We propose solving the above problem statement by creating local currency and points solutions in partnership with rural Japanese governments and rural Japanese businesses.

Japan is only a starting point, and we intend to reach out to governments across the world to participate in our program, concurrently with this proposal's implementation. In particular, we have extensive connections to one Colombian municipality in Valle Del Cauca, La Victoria, and will be reaching out to establish an MOU concurrently with this proposal's implementation. We intend to create local currencies in Latin America and beyond by starting in Colombia. However, due to possibly varying needs in different locations, this first proposal is focused on building open-source local currency solutions to solve Japanese municipality's needs. While we are eager to partner with any municipality worldwide who is interested, anyone is free to deploy these local currency solutions anywhere, with or without a partnership with Aira.

In particular, we are seeking grant funding for building an open source local currency platform. Our proposal consists of the following:

• A private network of Hydra nodes, hosted by each municipality, publicly accessible through web2 and web3 APIs. For the implementation of this proposal, we are looking to start with one municipal partner, to limit scope.
• A stablecoin-backed Cardano fungible token local currency, and local cashback rewards points. Each local currency is purchasable with Yen (via JPYC fiat on-ramp), but is only (optionally) convertible back to Yen by merchants who receive payment. This is similar to how Suica public transit cards, or reloadable points cards work.
• Points expire after not being used for 1 year, as is standard in the Japanese points industry, to incentivize either spending points in their rural municipality, or performing points investment for later points spending. We have plans to help create local DAOs to govern the spending of these points, but it’s out of scope for this proposal. Therefore, Aira in tandem with local government partners, will determine the usage of expired points.
• A self-custodial consumer wallet application allowing for purchases at Point of Sale denominated in local currency & points
• A self-custodial merchant wallet application allowing to receive purchases at Point of Sale denominated in local currency & points, and optionally receive payment in fiat
• Web2 and web3 APIs to programmatically load money, engage in p2p transfers, pay merchants, and off-ramp into fiat (merchants only).
• Points investment into Cardano-native assets via wallet and API. We have plans to allow the incorporation of local business DAOs (in tandem with world-leading Japanese DAO laws https://www.emurgo.io/press-news/what-is-the-japan-dao-law/), and to allow for points investment in these companies. However, the scope of that project is excessive for this proposal, whilst investing in Cardano-native assets has restrained scope. Note that points investment will necessarily be self-custodial but through restricting smart contracts, as the idea is that any grown points are still ultimately tied to their revitalization region. This will likely be required for government partnership. Users will be able to trade points for Cardano assets, and then sell their position back for points, but will be unable to transfer points outside of the investment smart contracts.
• Consumer wallet and web2 APIs will have authentication/key restoration performed by possession of 2 of 3:
  • Passkey or API secret
  • User cloud storage (iCloud, Google Drive)
  • Local on-device cache
• All software mentioned in this application will be open-source, using a Hydra network to transact
• Please note that the default Japanese L2 network will be self-custodial, but privately run, for consumer privacy and compliance reasons. You will need to KYC to access the default network. There is no such limitation if you self-host your own network and advise your users about current Cardano transaction privacy limitations. For users, this will mean that municipal governments can see your transactions, but only your pseudoanonymous L1 balance is visible publicly.

Societies across the world are struggling with the problem of rural decline. The causes are multifaceted, including deindustrialization, falling birth rates, and agglomeration of industry.

Concretely, this results in reduced economic activity in rural regions, and an accelerating downward spiral. People leave the countryside for better opportunities, and capital is invested in the biggest urban agglomerations to find talent and customers. Japan, Korea, Taiwan, Malaysia, Thailand, Vietnam, and more, have all experienced this problem, and it is likely to continue spreading.

Local governments rapidly lose tax revenue needed to invest in their communities, local businesses rapidly lose sales necessary to build capital to attract customers from further away, and local residents rapidly lose economic hope. Breaking this cycle requires a way to move economic transactions and activity from the capital region into the rural regions.

All parties involved are desperate for the first solution to align them. Looking more specifically into Japan, one of the first countries to experience this rural decline issue:

• Japanese municipalities have actively sought to create local currencies, tax transfers, and incentive schemes in the form Japanese consumers are most familiar, points;all in order to stimulate weak Japanese demand especially in the countryside. The Japanese national government created the Furusato Nozei program, a tax scheme where citizens are allowed to fully deduct a portion of their taxes to donate to rural Japan. The largest portion of this tax donation is made directly to municipal government targets, while a smaller portion is allocated to locally produced gifts to the donator to stimulate the demand, and then a still smaller portion goes to program operator expenses.
• Japanese rural businesses have sought to save on operational expenses in any way possible, and have thus leapfrogged expensive NFC payment systems like standard NFC PoS terminals (1.5-3% fees), Suica (3%), and others, straight into cheap QR code based cashless solutions like PayPay (1.6%-1.98%). Japanese rural businesses have also invested very heavily in CRM systems and points, to bring in local residents and tourists from further away, and loyalty programs like coupons and rewards points, to retain them.
• Japan's points ecosystem is highly developed and rapidly expanding, with a CAGR of 17.1% from 2020-2024 and a current market size of USD$3.35billion. Both consumers and institutions across Japan show strong familiarity with and enthusiasm for points systems.

