Towards Integrations: Circles UBI Mesh Credit and Informal Systems' Multilateral Trade-Credit Set-Off (MTCS)

What follows is an incomplete synthesis from my own perspective, and an attempt at a summary based on a group exercise I was part of, organised by Dil Green from Mutual Credit Services on the last day of CoFi. We were asked to think how we could collaborate concretely with the systems present in our groups, and in the process of integrating our systems bring a new financial system into being.

For me, it began when members of the Collaborative Finance team at Informal Systems and members of the Circles Coop and bitspossessed developer collective met to discuss how to integrate the CirclesUBI mesh network to the Multilateral Trade-Credit Set-off, or MTCS being developed by the CoFi Informal Systems team, and to do so in a way that is privacy-preserving by design.

This means creating an integrated system architecture where credit relationships are hidden and there is no global view of the payment or trust graphs. Both Informal and Circles teams were surprised to discover we both had independently ended up asking similar questions and looking for answers in oddly the same places.

One example is Taiga, a framework for generalized shielded state transitions being actively developed by Anoma. Taiga is based on what I would describe as a post-smart contract logic that separates computation from verification, based on the matching of what they call intents and validity predicates. Serendipity is a real thing. A member of the Anoma team joined us for CoFi and was kind enough to explain what bizarre-sounding things like fractal instances mean while going on hikes and spontaneously during a credit and anonymity afternoon session. Both teams realised we were sitting on the mountainous shoulders of giants and giants, as my friend and network scientist Teodoro Criscione told me days later, move slowly.

CirclesUBI is mesh credit network designed to deploy a non-state basic income system. Circles has been in production since October 2020. Ideated by Martin Köppelmann, founder of Gnosis, and brought into being by what became the Circles Coop and the Bitspossessed collective, the CirclesUBI protocol works in a way where people are the ones claiming the power to issue credit and make payments in a rippling network of trust, effectively giving each other a basic income. The Circles Coop is running a pilot in Berlin with roughly over 2000 people and 20+ businesses that participate in a subsidy program where strategic businesses get cash for a % of their Circles sales in Euros. The issuance of a people powered basic income serves as the basis for internal liquidity and a primary market for the businesses in the pilot.

Now, one of the problems we currently face as a Coop is that the Euros we get come largely from donations and this is not sustainable. While we have been able to do what economists call infant industry protection at a small scale, we have not yet secured a sustainable source of investment for bringing local production to the next level. At least not yet. Here’s where things get really interesting.

In the early 1990s, as Yugoslavia was being ripped apart by neoliberal policies, one thing made all the difference in the realm of money: a public credit clearing system. During state communism, Yugoslavia’s payment system was a public good and not a weapon that is used today by private banks to make a profit. This system is still alive today in Slovenia. Businesses can input the receipts at the end of the month to what is known as a multilateral trade-credit set-off. The clearing works in a way where if businesses have outstanding debts with other businesses, they can be cleared through an algorithm that checks who owes what to whom. The end result is that businesses end up with less debts to be paid. That is, if they have to pay anything at all. Often it is the case that all debts between merchants can be fully cleared, but not always.

This is also known as a Liquidity Saving Mechanism (LSM). According to the amazing Tomaž Fleischman, part of the Informal Systems team and co-author of the paper Liquidity-Saving through Obligation-Clearing and Mutual Credit: An Effective Monetary Innovation for SMEs in Times of Crisis, it is possible to create a network of obligations using this method, clearing off debt and thereby saving about 25% of the liquidity in any country’s economy (without mesh or mutual credit). Informal Systems has now further developed this as an algorithm that can run millions if not hundreds of millions of settlements.