE LOCK-UP OF INITIAL RESERVES||25|
|Issuance with issuer’s own funds||25|
|Issuance with investors’ funds||25|
The Internet is making its way into every part of our lives. With the speed of adoption increasing, technical barriers are being lowered and we find our physical and digital lives beginning to integrate, creating a huge impact, especially on millennials. They are the first digital-native generation to be born into this world and the largest generation in history-significantly larger than the baby-boomer generation, and are expected to be in control of 24 trillion dollars of the world's wealth by 2020. They are more likely to live in cities, they own fewer cars, and they choose their brands based on values like ethical sourcing, social justice, and environmental effects. They are looking for meaning, and often find it in making a positive impact on the community around them, thus creating a demand for financial community ties.
Technology is dramatically changing the way millennials make payments and consume other financial services. As physical cash is being replaced by digital means, from cards to mobile, they come to expect payments to be quick, safe, cool to use, and available 24/7. This creates pressure on merchants to broaden the means of payments they accept, in an effort to catch up with user demand. This pressure is especially burdensome for smaller merchants in today's environment as they often pay the highest fees for payment processing, making for an uneven playing field for local initiatives.
Moreover, as a consequence of accelerating globalization, the diminishing frictions in cross-border commerce have incentivized corporate rent extraction through cost-externalization and the outsourcing of production. Encouraged by the continuation of open policies on multilateral trade, global supply chains have penetrated domestic markets, resulting in the incremental centralization of capital flows toward multinational organizations.  While the free movement of goods is imperative to open markets, SMEs (small to medium size enterprises) get the short end of the stick, being unable to compete in their native markets. In particular, small businesses with less than 10 employees make up over 93 percent of all enterprises in the EU and account for around two-thirds of employment.  In the US, small businesses account for 99.7 percent of firms with paid employees, and annually contribute almost 40 percent of US private, non-farm output.  Yet, these small businesses often face difficulties accessing capital. A comparison study published by the OECD shows that the share of SME loans in total business loans in 2014 was 22.5% in the UK, 21.2% in the US and France, and 14.2% in Canada. 
Community financial service providers typically provide services to SMEs and consumers based on "relationship banking"; however, they encounter tough competition from large national and multinational financial institutions. Credit unions and community banks play an important role in the US by lending to small businesses and providing access to payments services for a large percentage of the population. However, their share in total deposits and loans has been decreasing significantly over the years.  Credit unions are typically another type of community financial service provider. A study in Canada shows that they retain a higher share of net income to support future growth and investment in creating jobs, that they provide loans through periods where availability of credit is low, and that they lead in SME business lending.
The idea of a community currency as a secondary medium of exchange, store of value, and unit of account has also been around for a while. Community currencies have attracted attention from academics and policy makers alike, due to their unique ability to produce and retain wealth within communities.  These currencies have the potential to increase overall profitability for local stakeholders and to facilitate countercyclical growth cycles and increased social welfare.  Several projects have attempted to establish local payment systems; however, due to lack of sufficient infrastructure these initiatives have failed to provide a secure, liquid, and scalable environment for financial transactions. 
Technological advancements, notably the emergence of blockchain technology, lower the barriers to offering payment processing solutions and establishing local payments systems. While the macroeconomic consequences of issuing digital peer-to-peer currencies remain hypothetical, regulators are exploring opportunities in distributed financial solutions.  As the notion of digital currency manifests itself in private and regulatory institutions, the efficiency, resilience, and accessibility of disintermediated digital payment infrastructure is gaining momentum with a broader audience. The FUND is looking to build an ecosystem that will combine the two changes discussed above-technological and social-by creating a network that supports the evolution of local payment systems, each of which provides incentives to its local stakeholders, while sharing tools and services provided over the entire network.
