The following are the foundational components that make up the Stable Credit protocol.
- Stable Credits: The network currency that is created and destroyed by members as they extend and repay their credit lines.
- Credit Lines: Enables members to mint and burn Stable Credits according to the bookkeeping logic of mutual credit-clearing.
- Reserve Currency: The currency that is used to back the network currency and is held in the Assurance Pool.
- Assurance Pool: A pool of reserve currency that backs the network currency by insentivizing the removal of lost debt.
- Lost Debt Account: A shared autonomous account that holds the network's accumulated lost debt.
- Credit Issuer: A smart contract that enables the underwriting of member credit lines.
- Assurance Oracle: A smart contract that provides necessary off-chain data to the Assurance Pool and/or Credit Issuer.
📄️ Stable Credit Networks
How does it work?
📄️ Lost Debt
Traditional mutual credit-clearing networks rely on the social pressure of reputation to ensure that members honor their debts. Typically, there is no set expiration on the borrowed value. These approaches are not sufficient for a network to reach a healthy scale. Thus almost all existing mutual credit networks suffer from a lack of sound risk management systems and improper tracking of debt, leading to a decline in usage.
📄️ Credit Assurance
In order for Stable Credit networks to scale beyond the social trust of its members, assurance is introduced to enable the trust of the network as a whole. Assurance exists in order to add resiliency to the system by addressing the potential risks of lost debt. Each network is equipped with an AssurancePool smart contract that enables members to participate in assuring the network currency. The AssurancePool exists firstly to incentivize members to participate in the removal of lost debt.
📄️ Credit Issuance
Each Stable Credit Network is also equipped with a CreditIssuer contract that is responsible for issuing credit lines to members. In its most basic form, the CreditIssuer enables addresses with "Operator" access to create new credit lines with supplied credit terms. These terms include a credit limit that regulates the max amount of credits a member can mint and a credit period that denotes the expiration of said minted credits. However, Credit Terms and underwriting logic should be extended to accommodate more complex network requirements and specific underwriting processes that network operators choose to include.