Blockchain mutual credit is a framework within which stable cryptocurrencies can be derived from multilateral exchange networks.
What Is a Blockchain Mutual Credit?
Blockchain mutual credit is a framework within which stable cryptocurrencies can be derived from multilateral exchange networks. Actors in this system form a closed exchange network in which an internal unit of account is used to facilitate trade among its members. Participants access lines of credit denominated in this unit of account, use it to purchase goods and services from other participants, and repay their debts by accepting the internal unit of account as a means of payment for services they provide to other participants in the network.
This way, the network’s internal unit of account transforms into an independent, stable currency that drives value from the demand exercised on it by outstanding loans. Since such trading networks generate their own stable money supply, they are able to maximize capital efficiency and offer interest-free liquidity to their participants.
Mutual credit clearing networks predate blockchain technology and have been used by business communities worldwide since the late 19th century. DLT-based mutual credit networks can remove human involvement from risk underwriting, currency stabilization and payment clearing. This way they can grow much faster than their predecessors while constituting a self-regulating, decentralized money supply.
Ultimately, blockchain mutual credit networks can be designed and implemented in a variety of ways, and due to their anti-fragile nature, they are likely to become a standard model utilized for a wide array of purposes.
Blockchain Mutual Credit Process
Each mutual credit network can be configured differently. A network operator, which could be a company, a local government, a supply chain or a cooperative for example, could play the role of the network operator. They create their own rules for how credit and reputation will be assigned, how they will be governed, and what constitutes a default. Once these rules are determined, merchants can onboard into the network, accept credit lines, and start to spend this commodity-backed currency with each other.
Mutual credit networks that want to exchange amongst each other are able to do so based upon their on-chain history which demonstrates network health. Network reserves can be created that allow for mutual credit networks to trade between each other and clear obligations.
Author: Ashley Taylor Buck, founder of ReSource, the world’s first currency system built on Mutual Credit clearing.
Ashley Taylor Buck is a blockchain entrepreneur who joined the early Ethereum community in 2014 with a vision to further social mobility with this new economic paradigm. She co-founded ReSource to empower local communities and small businesses to grow cooperatively by offering credit to each other. Previously she was the first employee of ConsenSys, a Community Microgrid Specialist for LO3 Energy/Brooklyn Microgrid, pioneered the Cyberthreats and UN Sanctions program for Compliance and Capacity Skills International, and founded a community and events space ReGenCy in Brooklyn.
