“[T]he crucial importance of the value proposition that mutual credit clearing provides . . . [is] the provision of liquidity to a local or domestic economy, independent of the banking system and without the disruptive and destabilizing imposition of interest.” — Thomas Greco

Mutual Credit - A multilateral exchange network in which endogenously created money serves as medium of exchange. Please refer to chapter two for further definitions.

Endogenous Money - an economy's supply of money that is determined endogenously—that is, as a result of the interactions of other economic variables, rather than exogenously (autonomously) by an external authority such as a central bank, arbitrary commodities such precious metals, or algorithmically as it is the case with Bitcoin and other cryptocurrencies.

The ReSource Protocol - A Distributed Ledger Technology (DLT) protocol, launched on the Celo blockchain, that provides a comprehensive toolbox for the creation of diverse, interoperable distributed mutual credit systems.

The ReSource Network - The first network built on the ReSource Protocol, addressing global small- and medium-sized businesses (SMBs), freelancers, and startups.

Stable Credit - Endogenous money used by participants on ReSource Networks to trade, exchange value, access and repay credit lines. Stable Credits differ from stable coins in the sense that they achieve autonomous, market-derived value stability without having to be hard-pegged to external assets such as fiat currencies.

RSD - A stable credit serving as the ReSource Network’s unit of account.

SOURCE - The ReSource Protocol’s governance token, used to underwrite loans, pay network fees, and participate in protocol as well as network governance. While RSD is native to the ReSource Network, SOURCE serves all networks built on the ReSource Protocol.

The liquidity-extending properties of mutual credit applications have not eluded the for-profit commercial sector. To date, there are several local and a few global mutual credit networks operating worldwide, alongside a long list of cooperatives and nonprofits.

Institutions such as IMS and Itex allow their members to barter their products and services without relying on cash deposits. In contrast to WIR, these networks are normally not categorized as financial institutions, and do not offer credit products, but are typically introduced as means to “save cash” and utilize excess resources.

In the nonprofit sector, local exchange trading systems (LETS) have been extensively employed to facilitate social cohesion and to mitigate the hardship of underserved communities, especially in times of economic downturns. Notable examples are the South African CES (Community Exchange System), which at its peak served members in over 99 countries, and the multiple LETS networks in the UK and continental Europe.

Mutual credit theory has its origins in the social turmoil of the mid- and late-19th century, in which the industrial relations that would come to shape the following decades started to assume their modern forms. Comparable to the contemporary atmosphere, those times of rapid technological innovation were characterized by radical social shifts and resulting tensions, which lead to a plethora of groundbreaking new ideas and reformist movements.

Among those breaking new ground were a group of forward-looking theorists who may have had little influence on the politics of their day, but who came to shape the groundwork of both progressive and conservative lines of thought for centuries to come.

Thinkers such as Pierre-Joseph Proudhon, William Batchelder Greene, Benjamin Tucker, and others proposed a series of nonviolent and mostly voluntary reforms that aimed to cure the social ills of their time. Their reforms relied on free associations and markets based on mutually beneficial relationships, rather than on state-sanctioned institutions and the industrial relations they seemed to impose. This movement became known as the Mutualist movement, and one of its most cherished ideas was what is known today as mutual banking.

While mutual banking had been proposed in various forms, the role Mutualists assigned to their banking proposition was to restore what they perceived to be the original function of markets as an arena for the equal, voluntary, and free exchange of goods and services. To rid markets of their feudal and colonial heritage, Mutualists argued, money had to be reinvented as an instrument that favored mutual trade over the preservation of the power dynamics created by artificially scarce mediums of exchange, such as gold and fiat currency.

Although rejected by the authorities of the time and rebuked by both the political left and right, Mutualist Banking initiatives were partly adopted by the American Labor movement, and later inspired the credit unions and banking cooperatives prevalent on both sides of the Atlantic today.

While limited in scope, examples such as WIR, IMS, Itex, and the multitude of LETs around the globe demonstrate the potential of mutual credit as a solid foundation for stable currencies designed to facilitate trade. The example posed by WIR, in particular, elucidates how a mature mutual credit system naturally evolves into a commodity-backed currency system, proven to be resilient to systematic financial shocks, often outperforming officially issued fiat currencies.

From the history of mutual credit, we also learn that treating credit as both a natural consequence of and a requisite to production, trade, and consumption radically improves its impact on both the economy and society at large.

However, traditional mutual credit initiatives, as they are described above, are normally closed systems with rigid membership structures, operating under tight central control. This naturally limits the scope of these networks and the utility of the currencies arising from their activity. It also delegates an enormous amount of control to the operators of these systems, which, over time and with expanding ambits, tend to develop the same dynamics as traditional banks.

Distributed ledger technology is the ideal tool to alleviate these shortcomings. Given recent developments in decentralized finance—such as novel stablecoin designs, automated market–making, decentralized insurance, digitally transferable legal debt contracts, and other “money Legos,”—and in conjunction with distributed governance schemes, new, groundbreaking mutual credit applications can be envisioned.

Using Blockchain technology, currency units arising from the activity of mutual credit networks can be rendered into universally accepted money, which transcends the confines of a closed-loop, membership- based market. Such a development would allow clients of mutual credit to access “real-world” liquidity, akin to loans available in traditional financial markets, at rates and terms no bank can compete with. Moreover, and maybe more importantly, a stable asset, deriving its stability from the organic market forces posed by mutual credit networks and the commodities traded within them, would revolutionize decentralized finance.

To date, available forms of “Blockchain money” comprise speculative assets (such as Bitcoin, utility and governance tokens) and assets artificially pegged to an external currency (such as Dai and Tether). A mutual credit–based stable asset would be the first native form of “internet money,” independent from national currencies while achieving stability by virtue of its own internal dynamics.

Recent developments in algorithmic underwriting, staking-based insurance models, and reputation-based governance allow mutual credit to expand above and beyond the scope of a single venture, project, or startup. The time is ripe to develop mutual credit as a universally accessible protocol layer, which will provide liquidity, a medium of exchange, and a store of value that is native to the internet itself, independent of state-run or corporate entities.

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.

In traditional finance, the role assigned to banks is that of a “prudent lender,” at least theoretically speaking. While leveraging the aggregated capital of the public to issue loans, the required level of prudence is achieved because uncollectible accounts automatically convert into liabilities on a bank’s balance sheet. Endless complexities of modern risk-repackaging schemes aside, exposure to this threat is what is supposed to balance banks’ profit-motivated tendencies to be less-than-prudent creditors.

In traditional mutual credit scenarios however, neither the profit motive nor the peril of being held accountable for bad debt exercise material pressures on the behaviour of mutual credit system operators. Rather, a morally based commitment to the health of the community is what drives the decisions of the ecosystem’s administrator. Failure to manage these systems vigorously can, and often does, result in a runaway accumulation of unpaid debt, and hence a dramatic excess in circulating currency units, which ultimately leads to their collapse.

