I'm on the record expressing my deep skepticism of charter cities, “could countries,” “network states,” Seasteading, and all other such libertarian-flavored exit proposals. Though I'm sympathetic to libertarian goals and principles, I’m convinced these approaches are unfortunately unworkable. As I wrote in a 2021 post:

So cloud countries suffer from the same problem all other projects—seasteading and the new city Prospera—suffer from. They cannot work long term because they cannot defend themselves and are, therefore, not sovereign.

Unfortunately, libertarians often underestimate the importance of sovereignty—likely because it’s inextricably linked to violence and war. Take charter cities like Prospera: Their basic model involves negotiating agreements with poor, corrupt governments—in this case, Honduras—who control beautiful territory. The arrangement gives Prospera operational autonomy and legal independence and promises Honduras a share of the city's tax revenue in exchange. In theory, this creates a mutually beneficial equilibrium.

In practice, these agreements rely on corrupt governments that have demonstrated a chronic inability to act in their own long-term interests. After all, if the government of Honduras was reliable and rational, we wouldn’t call San Pedro Sula the murder capital of the world.

Charter cities find themselves forced to stake their existence on deals with some of the least trustworthy and most volatile governments imaginable. What happens when such a government decides to demand a larger share of revenues or ignore the contract? Prospera is now facing the very real consequences of failing to adequately address this fundamental issue:

Just this week, armed police officers forcefully closed an office building within the Próspera ZEDE, evicting a Texas-based company that employed nearly 40 Hondurans and demanding a $480,000 extortion payment to reopen. The culmination of a decades-long internecine conflict marked by coups, political exiles, drug trafficking, and all-out political warfare, the Honduran government’s new stance on ZEDEs may not only jeopardize hundreds of startups and jobs, but ironically could reintroduce the very political instability the former Honduran government sought to avoid by making ZEDEs legal in the first place. Today, as city founders reel from the Supreme Court’s decision — and the surprise closure of one of their buildings on Wednesday — they continue to wait for the Court to decide if the law underpinning their existence will be deemed unconstitutional.

What's important to note is that this happened while Prospera was merely an experiment—far from a fully functioning city where ordinary people conduct their daily lives. Imagine how strong the incentive for such a change of heart would be if Prospera were a thriving city with beautiful buildings.

This precarious foundation simply cannot support the development of a genuine city. Creating something real and lasting—to accumulate cultural and material capital—takes not only time and energy but also the fundamental security that these investments won’t be arbitrarily destroyed. In such an unstable environment, who would choose to build and own rather than merely rent? Yet it's precisely those long-term builders—people with genuine skin in the game—who are essential to creating a real city.

If everyone merely rents and leaves at the first sight of trouble, you end up with what I described in my 2022 critique of Balaji's Network State proposal:

Even if such a zone could be created within the U.S. [or as in this case Honduras], it would not be a new sovereign state, but a place where people can take all the drugs they wish. In short, it would be a recreation of Burning Man.

Honduras' new government has now shut the party down, but Prospera is still fighting:

Próspera officials maintain HPI has strictly adhered to Honduran law since the city’s establishment. In December 2022, the corporation filed claims in the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) against Honduras, accusing it of violating its 50-year agreement with HPI and seeking damages of up to $10.8 billion. Earlier this year, Honduras left the ICSID, joining Bolivia, Ecuador, and Venezuela as the only four countries to leave the arbitration body.

Even if Prospera wins its case, what leverage does it have if Honduras simply refuses to pay? Sanctions? Against Honduras? Funny. This brings us back to the inescapable question of sovereignty—or to put it bluntly, “You and what army?”

Even if Honduras were to fully reverse course—returning Prospera's buildings, offering apologies, and providing compensation for damages—the trust would be gone. The illusion of security has been shattered. Everyone now understands the stark reality: everything built in Prospera could vanish overnight without warning.

In many ways this problem is analogous to that of centralized social media companies, which various “crypto” projects attempt to solve. On Twitter, for instance, users don't own their accounts in a meaningful way: the platform can arbitrarily ban users, delete content, or change handles. Building an audience or a “brand” is therefore a precarious business—all your work could be destroyed tomorrow. This differs fundamentally from this blog: Nobody can delete the email addresses or prevent me from reaching my audience, nor can anyone seize my domain. As Naval put it, “Building an audience on a proprietary network is building an elaborate castle on sand.” The same applies to building charter cities in developing nations.

(The irony here is that many of these city projects have a strong connection to "crypto"—e.g. Paradigm led the Series A into Praxis—and often use a “blockchain” in some shape or form. Given this, they should be intimately familiar with the dangers of building on somebody else’s unstable land.)

The American Empire To The Rescue?

The only recourse for enforcing Honduras' contractual obligations would be pressure from the United States. As I've previously argued, we live in an era of The American Empire where all nations—except China, Russia, and their respective satellites—exercise only the degree of sovereignty that the US permits. Theoretically, the US could compel Honduras to comply with any demand and resort to invasion if necessary—God knows the US has hardly been shy about military interventions for questionable causes.

Having said that, nothing of the sort will happen, even though the article implies it might:

The United States has been supportive of Próspera and ZEDEs. Senators Bill Hagerty and Ben Cardin sent a letter to the Biden administration criticizing the Honduran government’s repeal of the ZEDEs law in 2022, and some representatives, including Mario Díaz-Balart, Michael Waltz, Paul Gosar, and Maria Elvira Salazar, have expressed support for Próspera, calling for sanctions in response to the attack on the American investment in Honduras, and warning of China’s influence in the region.

This passage reveals a misunderstanding of how the US government operates. If there were genuine US support for Prospera and ZEDEs, senators and representatives wouldn't need to write letters to the administration—actions would already be undertaken. These letters carry approximately the same weight as supportive Tweets. Curiously, the same PirateWires article contains this paragraph:

Since their establishment in 2013, left-leaning US media has been sharply critical of ZEDEs on the sidelines. In 2015, Salon ran the story “Nightmare libertarian project turns country into the murder capital of the world,” which linked the establishment of ZEDEs, where there has never been a murder, to Honduras’ status as one of the murder capitals of the world (the murder rate has declined each year since ZEDEs were established). In 2014, New Republic ran a piece arguing that ZEDEs would allow “illicit groups and mafias,” quoting a prominent Honduran journalist who said, “I’ve seen all sorts of horrific things in my time, but none as detrimental to the country as this.” (Goff is not aware of any gang or mafia activity having ever taken place in his city.) More recently, Foreign Policy published an article headlined “How a Startup-Utopia Became a Nightmare for Honduras,” which frames Próspera’s lawsuit against Honduras, which it brought because the country reneged its contract (more on this below), as venture capitalists trying to “bankrupt” the country.

One of these articles was published by Foreign Policy—while not quite The New York Times, it’s still far more representative of the government's position on Prospera than letters from a handful of legislators. Let’s be clear, the US doesn't and never will support these types of projects in any substantial way. If the government wanted to enable experiments with non-approved drugs or alternative government forms, why not make these zones possible in the US? There's certainly no shortage of available land.

The reality is that the US establishment, and by extension the “international community,” will inevitably oppose such projects—particularly those designed to exit aspects of the “liberal order.” As I explained in my other post:

In short, there are only two ways of being left in peace as a new country: either you don’t bother anyone, or you have big guns so people are scared of bothering you. If you have neither the international community nor big guns on your side, your country is doomed.

The same goes for any charter city.