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Great question, I'm no expert in those, I wrote this as a thought experiment.

If I had to guess, I might speculate that having an auction mechanic could allow the bonds to be sold at a more competitive price, and being on-chain fungible might create a more liquid market, again, mostly about helping price reflect willingness to invest, competitively.

Maybe bonds could be structured that way too, I mean since y requires the city to back it with water, it really is just a city loan, I'd be curious to see why municipal bonds haven't already been deployed here, maybe lack of city credit?

There's definitely a market mechanic difference between securitization and tokenization. One is backed by profit returns, the other is simply a service voucher. I think some great research could be done here on the real differences, it's tough.

For one thing, a token holder is incentivized to see the project succeed. They won't just be insured and paid out if it fails, and so there's both an alignment aspect there and a more competitive market for an investor to flip a profit.

I wonder if this would result in lower overall costs to the municipality or what. Maybe unfair to use a desperate case like Flint as a laboratory, I'm just looking for things that might help.