The goal of ReSource is to reintroduce the economic incentives driving for-profit financial institutions to assess creditworthiness, extend credit prudently, and assume the required levels of risk, while distributing these functions among participants of a mutual credit network, rather than centralizing them under the roof of one profit-motivated entity, such as a bank—or a blockchain startup, for that matter.

Since the ReSource Protocol lends itself to different levels of distribution and decentralization, protocol mechanics support different levels of distributed risk management. In a fully decentralized scenario, the roles of verifying credit scores, underwriting loans, and assuming risk fall on willing members of the network itself. Naturally, these services are rendered voluntarily in return for a share of network proceeds, and they are supported by a series of automated processes to reduce human error.

In intermediate stages of decentralization, underwriting roles may fall to specialized entities partaking in the network. However, the Protocol mechanics to facilitate the former and latter stages are the same. This is comparable to the Bitcoin protocol as a “peer-to-peer electronic cash system,” which was designed to operate in an environment in which most address holders serve as miners, but which has attracted specialized mining farms in its mature state.

Consequently, risk assumption is a role within the ReSource Protocol that can be occupied by anyone willing and able to do so, much as mining is a role within the Bitcoin and Ethereum protocols. As will be explained hereafter, the process of risk assessment and underwriting will be assisted by the Protocol’s underwriting algorithm. The actual assumption of risk, meanwhile, falls on network participants, who will be able to take on this risk via various SOURCE staking mechanisms and pools. (SOURCE is the network’s governance token, used to underwrite credit lines and pay network fees. Its token economics will be elaborated on in the chapters that follow.)

With the onset of the Great Depression and the economic and social turmoil of the interwar period, classic Mutualist credit solutions were invoked again, this time out of sheer necessity. In 1934, battling currency shortages and financial instability, the Swiss businessmen Werner Zimmermann and Paul Enz founded WIR, a mutual banking cooperative based on Mutualist economist Silvio Gesell’s Free Money Theory.

WIR started off with merely 16 members transacting goods and services in a multilateral barter network. Today, WIR counts 62,000 members and issues its own private currency under the official ISO 4217 code CHW. WIR today is an established financial institution, serving businesses in hospitality, construction, manufacturing, retail, and professional services. While Gesell’s Free Money guidelines have been omitted from the cooperative’s charter, CHW remains, up to this day, a living example of a mutual credit–based currency.

One of the more impressive features of the WIR project is the way it demonstrates how a successful mutual credit system eventually matures into a commodity-backed currency.

WIR extends virtually interest-free credit to its members under their guarantee to offer equally priced goods and services to other cooperative members by accepting CHW as the means of payment. To collateralize these loans, members often have to surrender part of their inventory to storage facilities maintained by the cooperative. This way, CHW is functionally backed by the goods and services produced by the businesses that use it.

The ReSource Protocol provides a comprehensive toolbox for the creation of distributed mutual credit systems that 1) grant participants access to cost-effective credit at extremely competitive terms, 2) further collaborative commerce, and 3) give rise to "Stable Credits" - a new kind of stable currency that derives its stability and value from organic market forces.

At the heart of ReSource lies a multi-sided lending system that allows businesses to extend credit to each other in the form of goods provided and services rendered. Effectively, this means that participants in the system can access each other’s goods and services in exchange for guarantees to provide their own equally valued goods and services to other participants in the network.

This cyclical trade model is made possible through a series of DLT-based instruments. These instruments distribute underwriting processes and risk management while generating a self-regulating currency (Stable Credits) in which credit is extended, cleared, and settled. This currency arises endogenously from the system’s debt cycle: it is minted when debt is created and destroyed when it is redeemed. This ensures that the supply of currency units always matches the demand exercised on them by outstanding loans.

The capabilities of the ReSource Protocol can be adapted to various use cases. The Protocol may accommodate the needs of closed-commerce mutual trading communities as well as for-profit, permissionless open-market applications. The ReSource Network, as the first application built on the ReSource Protocol, is a blend of both. It primarily addresses global SMBs, freelancers, and startups.

In short, the ReSource Network offers participants access to an extremely cost-efficient credit line in the form of an overdraft-enabled current account. Balances on this account can then be spent to purchase goods and services offered by other participants.

This mutual credit–enabled trading network lays the groundwork for a suite of products offering mutual credit services to businesses and individuals in business-to-business and, later, business-to-consumer scenarios.

The ReSource Network utilizes an instance of the ReSource Protocol, which will eventually be governed by a DAO (decentralized autonomous organization) consisting of its asset holders and stakeholders. The ReSource Protocol allows for the creation of additional instances, which may differ from the instance described in this paper in terms of the stable credits arising from their operations, their credit policy, and their internal network dynamics.

While functioning independently in every essential way, these trading networks have means of interacting with each other in ways that maximize mutual benefit while preventing the overspill of risk from one network to another.

In the context of the ReSource Network, default is defined as a member maintaining a negative balance for more than 6 consecutive months (adjustable by governance). As previously mentioned, such a scenario does not result in a creditor having lost their investment, as would be the case in the context of traditional credit lines. Rather, default within in the context of mutual credit results in the following consequences that need to be addressed:

1. Contraction of supply A member failing to redeem their negative balance essentially deprives the network of the goods and services the member has committed to provide in return for credit consumed. A prolonged negative balance indicates that a member has extracted more than they have contributed. The implication is that the member’s peers have provided more than they have gained.

2. Inflation Since RSD is created when loans are issued and destroyed when debt is redeemed, unpaid debt results in an excess of RSD that needs to be absorbed to maintain monetary equilibrium.

Unaddressed, contraction of supply conjoined with inflation would result in a stagflationary environment that could bring the trading network to a standstill. To avoid such a scenario, the ReSource Network offers SOURCE-based mechanisms to remove RSD from circulation if necessary, while reimbursing members with positive RSD balances for lost purchasing opportunities.

As will be explained in the following chapter, holders of positive RSD balances will be offered RSD savings plans which yield SOURCE rewards. In return for these rewards, RSD deployed into savings accounts are exposed to demurrage deductions in cases in which RSD needs to be removed from circulation in order to preserve monetary equilibrium.

This mechanism alleviates the above-mentioned default consequences in the following ways:

1. Deflation RSD demurrage charges will be sterilized and taken out of circulation.

2. Supply Substitution While the internal supply within the ReSource Network contracts as a result of defaults, SOURCE rewards paid to RSD savers allow members to purchase goods and services on the open market in return for the goods and services they have provided to their peers on the ReSource Network.

The SOURCE required to fund the above-described reward/reimbursement scheme stems from the following sources:

1. Transaction fees A portion (adjustable by governance) of all transaction fees flow to RSD savers as described in the following chapter.