Cardano has a highly developed L2 ecosystem for state channels, Hydra, capable of handling application-specific transactions at almost no cost. However, Cardano suffers from low transaction volume, low treasury revenue, and almost no real-world industrial Hydra adoption, despite high network reliability, availability, and decentralization.

Cardano, downwardly mobile Japanese businesses, declining rural Japanese municipalities, and financially distressed Japanese workers, all stand to gain financially from shifting demand to the Japanese countryside, directly proportional to newly generated transactions.

Benefits include:

• The Cardano treasury receiving significant revenue
• The Hydra open source community would receive a production-ready predeveloped open-source payment system (including stable coin-backed points systems)
  • Including web2 REST API for payments, and point of sale QR code payments
• Global Cardano community will receive all tooling necessary to launch their own local currencies, with toggleable settings for different regulatory environments and local currency goals.
• Japanese Cardano community would receive municipal government adoption and endorsement. Japanese Cardano user community would expand on the order of millions (Symons right now is ~3M users)
• Colombian Cardano community will receive outreach to potentially receive municipal government adoption and endorsement.
• Via points investment similar to PayPay's crypto investments, the number of Cardano token holders (not limited only to ADA) would grow significantly.
• Expired points reclamation, after one year of inactivity, would benefit Japanese local governments, non-profits, small businesses, infrastructure, and workers. Points expiration is standard in the Japanese points market because it frees up points which can often become inaccessible, encourages prompt point usage, and creates highly active returning customers. However, most points companies remove all of these points from circulation. Our proposed platform recirculates them back into local communities, creating a self-sustaining local circular economy. We will work jointly with local governments to determine the usage of expired points in the deployed system, to ensure unique local needs are prioritized.
• Increased business revenue in rural Japan would directly benefit rural Japanese governments, businesses, and workers.

Please note: These deliverables may be subject to change, depending on real-world deployment requirements.

We intend to divide development along the following deliverables:

• Local currency smart contracts, pegged to a stablecoin selected at compile-time. Smart contracts will allow you to toggle if exchanging is bidirectional or not, who can exchange, and perform the actual exchange itself. Local currency smart contracts will also have configurable expiration, which the default network will use to automatically expire points after one year of inactivity. A settings UTXO per-region configures protocol parameters such as: addresses able to spend expired points, expiration duration, whether exchanging is bidirectional or not, conditions necessary for exchanging. 1 month
• Network node software which runs a Hydra node. This includes a turnkey hosting solution for municipalities, which might be too small to have sizable IT staff: 2 months
• Self-custodial consumer wallet application: 1 month
• APIs to programmatically load money, engage in p2p transfers, pay merchants, and off-ramp into fiat (merchants only): 2 weeks
• Smart-contract-self-custodial points investment platform, allowing investment in Cardano-native assets, including ADA, and also BTC. Similar to PayPay Points Investment. 2 weeks
• Add passkey sign-in to consumer wallet, using Shamir secret sharing to sign in with a key shard stored in any 2 of the following 3 from the following list. 1 month
  • Passkey/local device storage
  • User cloud storage (iCloud, Google Drive)
  • Aira’s servers
• A self-custodial merchant wallet application allowing to receive purchases at Point of Sale denominated in local currency & points, and optionally receive payment in fiat: 1 month
• Smart contract audit: 1 month, but this will occur concurrently with the rest of the proposal, as it will be performed by an external organization. We have some partners in mind, but are very open to new proposals from any reputable Aiken contract auditors.

Daily wages

1. CTO: ¥75,000
2. Manager, sales, and government liaison: ¥75,000
3. Project manager, sales, and business liaison: ¥75,000
4. Bilingual (JP-ENG) full-stack developer: ¥50,000
5. Designer (UI/UX and graphic design): ¥30,000
6. JP frontend developer: ¥35,000

Duration of work:

1. CTO: 140.0 days
2. Manager, sales, and government liaison: 125.0 days
3. Project manager, sales, and business liaison: 85.0 days
4. Bilingual (JP-ENG) full-stack developer: 90.0 days
5. Designer (UI/UX and graphic design): 60.0 days
6. JP frontend developer: 70.0 days

Additional flat cost for external audit: 30,000 USD = ¥4,400,000

Given the above time estimate breakdown and total time estimate (7 months), total funds requested are:

(75,000*140 + 75,000*125 + 75,000*85.0 + 50,000*90 + 30,000*60 + 35,000*70) + 4,400,000 = ¥39,400,000 = $264,798 = 530,000 ADA

We believe this is highly competitive compared to western project development costs. We do not believe a project of this scope with such broad mutual benefit would be possible with lesser funds.

