The transition towards smart cities necessitates innovative and sustainable financial models that integrate technological advancements with long-term economic viability. This study explores the role of financial innovations, including blockchain-based funding, green bonds, and decentralized finance (DeFi), in supporting the sustainable growth of urban infrastructure. Traditional financing mechanisms often struggle to accommodate the rapid evolution of smart city initiatives, making innovative financial instruments essential for ensuring both economic and environmental sustainability. The research is based on a comprehensive literature review and case studies from leading smart cities such as Singapore, Amsterdam, Barcelona, and New York. Blockchain technology facilitates transparent and automated financing through smart contracts, while green bonds and other ESG-focused instruments enhance private sector participation in sustainable urban projects. Crowdfunding and tokenization further enable community-driven investments in smart infrastructure, strengthening citizen engagement and financial inclusivity. After analyzing these innovative financial instruments, the paper aims to propose a simple model to help identify which instrument is best suited to a city’s transition, considering its specific geographical, social, and economic context.