2. Confiscated Underwriter stakes The ReSource Network requires Underwriters to stake 20% (adjustable by governance) of the size of an underwritten member’s credit line. If the respective member defaults, this deposit is confiscated and distributed among RSD savers.

3. Ambassador penalties Ambassadors are fined when members affiliated with them default. These fines are subtracted from their transaction fee income.

4. Debt sale proceeds Debt contracts of defaulting members are sold to third parties, which can then foreclose on the defaulting member. Proceeds of such debt-sales flow into the network’s Reserve.

Since mutual credit networks are built around the principle of debt repayment in-kind, they carry additional risks that are absent from traditional lending scenarios. While a traditional creditor anticipates debtors’ ability to repay debt in the same form they have received credit in (fiat currency, in most cases), the administrator of a mutual credit network also needs to trust that goods provided and services rendered by debtors will meet effective demand within the trading network. If a member has consumed credit, but is unable to offer in return goods and services that meet the needs and wants of their peers, they consequently run the risk of default, even if their financial position is healthy on paper. This risk factor tends to become less pressing as mutual credit networks grow in size, but needs to be addressed nevertheless.

As shown above and elaborated on further below, the ReSource protocol provides remedies for cases in which members are unable or not willing to repay debt in-kind. Nonetheless, these recourses are only effective if the overall health of the trading network is upheld. To guarantee such a healthy environment, the administrator of a mutual credit network will often have to engage in proactive deal-brokerage and expand the network’s membership-base intelligently, with diversity and mutually beneficial trade-relations in mind.

The ReSource protocol assigns this role to Ambassadors. Ambassadors onboard new members, provide customer success services and may proactively reach out to members in order to assist them to spend their RSD surpluses and\or rebalance their deficits. Ambassadors perform this service in return for a cut of transaction fees, generated by members they helped to onboard, and hence are financially driven to maximize transaction volume. In return for the privilege of collecting transaction fees, Ambassadors like Underwriters, also share a portion of the network's risk via SOURCE staking mechanisms.

The relationship between Underwriters and Ambassadors is a complementary one. While Underwriters assess a member’s financial risk and price their credit line accordingly as shown above, Ambassadors assess a member’s ability to contribute to the trading network in meaningful ways and assist them in maximizing the utility they gain from and contribute to the network.

For the purpose of clarity, we will from now on refer to the network’s stable credit as RSD and focus on its specific token economics. Please be reminded that RSD is the stable credit arising from the ReSource Network. Other mutual credit systems built on top of the ReSource Protocol may design different stable credits with a variety of soft and/or hard pegging mechanisms.

While all transactions between members are settled in RSD, transaction fees are settled in SOURCE, the Protocol’s governance and utility token. These SOURCE payments serve as the basis for SOURCE reward paid out to Ambassador, Underwriter and RSD savers (see chapter 4.3).

As we’ll see below, RSD deployed into savings plans, in conjunction with SOURCE stakes provided by Underwriters and Ambassadors, serve as the basis for the network’s currency stabilization mechanism and its insurance against defaults.

Holders of positive RSD balances will be offered RSD savings plans. RSD deployed into saving plans remains spendable and is not subject to any form lock up period.

RSD deployed into savings plans accrues SOURCE rewards which stem from transaction fees paid by members. In return for these rewards, RSD savers carry a portion of the network’s credit risk.

In case of a default among ReSource members, demurrage charges will be levied on RSD savers to recover the lost debt, remove excess RSD from circulation and restore monetary equilibrium. The required demurrage charges which will be imposed on RSD savers in proportion to their risk settings and savings amount.

SOURCE Reimbursements

On top of consecutive SOURCE rewards (stemming from transaction fees), RSD savers will also be eligible for SOURCE reimbursements. Each RSD demurrage debit will be accompanied by a SOURCE reimbursement, paid on top of consecutive SOURCE rewards. These reimbursements are sourced from Underwriter/Ambassador stakes which have been confiscated due to the member’s default that made the demurrage charge necessary.

**Mu·tu·al Cred·​it [myo͞oCH(o͞o)əl ˈkre-dit] - A multilateral exchange network, in which endogenously created money serves as medium of exchange. Mutual-credit money comes into existence as a result of a transaction between two parties in the form of a corresponding credit and debit on the balances of the parties involved. As a result, the total amount of money deposits within the system always matches the total amount of deficits. While definitions may vary, such a credit system is considered to be fully mutual if debtors and creditors are essentially the same people and frequently switch roles. **

A mutual credit network begins its life cycle in a zero-deposit state in which no money exists within the system. At this stage, all participants are assigned empty accounts, which can be overdrafted up to a predetermined sum.

Consider the following example in which Alice, Bob, and Carol have all been assigned empty accounts.

Money is introduced into the system once a participant, Alice, decides to purchase an item from another participant, Bob. When she does so, a deficit is created on her account and a deposit appears on Bob’s account.

In the same way, Carol overdrafts her account in order to purchase an item or service from Alice. This returns Alice’s balance to zero.

If Bob now decides to purchase an item or service from Carol, his deposits will be remitted to her, covering Carol’s deficit while returning both of their balances to zero. At this stage, the network will return to its equilibrium zero-deposit state in which no debt, and hence no money, exists within the system.

Money created via this mutual debt cycle retains its value by the fact that each money-unit in existence is required by someone within the system in order to close their debt; hence, the supply of money always entails matching demand. The global limits of this elastic money supply are determined solely by the number of participants within the network and the amount of debt each is allowed to consume. Consequently, the created money supply continuously contracts and expands to meet the changing demands of the economy it serves.

Socio-politically speaking, mutual credit systems tend to morally equalize borrowers and lenders. They significantly reduce the capability of lenders to rent out artificially scarce currency units to the borrowers. According to the logic of their proponents, these mutual-credit systems expose capital to the same form of market competition to which all other goods and services, such as labor, are subjected.

The purpose of the ReSource Protocol is to address and answer the basic economic questions for DLT- based mutual credit systems, while providing a flexible framework within which different kinds of mutual credit systems, serving a multitude of diverse use cases, can be established.

While mutual credit systems built on top of ReSource may differ significantly in terms of purpose, scope, monetary dynamics, and loan policy, they all share core elements such as 1) endogenously created stable credits, 2) overdraft-enabled current accounts, 3) distributed underwriting and risk management, and 4) distributed debt collection and obligation enforcement.

Participants may engage with the ReSource Protocol in one or more of the following four roles:

The nature of these roles and their contribution to the ReSource Protocol will be elaborated on in the following chapters.

Naturally, as stated above, distributed risk management and debt collection are the most sensitive and novel aspects of the Protocol. The general logic driving these aspects will be introduced in the following chapters. The exact mechanics facilitating these processes, the required token economics, and their implications will be elaborated on thereafter.

