Playing the long game

The story of Octavio Sanchez and the long fight to create zones of governance experimentation in Honduras.

“Humans are inherently good, but they’re born into systems that are broken,” said James of Ârc one morning after breakfast while we were discussing the trajectory of networks states. It’s a sentiment that drives a lot of the founders that embark on the long and arduous journey of trying to make governance and community systems that are “better” – whatever they determine better to be.

In the months since, I have thought a lot about that quote. I’ve seen it reflected in a lot of the discontent with current systems inside and outside the world of network states. People approach it differently - some attempt to provide alternatives that sit outside of mainstream governance on blockchains, others choose to focus on their immediate vicinity, building small scale communities of friends, building new real estate projects focused on walkability and nature.

So what would “better” look like to you if you woke up in a position to materially change things? Would you go into it full swing and attempt to implement systemic change? Or would you go about it incrementally?

This was the question that faced Octavio Sanchez, the chief political architect of Honduras’ controversial ZEDE law – a law that has allowed for the development of Prospera and its layer 2 network state Infinita City, on the island of Roatan, Honduras.

The idea and the idealist

You might recognise this train of thought from “Petri Dishes” , a piece I published a few weeks ago that looked at medieval charter cities and their potential for IRL governance experimentation. Now, I’m going to take you through the real world example of Sanchez and his attempt to implement this theory into practice.

Sanchez was young and idealistic when he came into office. Since his teenage years he had been percolating futuristic policy solutions, going so far as to write a science fiction book at age 16, imagining government bulletins from Honduras in 2050.

His core conviction was that Honduras’ poverty was a problem of institutions. “Many all over the world,” he told NPR in an interview from January 2013, “don’t understand we are poor not because we are dumb; we are poor because of institutional arrangements, not because of lack of capacity to imagine things.”

By 2002, while working under future President Porfirio Lobo Sosa when Lobo led the Honduran Congress, Sanchez had begun advancing the idea alongside American development consultant Mark Klugmann. Together they envisioned a Hong Kong-style zone within Honduras, a place where better rules could prove themselves before spreading outward. The idea simmered for nearly a decade, waiting for the right political moment.

That moment came unexpectedly. A 2009 constitutional crisis, in which the military exiled President Zelaya for attempting to extend his term, reshuffled the political deck entirely.

Lobo Sosa won the election that followed, and Sanchez was sworn in as his Chief of Staff in 2010, finally holding the executive leverage to turn decades of thinking into policy. He and his colleagues were facing the tall task of changing the trajectory of what was then described as a “failed state.”

A modern charter

In 2010, Sanchez and Lobo Sosa along with National Congress President (and future President) Juan Orlando Hernandez sat down in Miami with Paul Romer, a celebrated economist who had championed the idea of bringing back charter cities during a TED talk in 2009.

“The real challenge then, is to try to figure out how we can change rules [...] if we can find ways to give more choices to both, that will give us a set of rules for changing rules that get us out of traps.

If you try to change the rules in the nation, you can’t give some people a chance to hold back, see how things turn out, and let others zoom ahead and try the new rules. But cities give you this opportunity to create new places, with new rules that people can opt in to. And they’re large enough to get all of the benefits that we can have when millions of us work together under good rules.” Romer had said.

Shortly after, the administration presented the idea of Regiones Especiales de Desarrollo (Special Development Regions) or REDs, quickly followed by the introduction of a law in July 2011. REDs signed off significant governance authority in special zones to attract investment and growth, much like other charter cities which came before. They were to be overseen by a Transparency Committee, which Romer announced he would lead.

The dream of the REDs was, however short lived. Following the revelation that an agreement had been signed without the Committee’s knowledge, Romer and four others resigned. While others involved said the Transparency Committee was not yet officially appointed and therefore the move was justified, in October 2012, the Honduran Supreme Court deemed REDs unconstitutional, and they were no more.

As we now know, that was not the end of Honduras’ special economic zone development, nor of Sanchez’s determination. Dismissing the Supreme Court defeat as a matter of internal politics rather than genuine public opposition, he, along with jurists Carlos Pineda and Ebal Diaz pushed for a new constitutional amendment. The ZEDE (Zone for Employment and Economic Development), was adopted the following year along with a new oversight committee called CAMP - Comité para la Adopción de Mejores Prácticas (Committee for the Adoption of Best Practices) of which Carlos Pineda became the secretary. The committee consisted of 21 global members, 4 of which were Honduran.

With renewed fervor, Future President Orlando Hernandez campaigned heavily on the ZEDEs’ benefits and in 2017 Prospera was born.

Despite the authorisation, ZEDEs have been mired by controversy throughout their existence, with Prospera in the middle. Repealing the ZEDE law became a focal point of President Xiomara Castro’s 2021 campaign and during her tenure were subject to a number of votes to repeal.

The 2025 Honduran election became a nail-biting peak, off which the future of ZEDEs and Prospera could topple. Ultimately, Trump-backed Nasry Asfura won the vote, officially embracing the ZEDE model in early 2026 and securing Prospera’s future.

Bringing in charter cities to the present day

Sanchez’s journey with the ZEDE law that would allow the development of charter cities is a useful case study in what it actually takes to implement the structure for cities experimental governance to prove their case. Although founders now say there is much more appetite from global leaders to embark on this process, Honduras’ swings between acceptance and rejection demonstrate the rocky ground they have to navigate.