The current state of payment systems globally, even in well-developed markets such as the UK and the US, is such that the gap between end-user needs, both of consumers and of businesses, and what is being delivered by the current payments infrastructure is growing and creating significant detriment for users, who are demanding greater control, greater assurance, enhanced data, and reduced financial crime.  A recent report by the Payments Strategy Forum in the UK, identifies key requirements that current legacy systems and the entire payment infrastructure must meet: 
The key business goals that the FUND network is designed to support are:
|Financial Gateways||A financial gateway accepts fiat or crypto deposits from users, and acts as a custodian for user FUND’s flowing in and out of the network. A gateway can be any institution, including financial institution, as long as it provides services that accompany the custody of consumer’s FUND’s, such as KYC and other regulatory requirements. Gateways act as entry and exit points for fiat currencies. They are in a position to play a vital role in the network by providing transaction verification and settlement across the network, without a central operator and without reliance on a single gateway. Gateways are compensated for their services in FUND fees.|
|Community Currency Issuers||A community currency issuer uses the tools provided by the FUND network to issue a community currency for its community and provide liquidity for it. This role can be taken by merchant networks, local businesses, consumer clubs, and other entities that have a community of users for which they wish to facilitate consumption, payments, lending, crowdfunding, or credit.|
|Developers and Service Providers||Developers and service providers will build tools and services on top of the FUND network, enhancing its capabilities. The network will support partnerships with products or other networks that complement the FUND network’s services, such as credit providers, credit-scoring service providers, or integrators to legacy networks.|
|Merchants||Local merchants accept fiat payments for the services they provide. Merchants are rewarded in their community currency for transactions that take place at their point of sale.|
|End-users||Consumers pay at merchants’ point of sale with digital fiat currency. They are rewarded in their community currency for pursuing this economic activity on the network.|
Issuers are entities that issue cryptocurrencies and provide them with liquidity. This role can be taken by merchant networks, local businesses, consumer clubs, and other entities that have a community of users for which they wish to facilitate consumption, payments, lending, crowdfunding, or credit. Issuers are at the heart of the network, and they are also in a position to act as gateways, although it is not mandatory.The network will launch with two key functionalities for issuers-the ability to issue community currencies using a template that is easy for developers to use and to provide a smooth exchange between community currencies, as well as ERC-20 tokens, via the FUND token. Both functionalities will be implemented using a set of smart contracts.
A successful token is one with a distribution pattern that creates a system of incentives that support the business goals set for the token. For the FUND, it is creating a token that provides access to a network of local payments. The FUND token allows financial gateways, developers, and service providers to make payments, exchange between currencies, and provide additional services that address local communities' needs, thus providing an alternative to traditional financial institutions. Moreover, the goal of community currencies is to be a store of value for local communities, connecting consumers and businesses.
In the previous section we discussed the network capabilities for issuers and gateways. We refer to these capabilities as the issuer layer. Next, we discuss how the proposed architecture enables two layers of services that facilitate various stages in the payment process to be developed on top of the issuer layer.
Products and services developed by anyone in the community could be integrated to the network as the network is an open-source public blockchain. The development of payment processing capabilities will provide merchants with an easy, bundled API/SDK to collect payments made using all types of payment means, including POS or e-commerce. Payment processing services will also support innovation in advanced payment types-for example, the introduction of recurring payments or of decentralized fiat exchange betweengateways. Merchant services will handle merchant-related operations, such as the generation of invoices or fund withdrawals to the merchant's bank account. Any operation using SDK tools will pay the applicable gateway or service provider a fee in FUND.
The clients layer interfaces with end-users-consumers and merchants. Tokens issued on the FUND network will be compatible with any Ethereum wallet. A key requirement of this layer is that it is independent of the FUND network. The FUND network will incentivize many potential players to build clients on top of the FUND, and it will be attractive thanks to the capabilities it will provide for processing fiat payments and cryptocurrencies. The freedom of clients to bypass the FUND network in order to process payments will drive the FUND network to focus on providing value-added services that reduce the technical barriers and increase usability of payments on the blockchain.
The FUND network lowers the barriers that stakeholders are facing when attempting to launch and maintain a new financial system in their community by providing them with tools and services that make it easier to launch a new digital payment infrastructure and design the growth engines that will make it flourish.
Community currencies that could be issued on the FUND network, may be used to offer incentives to end-users in the community (consumers and merchants) as well as developers and service providers. Thus community currencies could support an organic reward scheme for transactions being made within the community. The community currency will be issued by community gateways, with a transparent supply schedule and distribution rules.
The community currency will serve as an alternative medium of exchange and store of value, allowing users to transact with it freely with any Ethereum-compatible wallet. In order to create a mechanism that allows this functionality, the FUND network will provide two main network tools:
Issuance - Community currencies will be issued as ERC-20 tokens on Ethereum, leveraging Ethereum smart contract capabilities to set and enforce business rules like milestone-based access to funds for issuers. This will remove the current need for users to have blind trust in issuers. Any deviation from, or agreed change in, supply or governance is visible and verifiable by the public.
Liquidity provision - Providing liquidity for newly issued currencies requires major effort, and is addressed by the automatic market-making contract. In order for the community currency vision to be realized there is a need for liquidity, so that supply and demand forces will manifest in the price. This is achieved by leveraging smart contracts' capabilities and by using the FUND as a reserve currency.
Community currencies will be issued by stakeholders within the community. These stakeholders will have a vested interest in the success of the community. Organizations like community banks, credit unions, merchants' associations and the like are potential issuers. We refer to these organizations as community issuers. All communities will be interconnected through the FUND.
Each community issuer can launch a new community currency for its local community. The issuance and allocation process will be transparent and publicly verifiable using an Ethereum smart contract. The currency will be an ERC-20 token that will be compliant with any Ethereum wallet.