Within the context of the ReSource Protocol, the importance of duly repaid debt stems from concerns relating to monetary stability and moral hazard more than from the need to recover lost capital.

It should be kept in mind that, since the ReSource money supply is borrowed into existence when members take on loans, lost accounts do not result in a creditor having lost their investment. Rather, lost accounts create an excess of stable credit units that need to be absorbed, and an environment in which debtors may choose not to pay their debts in kind, thus contracting the available supply of goods and services within the trading network, and hence reducing spending opportunities for members with positive balances.

The sterilization of excess stable credit units, and thus monetary equilibrium, is ensured by a fee-payments-based insurance model, which guarantees the availability of reserves necessary to reabsorb uncollectible accounts and to reimburse members who could not find reasonable spending opportunities within the trading network.

However, this insurance policy, which will be elucidated in the following chapters, is naturally not sufficient to impose the required levels of debt discipline. To reduce defaults to an absolute minimum, and thus ensure the health of the network, defaulting debtors need to face appropriate penalties, among them legal action and foreclosure. These penalties are ensured by a market for lost accounts, which strongly incentivizes specialized third parties to uptake legal action against non-paying debtors.

Since the ReSource Protocol is not dependent on recovering lost capital from bad debts, the Protocol and its participants are in the privileged position of offering debt contracts to third parties cheaply. These third parties then enjoy significantly above-market margins when suing debtors. This is facilitated via public auctions in which debt contracts are sold to the highest bidder in a “Dutch Auction” format. Proceeds from these sales flow to the network’s reserve pool, further fortifying the system’s resilience and liquidity.

It is important to note that, despite original debts being denominated in the system’s stable credit, third parties acquiring debt contracts can sue debtors for the same amount denominated in fiat currency. Hence, default converts a member’s stable credit debt into debt denominated in fiat currency, owned by a specialized third party in their own jurisdiction.

This way specialized third parties can obtain high-quality debt contracts worth thousands of dollars for a fraction of their market value and take legal action, while keeping the majority of the proceeds. At the same time, the network administrators, whether they're operating as a DAO or another kind of organization, are relieved from handling legal operations and may serve members in legally unreachable jurisdictions without exceeding their network’s risk appetite.

The role of risk assumption within the ReSource Protocol falls on network participants who assume the role of Underwriters. In principle, any network participant may occupy the Underwriter role. However, within the context of the ReSource Network, Underwriters are whitelisted entities with proven underwriting proficiencies.

Underwriters analyze new members’ credit line requests and approve them by staking SOURCE, the network’s governance token. This staked SOURCE serves as the Underwriter’s “skin in the game” and will be confiscated in case of a respective member’s default. In return, Underwriters receive a portion of network proceeds, which primarily comprise transaction fees paid by members.

This process is assisted by the ReSource Underwriting Algorithm, developed in partnership with . The algorithm aggregates economic data of new members by connecting to their bank accounts and other traditional data sources, but also takes socially generated data into account, such as activity on social media networks, customer reviews and web2 storefront activity.

Based on the algorithm’s credit score, and their own independent due diligence—Underwriters submit credit term offerings in a competitive auction scenario. These offerings detail the level of transaction fees the new member will have to pay for their activity within the network. Following an efficient market hypothesis, the higher the risk an Underwriter identifies, the higher the transaction fees they are expected to demand from the new member.

To exploit the collective intelligence of the Underwriter network to its fullest, the system calculates a consensus fee on the basis of the offerings of all individual Underwriters. This consensus fee is an adjusted average of all Underwriter fee proposals, while extreme deviations from mean are being discarded.

From the proposals closest to the consensus fee, the lowest is automatically selected and offered to the new member, who can then accept or decline it. This way a market emerges in which the most efficient cost of ReSource credit lines is being constantly discovered and adjusted.

To further diversify risk, delegated staking is introduced, through which the general public can participate in SOURCE Staking Pools and enjoy staking rewards in return for sharing some of the network’s risk.

These Staking Pools may feature diverse instruments, composed by Underwriters, which repackage debt according to the varying risk appetites of the market. These debt packages are then offered on a platform that makes it easy for the public to compare risk scores, default rates, and rates of return, and review the individual identity of underwritten debtors. This secondary market allows Underwriters to extract a portion of their staked SOURCE and reuse it to underwrite additional credit lines.

RSD has not been designed with a hard monetary peg in mind. This means that the ReSource protocol does not guarantee, or intend to guarantee, a fixed exchange rate between RSD and USD. Rather, RSD has been designed to achieve Autonomous Stability - meaning a stable, predictable value, which may fluctuate over time, without demonstrating radical price movements and without incentivising speculative hoarding, long or short maneuvers.

Just as established sovereign fiat currencies demonstrate long-term price predictability without having to be pegged to each other, so does RSD derive its own stability without having to directly reference the USD or rely on an imposed exchange rate. Just as the US Dollar and the Euro are both “stable”, but tend to fluctuate around each other, evolving with the economies they serve, so does RSD retain stability, but may fluctuate in price around the US Dollar.

The mechanism by which RSD achieves this value stability is comparable to the mechanisms employed by sovereign currencies. RSD’s endogenous nature ensures that its supply expands and contracts as a result of market demand, rather than having to rely on arbitrary monetary constraints or reserved assets.

This should by no means be confused with “algorithmic” stablecoins, which use a free floating asset to “absorb” the market movements of a pegged stable one. In contrast to “algorithmic” stablecoins such as Luna\Terra, neither RSD nor SOURCE are minted or destroyed in order to preserve a pegging target, and aren’t directly interchangeable at a set price in order to create an arbitrage mechanism. For more information on the material differences between ReSource Stable Credits and Algorithmic stablecoins, refer to this article.

Instead, RSD relies on a debt-based currency system which ensures that the circulating RSD supply always matches the demand exercised on it by outstanding loans. Since RSD are minted when credit is extended and destroyed when loans are paid back, each RSD in existence is required by someone, somewhere to repay their debt - rendering them inherently valuable without requiring an external pegging target. The SOURCE reserves, stakes and RSD savings plans described in the chapters above secure the credit risk involved in this process, rather than an arbitrary price target.

Monetary history has shown that free-floating currencies preserve stability for longer periods, while encouraging rational, efficient markets better than pegged currencies. With this, RSD is the first form of Autonomous, privately issued money on the blockchain - considering that unstable assets can’t be considered money in an absolute sense, while pegged stablecoins aren’t truly “Autonomous”, but rather rely, by proxy, on the policies of central banks to achieve stability.