“Part of what’s unique about the Honduras program is that it wasn’t outsiders. It was their initiative. They created the laws and Octavio was critical in all of that,” says Patri Friedman in a call with me on the way to the airport. Friedman is leading the Liberty Acceleration Summit from 26th-28th March (next week) in collaboration with Infinita City of which Sanchez will be a key speaker. After the summit, he is hosting a “founders retreat” for network state project leaders, a more closed event that founders can apply to join.

“I’m really excited for him to come to an event finally and get some credit,” Friedman continues. He sees the summit as a chance to “celebrate the beneficial elections, celebrate Octavio and bring together Latin American officials,” who are interested in Honduras’ journey with the charter city model and special economic zones.

The summit itself is particularly focused on Latin American development as a whole – “Socialism is receding in Latin America. But will this be another cycle of the same old swings between right and left, or is this the time for real, lasting change? Could Latin America even be leading the world in liberal governance? The ingredients for a New Latin American Liberty are there, and they’re coming together at this summit.” reads the event page.

Talks include discussions on the geopolitical climate in the region and mainly feature leaders from the charter cities and network states movements, although Peruvian economist, Hernando de Soto is earmarked for a conversation in the morning of the first day.

Whether Honduras ultimately proves to be a replicable model for governance reform or simply a story of one unusually persistent insider navigating a uniquely chaotic political environment remains an open question. The ZEDE experiment is still young, its long term impact on ordinary Hondurans still unclear.

What Sanchez’s journey does demonstrate is something more modest but arguably more useful, that structural reform of this kind doesn’t move on ideas alone. It moves on relationships, timing and an almost irrational willingness to start over.

The summit next week will frame Honduras’ journey with ZEDEs as the beginning of a Latin American moment. That may be optimistic. But then again, so was a sixteen year old in Honduras writing policy bulletins from the future.

This week’s newsletter was sponsored by Infinita City.

Food for thought

• If you’re free next week and fancy a trip down to Roatan, theres still a few spots left to attend the Liberty Acceleration Summit. Patri’s founders retreat which takes place after is also open to application – I’ve met some of the people going and it sounds like it’s going to be great. If you (like I) are not able to attend, Infinita City will be posting recordings of the talks from the summit shortly after.

• If you’re not aware of Paul Romer’s approach to charter cities, take a few minutes to listen to his TED talk from 2009, it explains the theoretical basis behind many of the network state approaches that are being taken today. If you have time to go into 2009 governance ideas a little more, Paul Collier’s TED talk on post-conflict recovery within nations goes even deeper.

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FAQ Section

Q: What is Honduras’ ZEDE law and how did it come about?

A: The ZEDE (Zone for Employment and Economic Development) law is a Honduran constitutional amendment that allows designated zones to operate under distinct governance structures, with the aim of attracting investment and testing alternative institutional arrangements. It was developed by Octavio Sanchez, who served as Chief of Staff under President Porfirio Lobo Sosa from 2010, after an earlier version — the Special Development Regions (REDs) law — was struck down by the Honduran Supreme Court as unconstitutional in 2012. Sanchez had been developing the underlying concept since the early 2000s alongside American development consultant Mark Klugmann, drawing on economist Paul Romer’s charter city framework. The ZEDE amendment was adopted in 2013 with a new oversight body called CAMP, consisting of 21 global members.

Q: What is Prospera and where is it located?

A: Prospera is a ZEDE located on the island of Roatan, Honduras. It launched in 2017 following the passage of the ZEDE constitutional amendment and operates with significant autonomy from standard Honduran law, including its own regulatory and legal frameworks. Infinita City is described as a “layer 2 network state” built within Prospera’s structure. Prospera has been consistently controversial: repealing the ZEDE law was a central plank of President Xiomara Castro’s 2021 campaign, and the zone’s legal future remained uncertain until the 2025 Honduran election, when Trump-backed Nasry Asfura won and officially embraced the ZEDE model in early 2026.

Q: Who is Octavio Sanchez and what role did he play in Honduras’ charter city experiment?

A: Octavio Sanchez is a Honduran politician and policy architect who served as Chief of Staff to President Porfirio Lobo Sosa and is credited as the primary driver of Honduras’ special economic zone legislation. His interest in institutional reform began in his teenage years — he wrote a political science fiction book at 16 imagining government bulletins from Honduras in 2050. His core argument, articulated in a 2013 NPR interview, was that “we are poor not because we are dumb; we are poor because of institutional arrangements.” He navigated two rounds of legislation, a Supreme Court defeat, multiple repeal attempts, and more than two decades of political turbulence to bring the ZEDE framework into existence.

Q: How do charter cities relate to the network state movement?

A: Charter cities and network states share a foundational premise that governance can and should be tested in bounded, opt-in environments before being adopted more broadly. Economist Paul Romer, whose 2009 TED talk influenced Honduras’ RED legislation, argued that cities allow new rules to be trialled without forcing an entire nation to adopt them simultaneously. Network states extend this logic into digital and community-first contexts, sometimes anchored on blockchains, sometimes in physical communities. Prospera’s relationship with Infinita City, described as a layer 2 network state built within the ZEDE, represents one attempt to layer these models. Patri Friedman, who is leading the Liberty Acceleration Summit in late March 2026 in collaboration with Infinita City, sees Honduras as evidence that governance experimentation can originate from within a country’s own political figures rather than being imposed externally.