How and why ReSource Reinvented Mutual Credit

A Short Recap

As we have shown in our previous post, the relationships within mutual credit systems do not resemble those we may be familiar with from banks and other financial institutions. Instead of a creditor lending capital (their own, or leveraging customer deposits) to a borrower, mutual credit allows a network of participants to extend credit to each other. However, instead of doing so with money, as it would be the case with a credit union, participants lend their excess capacities (free labour time, unused inventory, etc), and in return can access goods and services provided by their peers.

Collectivised Risk and The Blue Screen of Death

In traditional finance, if a borrower defaults it is mostly the problem of the lender who has made the loan available; other borrowers will in most cases remain unaffected. However, in a Mutual Credit scenario, the default of one borrower may affect all other borrowers, whether they have direct relations with the defaulter or not. This is what we mean by collectivised risk — the entire network is exposed to the risks associated with each individual credit line. This is so since all participants are exposed to the same internal currency minted by the mutual credit network.

Decentralizing Gatekeepers and Re-privatizing Risk

Currency Shenanigans to the Rescue

Currency Shenanigans, but with Extra Steps

Now you may have noticed that buying excess rUSD with SOURCE takes care of the inflationary part of the Blue Screen of Death; but what about the “nothing to buy” part? After all, a borrower’s default still contracts spending opportunities for rUSD holders.

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ReSource

ReSource

A blockchain-based mutual credit network for businesses.