While not relying on a “hard” pegging mechanism as described above, RSD does provide a “soft pegging” mechanism, allowing its holders to use the US Dollar as a reference when pricing goods and services in RSD. This soft peg is supported by the following factors:

1. RSD deficits convert 1:1 into debt denominated in US dollars if not paid in time.

2. Staking requirements and transaction fees are paid in SOURCE, but are calculated using USD as a reference. If a 1000 RSD credit line requires a 20% SOURCE stake to be underwritten, this 20% will be calculated using the SOURCE/USD price as a reference. Meaning that a 1000 RSD credit lines would require a $200 stake, payable in SOURCE only. The same holds for transaction fees, which are paid in SOURCE but are denominated as a percentage of the transacted RSD amount.

3. SOURCE reimbursements paid to RSD savers are likewise calculated as if 1 RSD equals 1 USD.

This “carrot and stick” arrangement organically drives members to regard their RSD balances, positive as well as negative ones, as akin to USD balances, and consequently to price their goods and services within the network accordingly.

It should be noted however, that this soft peg is not an absolute necessity. It is completely possible to run instances of ReSource protocol in which the network’s stable credit is completely de-tethered from any external asset.

In the first iteration of the ReSource Network, RSD will not be allowed to leave the confines of the ReSource trading network. This means that RSD will only be transactable among underwritten, KYCed merchant accounts. At this stage, the only ways of obtaining RSD will be either by accessing credit directly or by accepting RSD as a means of payment on the ReSource Marketplace. There will be no way of purchasing RSD on the open market, or selling it on exchanges.

This is important to protect the growing ReSource ecosystem, while also complying with US regulatory guidelines. However, future iterations of the Network will allow wider use cases up to a point at which RSD will be freely tradable.

As explained in the chapters above, the ReSource protocol will not provide an artificial arbitrage mechanism to ensure a fixed trading price for RSD. Rather, a market-based mechanism will organically arise which will drive RSD to maintain within its soft-pegged margins.

As mentioned above, ​​RSD deficits convert 1:1 into debt denominated in US dollars if not paid in time. This makes it so that if RSD price drops sharply, RSD debtors will have an incentive to acquire “underpriced” RSD in order to close their debt position at a discount.

Likewise, if RSD increases in value dramatically, holders of positive RSD balances will be incentivised to sell their holdings, while other ReSource creditors will be incentivised to deepen their debt position, creating more RSD in the process.

Furthermore, RSD savings plans provide additional mechanisms to regulate the amount of RSD on the open market. While saved RSD are spendible within the trading network (in order to buy goods and services from other merchants on ReSource), they will not be spendible outside of it. This means that saved RSD can’t be sold on exchanges or swapped for other currencies. This leads to a situation in which the sale of RSD on the open market is only profitable if and when the arbitrage opportunity on the open market is more appealing than SOURCE rewards paid out to RSD savers.

Again, as emphasized in the chapters above, this is not to create a fixed USD trading price for RSD, but rather to maintain the overall predictability of its anticipated price movements, in order for RSD to maintain its function as a unit of account, used primarily to price goods and services.

Each participant in the ReSource Network may gain Reputation points when acting in ways deemed beneficial to the network and lose them when displaying unwanted behaviors. However, more than an incentive mechanism and measure of desired behavior, Reputation measures a participant’s stake in the network, their dependence on it, and their alignment of interest with it.

Members

Members gain Reputation when:

• Participating in network transactions

• Swiftly rebalancing accounts to zero

• Demonstrating high availability for trading activity

• Receiving high ratings from customer reviews

Members lose Reputation when:

• Remaining in deficit for too long

• Rejecting purchase requests by other members

• Defaulting or making payments late

• Receiving low reviews by other members

• Violating terms of service

Underwriters

Underwriters gain Reputation when:

• Generating below-average default rates of underwritten members

Underwriters lose Reputation when:

• Generating above-average default rates of underwritten members

Ambassadors

Ambassadors gain Reputation when

• Generating above-average default rates of underwritten members

Ambassadors lose Reputation when

• Generating above-average default rates of underwritten members

SOURCE is the governance token of the ReSource Protocol and will, as elaborated above, be used to underwrite debt accounts, and pay network fees. For an overview of the SOURCE token supply and distribution, please refer to the chapter titled “SOURCE Governance Token” below.

The ReSource Network consumes SOURCE through 1) the payment of fees by members, 2) staking requirements imposed on Underwriters.

The ReSource Network emits SOURCE to the market via 1) staking rewards paid to Underwriters, Delegating stakers and 2) SOURCE rewards paid to RSD savers. Excess SOURCE that is not currently required to monetarily stabilize RSD is sequestered within the network’s Reserve.

It is important to note that fee payments and staking requirements are both facilitated via SOURCE payments but denominated in RSD. For example, a member might be obligated to pay a 3% transaction fee. This fee is denominated in RSD but will be paid in SOURCE. In other words, a 100 RSD transaction will entail a 3 RSD fee, which will be paid in SOURCE.

As has been explained in previous chapters (4.4.1), in order to support RSDs soft peg to the US Dollar, the nominal amount of SOURCE required to pay fees and staking requirements is deduced from the official cUSD/SOURCE price. In other words, for the purpose of fee payments and staking requirements, the system regards 1 RSD as being equal to 1 cUSD.

If, for example, the current SOURCE price is 3 cUSD, 1 SOURCE will be consumed by a 100 RSD transaction under a 3% fee regime. If the price of SOURCE drops to 1 cUSD, 3 SOURCE will be consumed by the transaction, etc.

Likewise, staking requirements are denominated in RSD, while using cUSD as a proxy to calculate the required nominal amount of SOURCE. If an Underwriter is, for example, obligated to stake 20% of a credit line’s size, they would be required to stake 200 cUSD worth of SOURCE to underwrite a credit line of up to 1000 RSD. This would be 100 SOURCE if the price of 1 SOURCE equals to 2 cUSD at the time of underwriting.

However, SOURCE price is volatile which means that the staked amount may sink below or rise above the defined staking requirements of 20%. In such a case, the staking contract will either emit excess SOURCE as extra staking rewards or withhold staking rewards, until the staked amount equals to 20% again.

Following the example above, if the price of SOURCE sinks from 2 cUSD to 1 cUSD, staking rewards will be withheld until 100 additional SOURCE have been accumulated within the staking contract to render the staked amount equal to 200 cUSD. Vice versa, if the price of SOURCE rises from 2 cUSD to 4 cUSD, the staking contract will emit 50 SOURCE as rewards, so that the remaining 50 SOURCE equal to 200 cUSD again.

This way, the lower the price of SOURCE on the market the higher the nominal amount of SOURCE consumed by the network and vice versa. As a result, fee payments and staked SOURCE serve as monetary buffers that smooth the SOURCE supply and keep it primarily influenced by the size and transaction volume of the ReSource Network.

For more information about SOURCE allocation, distribution, and supply, please refer to chapter 5.4, “Initial SOURCE Allocation and Distribution.”

