Zones for Employment and Economic Development were an experimental approach to addressing Honduras’ endemic poverty, violent crime, and corruption established by the country’s government in 2013. Commonly known as ZEDEs (Zonas de Empleo y Desarrollo Económico), they were custom designed to incentivize the creation of charter cities, which would be allowed to operate under their own tax codes, regulatory structures, and legal systems. An antidote to the corrupt and incompetent Honduran state, the theory was that ZEDEs might create a stable legal and political environment to attract foreign investment, provide Hondurans jobs, and increase the country’s tax receipts. But in a surprise decision last month, Honduras’ Supreme Court ruled ZEDEs unconstitutional, prohibiting the creation of new charter cities and implying existing ones could be retroactively declared unconstitutional.

On the heels of former Honduran president Juan Orlando Hernández’s arrest by his political opponents, the Marxist husband and wife duo Manuel Zelaya and Xiomara Castro de Zelaya, the ruling leaves Próspera, a semi-sovereign charter city home to 235 startups, over 950 employees, and 1,700 citizens — and with over $100m in funding from investors — in existential limbo. If the Supreme Court does decide that existing ZEDEs are unconstitutional, the Honduran government could effectively renege on its 50-year legal stability agreement included in the law establishing ZEDEs — and designed to provide investors enough confidence to fund Próspera — leaving the city’s backers founders, backers, startups, residents, and employees high and dry.

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.

“When I first visited Próspera,” resident and founder of Vitalia Niklas Anzinger told me on the phone in early October, “it exceeded my expectations. There was already so much going on there. There were startups doing gene therapy and building factories with robots and drone delivery. It seemed like nobody knew about it, which really surprised me. I thought this was something that could really change the world.” Like many who have ended up there, Anzinger first became familiar with Próspera by reading ‘Prospectus on Próspera’, a 2021 article by Scott Alexander. Against the backdrop of extreme poverty, political corruption, and rampant violence, Honduras has struggled to attract investment that would spur sustained economic growth. But if we imported regulatory operating systems from successful countries like the US, Alexander wrote in the piece, could they eventually replace Honduras’ broken system and lift the country out of dysfunction?

At its founding, Próspera spanned 58 acres on Roatán, a 49-square mile Carribean island off Honduras’ northern coast. Located between a fishing village and a golf course (itself larger than Próspera), the city aims is to be more than a single physical location — Prósperans often use the metaphor “string of pearls,” per Alexander — by establishing several noncontiguous enclaves throughout Honduras which operate on the Próspera “platform.” To join, those interested simply sign the “Agreement of Coexistence” — a social contract stipulating members freely consent to the governance structures of the city — pay a membership fee ($260/ year for Hondurans, $1,300 for foreigners), and establish Honduran residency, with which Próspera attorneys assist.

Próspera is a radical testbed of experimental and innovative regulatory systems that seem designed to ‘find’ legal frameworks that maximally buff political liberty and startup creation. Governed by a Technical Secretary and overseen by a Council of nine people, five of whom are elected and four of whom are appointed by Honduras Próspera Inc. (HPI) — the corporation that operates Próspera ZEDE — a simple 51% majority of residents can overturn any decision the council makes in a referendum within seven days of the law’s passing (or a 66% majority thereafter).

The city’s civil regulations operate under a “pick a country” system, which allows residents to choose legal frameworks from a list of “Best Practice Peer Countries” under which they’ll operate their businesses. Trey Goff, Próspera’s Chief of Staff, gives the example of a real estate developer choosing to build a skyscraper using Houston, Texas’ building code, which has no zoning but a set of ordinances to follow. Likewise, Próspera’s drug approval reciprocity with all OECD countries is a clever framework for ensuring its residents have access to the most effective drugs. Alexander explains:

If a drug has been approved in an OECD country (eg by the FDA), it’s approved in Próspera… Amisulpride is a great antipsychotic, probably better then most of the ones we use here. It’s approved in Europe, the UK, Australia, Israel, etc, where many studies have shown it’s safe and effective. Because none of those studies were done in the US, the FDA refuses to approve it here, and has demanded several hundred million dollars worth of more studies, which the company involved has chosen not to do.... Meanwhile, bupropion (“Wellbutrin”), the fourth-most prescribed antidepressant in the US, isn’t approved for depression in Britain; the subset of patients who respond to this medication and nothing else are out of luck. Próspera will be one of the only places in the world where patients will have access to amisulpride, bupropion, and all the other medications that one country or another is restricting because “it wasn’t invented here”.

Taxes at Próspera are the lowest in the world: according to the city’s charter, income taxes can’t exceed 10%, total taxes will never be more than 7.5% of GDP, and the total debt can’t go above 20% of GDP. 12% of tax revenue goes to the Honduran government; the rest funds municipal services. By Honduran law, 90% of employees hired in the city must be Honduran citizens, and the city’s startups, new housing developments, resorts, and mixed-use towers have created jobs in knowledge work, construction, security, and hospitality, providing meaningful, stable income in communities where that was difficult to come by.

