The stable credit protocol is an alternative economic system that enables any group of participants to exchange goods and services by minimizing the amount of external capital needed. Stable Credits address the scaling and securitization challenges faced by most alternative economic networks today. These docs are a deep dive into the Stable Credit protocol and how it enables the ancient alternative economic model of mutual credit to scale in the modern world.
A mutual credit network is a trading network where participants can extend credit to one another in exchange for goods and services that are offered by other in network participants. An internal ledger keeps track of the exchanges by recording new issuances of credits when trades occur, and concurrently destroying them when debts are repaid. Traditionally, mutual credit network currency is not backed by any asset or collateral; instead it’s backed by the mutual trust of the network's members.
Stable Credits are created when a network member utilizes their Credit Line to overdraft their network account in order to transfer credits to other network members. While the recipient of the transfer receives newly minted credits, the sender’s network account records the newly created debt as a negative balance.
Likewise, Stable Credits sent to indebted accounts are burned on arrival, while the recipient’s negative balance contracts accordingly.
The Stable Credit protocol extends the concept of mutual credit to include a shared Assurance Pool that backs the network currency. This enables networks to scale beyond the social trust of its members by empowering members to contribute to the network resiliency together. The Stable Credit protocol is designed to be a building block to empower a new generation of mutual credit networks that can scale into viable financial systems that enable larger groups to collaborate in mutuality without large quantities of external capital and correspondingly high interest rates.