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  • 01 ReSource Finance
    • Glossary
    • Executive Summary
  • 02 Mutual Credit
    • 2.1 Definitions and Rationale
    • 2.2 History
    • 2.3 WIR Bank
    • 2.3.1 Modern Multilateral Barter Networks
    • 2.4 Mutual Credit on the Blockchain
    • 2.5 The Basic Economic Questions for DLT-based Mutual Credit Systems
  • 03 The ReSource Protocol
    • 3.1 Introduction
    • 3.2 Distributed debt collection and obligation enforcement
    • 3.3 Distributed risk management
    • 3.4 Underwriting and risk assumption
    • 3.5 The Underwriting process - a breakdown
    • 3.6 Ambassadors and network administration
  • 04 Monetary Flow, Reserves, Default Insurance
    • 4.1 Introduction
    • 4.2 Default Insurance
    • 4.3 RSD Savings Accounts
    • 4.4 RSD Autonomous stability and relation to the US Dollar
    • 4.4.1 RSD/USD Soft Peg
    • 4.4.2 RSD on the Open Market
    • 4.5 SOURCE Token Dynamics
    • 4.6 Monetary Buffering
  • 05 Protocol and Network Governance
    • 5.1 Introduction
    • 5.2 Reputation
    • 5.3 SOURCE Governance Token
    • 5.4 Initial SOURCE Allocation and Distribution
  • 06 Application Layer
    • 6.1 Introduction
    • 6.2 The Underwriting dApp
    • 6.3 The Ambassador dApp
    • 6.3 The Pool Aggregator
    • 6.4 The ReSource Marketplace
  • 07 TECHNOLOGY
    • 07 Overview
    • 7.1 Negative Balances & CIP36
    • 7.2 Non-custodial Key Management
    • 7.3 The Marketplace
    • 7.4 Distributed Underwriting and Data Aggregation
    • 7.5 Financial Data & Data Providers
    • 7.6 ReSource Credit Risk Analysis Algorithm
    • 7.7 “Pay with ReSource"
    • 7.8 Cross-network liquidity pools for interoperability
  • 08 Future Industrial Use Cases for the ReSource Protocol
    • 08 Overview
    • 8.1 Telecommunication
    • 8.2 Complex Supply Chain Financing
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  1. 02 Mutual Credit

2.5 The Basic Economic Questions for DLT-based Mutual Credit Systems

In order to realize the enormous potential of DLT-based mutual credit, the following basic economic questions need to be answered:

  1. Distributed credit scoring, underwriting, and risk management

    How to assess the creditworthiness of participants, assign credit lines, and absorb uncollectible accounts while avoiding the establishment of central points of control and failure?

  2. Distributed governance and policy enforcement

    How to set incentives and penalties, and ensure the due repayment of debt, while reducing the reliance on central governance and traditional legal remedies to a bare minimum?

  3. Price and Unit of Account stability

    How to fix the market value of currency units generated by mutual credit systems, within desirable margins, without relying on external reserves or active market manipulation?

    1. How to generalize the value of mutual credit currency units to a point where they can function as universally accepted money outside of the mutual credit network?

While answers to question number two have already been partly developed by the DAO movement and are being continually improved, questions one and three are unique to DLT-based mutual credit applications. Luckily, risk management and value stability are intimately connected problems that, when approached correctly, solve each other.

As already stated above, 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 and the attractiveness of mutual credit–generated money as a universally accepted means of exchange. How this is done on ReSource will be brought forward in detail in this paper.

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