Próspera’s flexible regulatory framework has created fertile ground for innovators to work freely on world-changing ideas. One example is Anzinger’s Vitalia, an accelerator working on “making death optional” by advancing progress in life-extension technologies. Taking advantage of Próspera’s legal environment, Anzinger and the companies he works with are able to iterate more quickly than traditional industry players. “We doubled down on health and biotech,” Anzinger told me. “That’s where I saw the strongest product market fit for Próspera, because there is an enormous backlog of drugs and therapies that are developing way too slowly under the FDA.”

Other companies at Próspera are experimenting with next-generation technologies to define how humans exist in the future. Symbiont Labs is “helping people become self sovereign cyborgs” by creating cybernetic subdermal implants that can do anything from start a car to control smartphones. Minicircle (valued at over $100 million) is “testing the safest and most advanced gene therapy platform ever developed,” which can add genes to the human body without altering the existing genome. The Global Alliance for Regenerative Medicine offers stem cell treatment and ​​Targeted Osmotic Lysis therapy, a non-invasive treatment that targets cancer cells. It was created and is operated by Dr. Glenn Terry, an orthopedic surgeon who served as the Head Physician for the U.S. Olympic Committee at multiple Olympic Games.

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.

Alongside the antagonistic media coverage in the US, Próspera and ZEDEs have been the subject of a years-long campaign by leftist, anti-free market Honduran politicians who argue ZEDEs are colonialist projects imported by “regimes of privilege.” At the heart of the campaign — which ultimately culminated in jailing their political enemies, ending Honduras’ extradition treaty with the US so they themselves couldn’t be prosecuted for collaborating with the country’s drug cartel, and outlawing ZEDEs — sits husband and wife duo Manuel Zelaya and Xiomara Castro de Zelaya, the former and current presidents of Honduras, respectively.

The story of the Zelayas’ political hold on the country, and how they ultimately became the ‘anti-ZEDE’ candidates, is worth briefly exploring. In 2009, soldiers stormed the presidential residence in Honduras’ capital Tegucigalpa, detaining and ultimately deposing Manuel Zelaya in a coup d’etat. He was exiled to Costa Rica, but returned clandestinely later that year.

Following the coup, President Porfirio Lobo Sosa took office and made ZEDEs legal in 2013. By 2014, his successor Juan Orlando Hernández was in charge of the country; his administration aggressively promoted ZEDEs as a path forward for Honduras. In the country’s 2021 elections, Castro de Zelaya (wife of Manuel), who campaigned on reversing the corruption that had taken root in Hernández’s administration, as well as repealing ZEDEs, defeated Hernández’s successor Nasry Asfura (Hernández was termed out).

A month after Castro de Zelaya took office, Hernández was arrested by Honduran authorities at the request of the US government for accepting bribes from an infamous Honduran drug cartel, cocaine trafficking, and weapons charges. A month later, ZEDEs were repealed, and that same day, Hernández was extradited to the United States, where he currently serves a 45-year prison term. In August of this year, two weeks before a video circulated of Castro de Zeleya’s brother-in-law admitting to accepting bribes in 2013 from the Los Cachiros drug trafficking cartel on behalf of the Zelayas, implicating her in a massive corruption scandal, she unilaterally ended Honduras’ extradition treaty with the US, ensuring that she herself will not be extradited to the US as long as the treaty remains void.

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.

“As a novel determination, it is entirely possible that there will be remedial limitations that protect investment in Prospera ZEDE,” Nick Dranias, HPI's General Counsel told me. “Additionally, the pursuit of legal remedies to overturn the decision both in the Court and in international bodies make it entirely possible that the ruling will be nullified or suspended. The Supreme Court's ruling should not be and cannot be the final word because no one who was injured by the ruling was a party to the case.”

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.

As Próspera’s executives wait for the Supreme Court to decide whether ZEDEs will be made retroactively unconstitutional, which could effectively end the Próspera experiment, Goff described the feeling on the ground in the city — and the path forward. “Until the ruling is published, nothing is changing here,” he said. “We’re committed to following the guidance from our legal counsel to ensure we’re in full compliance with the law, but for now, there is a feeling of determined optimism. We recognize what is going on and the threat we’re under, but we are soldiering forward to make sure our mission and vision of catalyzing prosperity for Hondurans is fulfilled regardless.”

— Kevin Chaiken

Update: this article erroneously reported Peter Thiel, Balaji Srinivasan, and Marc Andreesen directly invested in Próspera. We've removed the error. Additionally, we added commentary from HPI's General Counsel, and clarified some nuance around Próspera's corporate and governance structures.