As part of the issuance process the issuer locks a certain amount of FUND in an automatic market-making contract. The lock-in of FUNDs releases a portion of community currency tokens to the issuer and establishes an "issuance price" for the community currency. That is, the amount of FUNDs locked in by the issuer determines the initial value of the local community, measured by the product of the amount of circulating tokens and the issuance price. From this point onwards, this price evolves according to the flow of trades sent by anyone to the market making contract. If the issuer chooses not to lock any FUNDs in the reserve of the market making contract, the issuance price is set to zero and all community currency tokens are locked in the contract initially, implying a starting value of zero to the community. Any appreciation in value from this point onwards will be as a result of demand for the community currency, paid for in FUNDs.
In fact the issuer can allow investors to participate in the issuance process and receive community currency tokens in exchange for their investment in FUNDs. See Appendix 2 for a detailed description of the process.
The two reserves established by the issuance process will provide a functionality of exchange, and thus liquidity, for community currencies, without having to list these currencies on centralized exchanges in the early stages, during which the potential value of doing so is relatively small.
The issuance process of a community currency could allow a milestone-based process for the allocation of FUND funds received and tokens issued. This supports an alignment of interests whereby additional community currency is released to a community issuer as the economic activity in the community-measured, for example, by the volume of transactions-increases, in order to cover their growing operational costs.
Once a local payment system, supported by a community currency, is up and running, it will generate value by increasing competition on the price, quality, and variety of services relative to existing means of payment and other relevant services. However, this value will have to be built up over time, and be reflected in the value of the community currency. Consequently, consumers and merchants will likely value the option to exchange a community currency for the FUND network token or for other cryptocurrencies that can be used as means of payment or stores of value. Furthermore, participants may want to convert these tokens to fiat money.
However, it is unlikely that there will be sufficient liquidity for community currencies at their inception. Participants looking to exchange community currencies may not find a counterparty to trade with. On a typical exchange, the price of the asset is determined in response to the supply of and demand for the traded asset, and so the price reflects a willing exchange between a buyer and a seller. While there is no way to mimic the behavior of such an exchange mechanically, the FUND network will provide the community currency gateway with a tool that allows it to act as a market maker for the community currency, from the time of issuance. It will do so by executing exchange transactions automatically using a smart contract according to a preset formula. We will refer to this process as "mechanical market making".
There are a number of important features that a liquidity model should satisfy. First, as argued above, it is important to realize that mechanical market making, predetermined and "set in stone" (or smart contract), cannot mimic the behavior of a real-time market exchange. In fact, hypothetically, were the community currencies to be traded on an exchange, there could be a gap between the exchange rate on the exchange and the one determined by the mechanical market-making contract. Therefore, it is important that the way that the contracts are implemented should not prevent the FUND and the community currencies from being traded on exchanges (other than through the mechanical market maker) or prevent other entities from providing an exchange service in parallel (i.e., function as competing market makers for community currencies). Moreover, the model should not create unfair conditions that would preclude this in practice. Consequently, we find it preferable that the mechanism should not have the authority or capability to alter the amount of community currency issued through the operation of liquidity provision. Otherwise, the ability of the mechanism to issue or destroy tokens in the process and affect the value of the currency could potentially harm the incentives to others to provide liquidity, and could potentially be used to manipulate the exchange rate. Moreover, the more available means there are for arbitrageurs to correct a mis-pricing caused by mechanical market making relative to the market perception, the smaller such possible gaps in pricing are likely to be.
Second, the model should mimic the basic behavior of a market, and therefore should posses the following characteristics:
The goal of community currencies is to be a store of value for local communities by connecting consumers and businesses. Thus we envision that the distribution of community currency will be carried out through purchasing transactions taking place at a brick-and-mortar merchant's terminal, as this form of distribution implements the focus of the FUND network on strengthening economic activity in local economies. To facilitate this, a portion of each transaction at a merchant's terminal will be subtracted from the payment to the merchant and allocated, as a reward in community currency , to the consumer and the merchant involved in the transaction for their economic activity in the community and on the network. In particular, when a consumer conducts a transaction using digital-fiat or crypto-fiat, a portion of the fiat payment will be exchanged to FUND and then to community currency using the market-making contract before being allocated to the parties. The use of the community currency in this manner will allow the network to offer a competitive alternative to traditional financial models.
1 "Dealership Market - Market-Making with Inventory," Yakov Amihud & Haim Mendelson, Journal of Financial Economics 8, 1980.
Transaction flow diagram:
The FUND creates a decentralized network of tools and services that support community payment systems. Through the introduction of community currencies, the FUND network creates a potential link between the economic activity taking place at brick-and-mortar merchants within the community, which is facilitated by fiat payments (whether digital or crypto-fiat), and the distribution of the community currency among stakeholders as a reward for engaging in this economic activity. The FUND network provides a platform for currency issuers and local gateways to support payments for goods and services and provide other financial services. Therefore, community currencies lower the barriers for communities to upgrade their payment infrastructure and reduce costs to intermediaries.