SOURCE fulfils three essential functions within the ReSource Protocol:

1. Staked SOURCE carries a portion of the network’s risk, in return for staking rewards.

2. Staked SOURCE grants the owner voting rights on network decisions, as elaborated above.

3. Unstaked SOURCE may be used by members to pay network fees.

Unstaked SOURCE do not carry specific risks associated with credit lines, except the usual risks associated with the holding of assets of any kind.

The means and manner by which SOURCE is staked and by which risk is transferred to SOURCE Stakers is elaborated on in the chapters above. In short, initial risks are assumed by Underwriters, who stake SOURCE to verify credit lines. These risks, and the associated staking rewards, can then be shared with the public via a delegated staking mechanism.

To understand how the ReSource Network consumes and recirculates SOURCE, refer to chapter 4.4, “SOURCE Token Dynamics.”

The total and final amount of SOURCE in existence is 100,000,000 SOURCE. No additional SOURCE will be minted, nor will existing SOURCE be permanently destroyed. SOURCE may be indefinitely sequestered within the network’s Reserve, as detail

The Pool Aggregator is a web-hosted, browser-based application on which SOURCE holders can browse and select Staking Pools created by Underwriters. Staking Pools can be filtered by risk scores, APYs, Underwriters, and other relevant metrics.

The Ambassador dApp features:

• A notification panel on which problematic accounts (non-performing, nearing default) are highlighted and courses of action are suggested.

• A portfolio manager with which all affiliated accounts can be monitored and analyzed.

• A direct communication channel on which members can be contacted.

The interaction of Protocol agents with each other and with the Protocol’s code base is facilitated by a series of decentralized Web3 applications.

The Underwriting dApp allows Underwriters to find new applicants, analyze their credit risk, place corresponding bids, and repackage the accounts of underwritten members into Staking Pools.

The Pool Aggregator allows SOURCE holders to study and select Staking Pools created by Underwriters, stake their SOURCE, and collect staking rewards.

The Ambassador dApp allows Ambassadors to onboard new members, track the activity of existing members affiliated with them, and intervene if suboptimal activity or nearing defaults are detected.

On the ReSource Debt Market, third parties can participate in Dutch auctions in which the legal rights to uncollectible accounts are being sold.

Finally, the ReSource Marketplace scrapes the internet to find all items priced in and sold for RSD to aggregated all purchasing opportunities for RSD holders.

The Underwriting dApp features three main functions:

The Opportunity Feed, to which application details of all new potential members are broadcasted. On this feed, Underwriters can overview all new applicants; access relevant information, such as credit scores and financial statements; and place bids.

The Portfolio Manager, on which Underwriters manage their underwritten accounts. Here underwritten accounts can be packaged into Staking Pools, which will then be automatically offered to Delegating Stakers via the Pool Aggregator.

The Dashboard, on which account details, pool performance, and portfolio performance can be monitored and managed.

The development of the ReSource Protocol is guided by a Swiss association, bylaws of which can be found in appendix A to this paper. This Swiss Association, named “The ReSource Protocol DAO” is mainly concerned with the furthering of the protocol’s code-base and the open-source community developing it, however it may also represent the different networks built on top of the protocol layer while directly governing the ReSource Network itself.

Other mutual credit networks, built on ReSource, will be directed by DAOs representing the network’s stakeholders. The exact terms and scopes of DAO governance may vary from network to network; the terms below[1] describe the ones set for the ReSource Network by the ReSource Protocol DAO.

Decisions concerning the operations of the ReSource Network, such as interest rates, Underwriter whitelists, member acquisition, and reserve policies, will be subject to public votes. Voting rights will be assigned to participants in proportion to 1) SOURCE staked in one of the network’s underwriting pools, and 2) a reputation score.

Staked SOURCE grant their owners asymptotically diminishing voting rights. This means that the first staked SOURCE is counted as one vote, while the second staked SOURCE is counted as 0.90 votes, the third 0.85, and so on. Reputation scores, on the other hand, grant their owners voting rights in direct proportion to their scores.

Since Reputation is a direct, sybil-resilient, and non-transferable result of productive network activity, this hybrid model ensures that the ReSource Network remains governed by its stakeholders and can’t easily be subjected to hostile takeovers.

In order to facilitate trade between members of the network, we created the marketplace interface to allow members to browse and interact within a platform which is typical to that of any marketplace. W designed the system in a way such that other marketplaces and networks could transact between one another,

We built the system to allow for network operators to decide which plugins/extensions or protocols they would include in their offering of the platform. Each marketplace has a unique set of business requirements such that no one platform could meet all of them.

The marketplace acts as a window into the network, housing products and services offered within the network. Each marketplace is merely a curation of items hosted by the network operator. It facilitates the transfer of funds from one member to another and allows trade to take place. Each listing is created and managed by a member of the network. Each member manages the publishing, order fulfillment, price negotiation, and payment of their own listings.

On top of what's been previously discussed, the intention of the ReSource team, with the help of the community, is to develop a fully open-source marketplace interface that future network operators can utilize or use as an example to create and deploy a network of their own.

It is the responsibility of the network operator to maintain and operate their network and marketplace. We have designed the first interface such that for each aspect of a traditional marketplace, we have made possible the option to extend the interface as needed to suit each specific network's requirements.

As part of our goal of financial inclusion and enablement of abundance through blockchain technology, there has typically been a technology gap which has excluded those who are not technically proficient or well versed enough in the use and management of private keys. As a result, we created a hybrid non-custodial key management solution to enable users to access their accounts and wallets with only a username and password, while still allowing for traditional account recovery via a forgot or reset password flow.

Accounts

The account creating process is simple, the user either locally generates a wallet or connects their own Celo-compatible browser extension wallet such as Metamask or Portis. The user then chooses a third-party to play the role of Guardian in the event of account recovery.

Network accounts consists of a 2 of 3 multi-signature wallet

Network Cosigner

• Responsible for confirming relayed transactions

• Operated by the network

Client Wallet

• Can be self-custodied or keys stored via an encrypted keystore.

• Operated and only accessible by the owner of the wallet.

• Used to add new transactions to the multisig to be cosigned by the network operator.

Guardian Wallet

• Operated by third party custodial service

• Responsible for recovery if a member loses control or access of their client wallet

• Incentivized by network to offer guardian service to custody partial keys on behalf of the user

Transactions

Signing transactions are also simple, the user signs a transaction with their client wallet keys and asks the Network Cosigner to the cosign and confirm the transaction.

Recovery

** **If a user loses access to their client wallet, they will generate or connect a new wallet.

After it’s generated, the user sends a request to their Guardian to call the replaceOwner function in order to swap the old client wallet address with a newly generated client wallet. Afterwards, the guardian asks the Cosigner to confirm the replaceOwner transaction.

The ReSource Protocol and Network is only the first iteration of a suite of tools built to allow anyone to deploy an instance of the protocol with ease. We believe in leveraging existing technologies, emphasizing interoperability, and making specific design decisions to ensure the overall ecosystem's health.

