There have been a few half-hearted attempts to do mutual credit, or business barter on a blockchain, but the only one that has cut any ice at all with me so far is Resource. Founder David Casey was a social entrepreneur experimenting with mutual credit long before venturing into blockchain and he has assembled a team which seems to be committed to honest finance rather than shilling shitcoins. The project is built on the Celo blockchain, which seems to have similar values, counting Charles Eisenstein's book Sacred Economics as an inspiration.
The white paper and their communication in general is done extremely well, expressing the unusual proposition of mutual credit in a language that investors, financial professionals and crypto-heads are likely to understand.
Mutual credit–based currency derives its value from the demand exercised on it by outstanding loans. Each unit of currency in circulation is required by someone in order to pay back a loan denominated in said currency. From this we can conclude that the market value of mutual credit–generated currency depends first and foremost on the ability of the network to enforce debt obligations. Hence, the capacity of the network to assess creditworthiness, collect due loans, and absorb bad debt is what ultimately guarantees price stability.
So the first thing to understand is that Resource is not just doing accounting, like the Credit Commons, but a more complete system of risk management, done of course in a decentralised way through markets. That means that behind a group of traders engaged in mutual credit is a system of underwriting which ensures that if a trader defaults their account is made good by someone who knowingly assessed and accepted the risk - not by the other traders in the network. Furthermore there are a couple of layers of debt absorption within the system before debts are passed into the legal system for recovery.
All this should be contrasted with normal barter systems, which are very widespread (but thinly spread) and which offer no collateralisation - all members carry the default risk of all other members which includes a fraud risk. i think that by tackling that default risk which those businesses bear (knowingly or otherwise), Resource wants to make barter much more common.
All this means that members of the network, in order to be assessed for credit-worthiness, have to submit various metrics including bank account details and online activities, which are then crunched by an algorithm to produce a credit store to guide underwriters. Underwriters then 'stake' tokens with network members in exchange for a share of transaction fees. Then members of the public can stake tokens with any underwriter.
The white paper stresses that all this risk management should lead to the token having a pretty stable dollar price, not because it is a stablecoin - backed by dollars - but because the token price isn't determined by whimsical markets and the state of the network is likely to change only slowly.
When the project managed to acquire a significant investment a couple of years ago I was happy for them but also trepidatious because venture capital can get impatient with these types of projects and push founders to extract money in a way that changes the intention of the project. We'll see about that in another couple of years I guess but for now I have the following questions.
- Of course bootstrapping commercial mutual credit is very difficult, and Resource doesn't seem to be going after the existing market of business barter systems - I'm not clear where they are aiming except that they are making some foray's into less developed countries. Leaving aside questions of colonialism I don't see much boasting about the network's numbers which suggests that despite the interest they have raised from the likes of me and crypto investors and Regenerative Finance hacks, they might be finding it, predictably, difficult to engage business networks.
- In my own attempts to define mutual credit I decided that the mutual element was the risk management. to me, that mutuality is what locates mutual credit in the solidarity economy. I wonder if, by separating the network members i.e. the traders, from the underwriters, that element of mutuality, which exists in traditional barter networks, is lost. What's happening here is that rich people are underwriting, or providing liquidity, or money, in exchange for a transaction fee. Whether the money is used in the trading network to settle accounts directly, or staked and used as a basis to issue trading tokens, is moot.
- While I applaud projects which seek to create less extractive financial instruments, I'm always looking for something much more radical considering the pitiful state of human society and the urgency imposed on us by climate change. For me radical means the collective creation of new forms of capital, whose scarcity is not managed by people with economics degrees and secret handshakes. Although resource is concerned mainly with trade liquidity, rather than investment capital, there's nothing to stop it becoming more radical if its users wanted, and if its investors allowed. I'd be interested to learn what hopes the team has in that direction, even if the information is published!