This proposal has been updated as of April 7th, due to rapidly fluctuating Yen-USD and USD-ADA exchange rates, in light of recent international economic and geopolitical events. This proposal has further been updated on May 2nd to account for auditing costs.

The value has been updated to ensure project completion regardless of future currency valuations.

We will need 7 months to meet the goals above, with the following team:

1. Elaine Cardenas (CTO, developer, product manager)
2. Manager, sales, and government liaison
3. Project manager, sales, and merchant liaison
4. Bilingual (JP-ENG) full-stack developer
5. Designer (UI/UX and graphic design)
6. JP frontend developer

Elaine Cardenas, CTO @ Aira, previously:

• Head of Product @ Socious
• Developer & product manager @ Sundae
• Developer & product manager @ Obsidian
• Computational astronomy researcher @ Caltech

I'm a long time Hydra contributor, starting back during my time at Sundae, where I was previously responsible for:

Hydra ledger-only mode: https://sundae.fi/catalyst-proposals/hydra-ledger-only-mode

Hydra transaction stream plugin: https://sundae.fi/catalyst-proposals/hydra-tx-stream

Comprehensive Specification Development for Gummiworm Protocol [Sundae's mobile-friendly L2] on Cardano: https://sundae.fi/catalyst-proposals/gummiworm-spec

At Socious I was responsible for:

https://socious.io/wallet, an Atala PRISM backed SSI solution for holding employment and education record VCs

ShinID.com a no-code enterprise SSI solution for verifying credentials

Open source Midnight smart contracts for contracting work payment escrow: https://projectcatalyst.io/funds/13/cardano-open-developers/open-source-smart-contract-library-for-midnight-catalyzing-midnights-developer-ecosystem-with-ready-to-use-smart-contracts

At Obsidian I was responsible for:

Maintaining Starbucks' rewards points program. Specifically, I was fully responsible for their internal marketing campaign creation software.

At Caltech I was responsible for:

Research combining X-ray and infrared optical data to compute astronomical measurements (galaxy cluster centers) with higher precision.

$SIPO (Shigeki Tabira):

• Consultant at Symons
• 6th biggest DREP globally
• Stake pool operator

Tabirasan was responsible for Izanami Project, a previously funded and complete Catalyst proposal where Symons researched web3 points solutions, which developed the base business model for Aira. Now, we will spinoff the business model researched by the Izanami whitepaper, into its own business entity. Catalyst project: https://projectcatalyst.io/funds/8/grow-east-asia-grow-cardano/expands-to-1000cities-in-jpapp, whitepaper: https://izanami.systems/wp-content/uploads/2022/04/SymonsLab_The_Izanami_Project_Whitepaper_Light_Version_Ver0_8BetaVersion.pdf

Aira will use this platform in perpetuity, therefore, we plan to perform indefinite maintenance ourselves.

All our code will be published as open-source for free utilization. However, because this proposal is intended to achieve real-world goals and not simply wait for adoption, we must partner with local governments. Our team has a history of partnering with over 15 municipalities in Japan and has a very good working relationship with Japanese municipal governments, so we don't think this is particularly high risk.

We need a Cardano Yen stablecoin in order to pay merchants in fiat. For our proposal, we currently plan to wrap JPYC from Ethereum, in order to limit scope.

We intend to use CIP-0143 for programmable assets once practical to implement points expiration. We are not blocked on it for the scope of this proposal, since designing the entire protocol allows us to keep UTXOs locked in an expiration contract with user spending permissions. However, it would make external integrations with our platform simpler, since without CIP-0143, our points will not show by default in most third party wallets. It would also make it faster to build credibility and gain adoption with the national government.

For KYC purposes, it would be ideal to get J-LIS JPKI CRL revocation data directly from the government. But because regulatory approval can take around 6 months, we plan to do KYC via third-party means.

We will need to audit this proposal before putting it into widespread production usage, but not before open-sourcing it. We have some audit partners in mind at the moment, but are open to new proposals. Auditing will occur concurrently with implementation of the proposal, paid for by this proposal, but performed externally to make sure we have as many eyeballs on our code as possible.