Our intention is to provide a launchpad for network operators to deploy decentralized mutual credit networks without the hassle of fully understanding the mechanics of mutual credit, underwriting, credit risk analysis, and overall network dynamics that are required to allow economic systems to exist.

Our goal is to make it as seamless as possible to construct and operate a mutual credit network. The way we envision the process is by providing templates or “plugins" to the protocol that suffice for each operator's particular objectives

Mutual credit systems can be seen more as a dynamic relationship between multiple accounts where a distributed ledger is utilized to keep track of all sent and received transactions within a closed system - simply a distributed IOU. The ideal state of the network at any point in time should be close to zero as the monetary medium is created at the exact moment the transaction succeeds.

Blockchain and distributed technologies are uniquely suited to solve this problem. In order to develop a standard for on-chain mutual credit, we needed to address a few non-trivial problems that deviate away from those of a traditional mutual credit/barter-trade system.

Traditional trade or IOU systems typically allow for a 1 to 1 trade where each side of the transaction must agree that their goods or services are of equal value to the other party's goods or services and if so the transaction can take place.

Examples of this include Facebook marketplace, Craigslist, Offerup, etc. - traditional peer to peer marketplaces. Mutual credit only requires one party to agree that the purchase of a good or service is less than or equal in value to the amount of work done in the network required to payback the purchase.

The selling party can then take the proceeds of the sale and form the same conclusion with any other participant in the network. In order to keep a record of each individual's balance within the network we need a unit of account that could accommodate a negative balance. Traditionally, account balances in decentralized systems only maintained positive balances, thus we created RSD and CIP36

At the core of the protocol lies CIP36 (Celo Improvement Plan) which is a fungible token standard designed to implement and abide by the ERC20 standard but behave like a mutual credit currency.

The key differences in CIP36 vs. ERC20 are:

• The total supply of a CIP36 token is equal to the total amount of outstanding debt on the network. Therefore, the total supply will expand and contract as credit is utilized, but will never exceed the total amount of credit issued.

• CIP36 has a list of members - represented as addresses/accounts. Members are assigned a credit line by a party assuming responsibility for overall network solvency (the "issuer").

• Accounts with a credit line may spend into being some amount of the mutual credit currency (e.g., RSD) to other wallets/accounts that are within the particular network.

• When an account having a negative balance receives a payment, the credit balance is repaid for that amount. If it is fully repaid, the balance rises into the positive.

• Both positive and credit balances implement the ERC20 specification and may be transferred at will. The only stipulation with the credit balance is that it does not exceed the members defined credit limit such that a member with a credit limit of R$100 cannot send another member R$150 unless they have a positive balance of at least R$50.

Example:

1. There are two accounts - A & B.

2. Account A has a positive balance of R$500 with a credit limit of R$1000.

3. Account B has a negative balance of R$500 with a credit limit of R$1000.

4. Account A transfers R$1500 to account B.

5. This consists of a $R500 RSD token burn and a $R1000 RSD token transfer

6. Account A now has a negative R$1000 and can spend a total of R$0

7. Account B now has a positive R$1500 and can spend a total of R$2500

The role of risk assumption within the Resource protocol falls on network participants that assume the underwriter role. The Underwriting Application is a simple dApp that aggregates on/off chain data to derive a protocol-native credit score. In partnership with Teller Finance, we developed an underwriting algorithm responsible for deriving a network specific credit score.

The Underwriting dApp acts as a viewing window into the protocol where the underwriter can stake SOURCE, view financial data of businesses associated with each marketplace/network, create liquidity pools for specific aspects of a marketplace, track their Underwriter portfolio, delegate SOURCE to other underwriters, assume delegated SOURCE, and harvest rewards.

With privacy in mind, Underwriters have access to a subset of a business's traditional on and off chain financial data in order to make informed decisions.

This data is provided by the "Data Provider" role which can be any entity that collects valuable data on a members’ network. This role could conceivably be played by any traditional financial institution, financial technology companies, accounting software, reputation platforms, or software companies that collect data pertinent to underwriting network members.

Each network operator determines who they allow to act as their data provider or providers. The operator will subsequently determine how much or little data they allow their underwriters to gain access to and should choose their provider with that level of privacy in mind.

The data provider should ideally provide data that consists of payment history, amounts owed and repaid, and length of credit history, qualitative social metrics, etc. Each network's business requirements will be unique to network and the data should reflect those requirements.

In the data provider role, there exists two key layers - the source and the analysis. The source is the raw data whereas the analysis on that data is what provides a summation of the sources and generally depicts the overall health of the members in question.

In order to accommodate for existing mutual credit networks, ReSource is developing a "Pay with ReSource" tool to allow these networks to integrate directly into the ReSource Protocol.

The tool mimics that of Google Pay or Paypal, enabling these networks to checkout with ReSource and pay with RSD with a simple drop-in UI.

Process:

• Authenticate with ReSource

• Server vends a JWT

• Client can fetch a key into the local browser instance

• User effectuates transfer of funds ("pay with resource") on the website

• Use the local browser key to sign the transaction locally

• ReSource balance reflects the purchase

With Pay with ReSource, members of both existing mutual credit networks and networks built on ReSource can leverage their inner network balance to purchase outer networks goods and services.

This enables a mutual credit Venmo-like system, where anyone can hold a positive ReSource dollar balance and can spend so long as their balance is above zero. Only those with a credit limit can spend into the negative mimicking that of a gift card.

In partnership with Teller Finance, we've developed the first adaptation of an Underwriting Credit Risk Analysis (CRA) algorithm.

The main goal of the CRA is to give each underwriter a top down view of each member's health in the network and their stickiness. Traditional credit reports factor in exclusively credit and payment history. Since ReSource is a mutual credit network, we need to understand not only their traditional credit and payment history, but also their perceived value in the network. A member can have a sub par credit score, but if they are well perceived in their social circle/network, and the community values them, it should contribute a considerable amount to their protocol-native credit score as that score is only applicable inside of the network.

The CRA takes into consideration four key pillars. The score is an aggregation of both on and off chain data from each of the pillars below:

• Financials

• Social

• Macro Industry

• AML/KYC/Fraud

<Insert 3-axis graph from Teller>

The financial data is collected from both on and off chain data sources such as Dune Analytics, Plaid, Debank, Zapper, Twitter, Google, Equifax, prior ReSource Network history, and other similar sources.

Over time, as a user matures within the network their activity is monitored and added to their history. This allows underwriters to reassess and subsequently assign more credit. This, like a traditional credit score, can incentivize members to provide continuous value in exchange for more trust inside of the network.

The ReSource/Teller CRA is just one example of how a network can gather and analyze the data of each member in their respective network and provide guidance as to how much credit the underwriter can offer.