This is a collaborative effort of multiple individuals within the Fundamental Coin team, and involves reviews, comments, and contributions from Fundamental Coin's board members, advisors, and partners. This paper was written by Mark Smargon, Amos Meiri and Dr. Dana Heller from Fundamental Coin and by Dr. OmriRoss and Johannes Jensen, both from Blockchain Labs and the University of Copenhagen. The paper was built on the foundations and contributions of Eden Shochat, Tal Beja, Rotem Lev, and Elad Shabi. Also special thanks-for feedback provided through comments and stimulating conversations-go to Meltem Demirors, Lou Kerner, Prof. Daniel Tsiddon and Prof Dan Ariely, Yaron Klainer, Leon Rossiter, Talia Soen, Joey Azizoff and Oded Leiba.
IMPORTANT NOTICE: PLEASE READ THE ENTIRETY OF THE "Legal Considerations, Risks and Disclaimer" SECTION CAREFULLY. WE RECOMMEND YOU CONSULT A LEGAL, FINANCIAL, TAX OR OTHER PROFESSIONAL ADVISOR(S) OR EXPERTS FOR FURTHER GUIDANCE PRIOR TO PARTICIPATING IN THE FUNDAMENTAL COIN TOKEN SALE OUTLINED IN THIS WHITE PAPER. YOU ARE STRONGLY ADVISED TO TAKE INDEPENDENT LEGAL ADVICE IN RESPECT OF THE LEGALITY IN YOUR JURISDICTION OF YOUR PARTICIPATION IN THE TOKEN SALE. YOU SHOULD NOTE THAT IN THE TOKEN SALE TERMS AND CONDITIONS THAT YOU ARE ACKNOWLEDGING AND ACCEPTING AS PART OF THE PROCESS TO PARTICIPATE IN THE FUNDAMENTAL COIN TOKEN SALE, YOU ARE REPRESENTING THAT YOU HAVE INDEED TAKEN INDEPENDENT LEGAL ADVICE.
 Financial Globalization and Capital Flows Volatility Effects on Economic Growth, Carp, L. (2014).
 European Commission, Annual report on European SME's, 2015/16 .
 Small Business Lending in the United States, 2014-2015, Office of Advocacy, U.S. Small Business Administration. Release Date: June 2017,
 Financing SMEs and Entrepreneurs 2016, An OECD scoreboard, Table 1.4,
 The Role of Community Banks in the U.S. Economy,
The Increasing Importance of Credit Unions in Small Business Lending, by the James A. Wilcox Haas School of Business, U C Berkely, Berkeley, CA 94720-1900,
 Scott, M. and Dodd, N., People Powered Money, Designing, developing and delivering community currencies.
 Lluis, J., Rosa, D. La, and Stodder, J., 2015. On Velocity in Several Complementary Currencies. International Journal of Community Currency Research, Volume 19. Stodder, J., 2009. Complementary Credit Networks and Macro-Economic Stability: Switzerland's Wirtschaftsring. Journal of Economic Behavior & Organization, (2000), pp.79-95.
 The Economic Viability of Complementary Currencies: Bound to Fail. Beat Weber, Oesterreichische Nationalbank (2015).
 Bank of England - Staff Working Paper No. 605 - The macroeconomics of central bank issued digital currencies. John Barrdear and Michael Kumhof (2016 July).
 For the UK, see "A Payments Strategy for the 21st Century-Putting the needs of users first", Payment Strategy Forum, November 2016, p.5,
for the US, see The U.S. Path to Faster Payments, Final Report Part One: The Faster Payments Task Force Approach, January 2017, p.16.
 Payments Strategy for the 21st Century (see previous footnote), p.7.
 NPA Design and Transition Blueprint, Payment Strategy Forum, December 2017,
The mechanical market-making contract is a formula that adjusts the exchange rate between two tokens-the FUND and a community currency-based on the total supply of tokens from each and the state of the reserves in each currency, which the contract controls. The reserves and the price evolve over time in response to demand for the tokens. The formula has a number of desired properties.
Given the total supply of the two tokens S1,S2, the reserves owned by the contract for the two tokens, denoted by R1 and R2, must satisfy at any time the following equation:
We want to define the parameters that an issuer has to provide the smart contract in order tofacilitate a process that: a) issues a community currency, and b) establishes a two-side reserve in the FUND (Token 1) and in the community currency (Token 2). Denote the total supply of FUND by S1 . There are two types of issuance procedures:
Issuance with investors' fundsWhen issuing using this option, the issuer follows certain steps.
Send us an e-mail