As you are the app owner, a good application topology diagram is in the PPT slides attachment on page 6 and implementation details are in the attachment solidCitizen_IEEEBLESS.pdf on page 3, col. 2. To your specific question, in the proposal use case, the crypto would directly or indirectly be provided by the city. Logistically, either my team, the smart city app team, or the city team could actually directly acquire and deposit the crypto for incentive use.
Key advantages of cryptocurrency to the cities for this use case are in the 5th paragraph of the proposal, page 5 of the IEEE_Smart_Cities_PPT_solidCitizen.pdf attachment, and the Smart Contracts background section of the solidCitizen_IEEEBLESS.pdf attachment.
Several problems that this proposal seeks to address are that cities launch apps that are not used, apps that have loyalty points are often for limited rewards and not transferable, and loyalty point programs require administration.
Cryptocurrency, specifically Ethereum, a smart contract cryptocurrenty (second largest in market cap and longevity after Bitcoin) help address those in the following ways: 1. You touch upon one: Ethereum can be converted to dollars or directly used at a variety of retailers or indirectly used at wider variety of retailers, thus possibly providing a higher incentive. 2. Ethereum provides scripted transfer of cryptocurrency which translates to reduced administration for the city and application owner.