In its most abstract form, the ledgering logic driving mutual credit poses a use-case agnostic clearing and settlement engine which holds the potential of significantly simplifying otherwise complex economic transactions, and thus facilitate exchanges that would otherwise not come to fruition due to unjustifiable overhead.

In any scenario in which a large group of participants engages in interdependent trade relationships, mutual credit can be harnessed to significantly reduce friction imposed by lack of trust, liquidity or simply available information. For example, in the illustration posed above in chapter 2.1 of this paper, the exchanges between Alice, Bob and Carol can only be completed because both Bob and Carol hold trade relationships with Alice, which in this case serves as a bridge through which the mutual obligations of the three parties can be cleared and settled. Thus, a seemingly simple accounting trick has increased the combined turnover of the triple from 0 to 3

While in principle it could be argued that similar transactions may be facilitated using an external means of exchange, this means of exchange would have had to be previously acquired separately by each party, introducing a hypothetical forth party which doesn’t necessarily contribute inherent economic value to the illustrated exchanges and thus would pose a net cost to the existing network (comprising Alice, Bob and Carol). This cost may seem negligible at first sight but increases significantly as the complexity and interconnectivity of the network increases.

An excellent case study to illustrate such a situation is the forced cooperation among various telecommunication providers, necessitated by market demand. A cell phone user roaming through different areas in their home country and abroad will unbeknownst to them make use of the infrastructure of several different providers which route their data back and forth to ensure continuous service. These providers, who are essentially competitors, are driven to constantly buy and sell mobile minutes and data to and from their peers, necessitating countless peer-to-peer contractual relationships, providing pre-negotiated prices that fraction in premiums, discounts and the differences between the pricing regimes of these competing entities.

To facilitate these complex trades, large amounts of liquidity must be reserved and withheld from other productive endeavors, while all participants are constantly exposed to the threat of one of the parties extracting a net benefit from these mutual trades, posing a net cost to the rest of the network.

A mutual credit system, using mobile minutes as its unit of account, could streamline the above-mentioned relationships, remove friction and lower costs for all participants, including the end user, while ensuring that no rent is being extracted by one or more of the participating parties. As an added benefit, no cash reserves must be allocated to the purpose of purchasing mobile minutes and data, just to sell the same amount at a later stage to a third-party competitor.

This same logic can be applied to all industries in which a fungible good is traded back and forth between different prosumers, such as the energy market, data and information markets, or even industrial and agricultural staples such as raw materials and fertilizer. Whatever the mutually traded ReSource may be, Mutual Credit ensures that it is readily available when needed and payable in kind when convenient or necessary.

As the ReSource ecosystem grows, we begin to imagine a landscape where there exists hundreds of small to medium sized networks all over the world transacting and trading between each other. Networks can connect to other networks and open a line of trade between their respective members allowing liquidity to leave the network and be deposited into another, continuing the cycle of internetwork trade. As the overarching network grows, each time a new network is created and absorbed by the others, members of the network are given more options on where to buy and sell. Like the internet paved the way for the remote work, ReSource Finance looks to pave the way for an alternative method of business to business trade.

A common issue in mutual credit networks is that businesses are forced to compete with outside traditional markets that are subsidized, enjoy political privilege, or are not required to play by the same rules. Therefore, ReSource must provide a means of interoperability between networks (e.g., the rEUR or RSD network). The goal is to allow liquidity and to open commerce throughout the ecosystem of networks and internetwork marketplaces.

Market to market trades within the same network are no different than two businesses interacting in a single market. Network to network trades, as the networks have deployed their own CIP36, require a bit more infrastructure.

In order to enable cross-network commerce each network, A & B, must have a bilateral trade account with the other, just as two nation-states have a trade balance with each other. Goods and services moving from Network A into Network B would result in a deficit of Network B to Network A.

Credit limits between networks would be determined by underlying SOURCE staked by either network operators, or "insurers/underwriters" (private SOURCE holders underwriting a network operator).

A given trade/credit network would have the option to be open or closed to trade with other networks, similar to when a nation closes its border to trade. Only a "double-opt in" between two networks would enable the opening of bilateral trade accounts.

All trade accounts are denominated in RSD as the standard, forcing us to consult an oracle for accurate exchange rates between each network's internal currency.

Allowing for cross network trade allows multiple, individual marketplaces and networks to create an ecosystem where a user in one network can leverage capital earned in other networks that fall under the ReSource Protocol. This incentivizes future network operators to deploy and grow their own network and attract other networks to theirs. Subsequently, it incentivizes members in each network to add value and transact in order to offer their services outside of their own network. Traditionally mutual credit networks are closed to outside commerce as their internal currency is of little or no value to others. Once a network matures and is open to cross-network commerce, insurers/underwriters or network operators can stake SOURCE and provide liquidity to allow for cross-network commerce.

The same logic can be extended to any network of market actors that maintain complex and interdependent industrial relationships. In such networks, value may travel up and down the supply chain until it is finally presented to the end-consumer as a finished commodity. A mutual credit based bookkeeping logic, conjoining the various participants of such a supply chain, can serve as a “railway” on which value bounces back and forth frictionlessly until it arrives at the consumer.

Such a relationship between various prosumers in a supply chain could be described as a game of “musical chairs” - the different actors create, exchange and settle mutual obligations constantly, dipping in and out of mutual debt without having to exhaust their cash reserves, but the moment the music stops, meaning a finished product has been shipped to the end consumer, some parties may be in net deficit while others may be in net surplus of units of account. A simple cash settlement between the indebted party and the holder of the surplus units will now clear all mutual obligations of the entire network.

If the entire supply chain needs external liquidity to kickstart production in the first place, this “game of musical chairs” can be used to significantly simplify otherwise complex supply chain financing programs. In such a case an external creditor would join the network and commit to sell and buy the used units of account against fiat currency or the required means of payment. In this case the creditor would function more as a market maker who buys at a discount and sells at a premium. This way supply chain participants with a surplus of internal units of account could use them to access goods and services external to the trading network, while participants with trade deficits would have to purchase them with fiat if they can’t settle their debts within the trading network.

This way credit would be made available to the entire supply chain, used only by whom and as far as necessary, thus reducing the cumulative cost of credit significantly.

The ReSource Marketplace is the Protocol's end user–facing interface on which members can utilize their credit lines, trade goods, and services in an Amazon/eBay-like environment, and transact RSD remittances.

The marketplace includes internal accounting services that help members settle taxes and a first-of-its-kind non-custodial wallet solution, which allows users to login via password/username without keys and without requiring storage by third parties.

As of the ReSource Raven release, the Marketplace will transition into a "Google Shopping"-like environment, which scrapes the internet to find all items purchasable for RSD. ReSource users will not have to entertain a separate storefront on the Marketplace, but will rather find their RSD-purchasable listings from other environments, such as shopify, etsy, etc, automatically listed on the ReSource Marketplace.