Taking out loans through centralised finance is expensive and difficult. For many people in the developing world, loans are simply inaccessible.
There are plenty of DeFi platforms already up and running looking to solve this problem, but ReSource aims to tackle it in an unusual and interesting way.
ReSource Finance has combined the best ideas from mutual credit theory with DeFi protocols to create an innovative and unique lending platform.
What's Mutual credit Theory you ask?
In short, it's a self-regulated monetary system first discussed in the early 19th century.
Instead of banks renting out money and charging heavy interest rates to run a profit, money is generated through peer-to-peer lending of goods and services.
By using ideas from Mutual credit, reSource can offer uncollateralised credit at 0% interest, all while staying decentralised.
A Deep Dive into ReSource Finance
Instead of businesses extending credit to each other using fiat currency and an intermediary, reSource users can lend each other credit in the form of goods and services. This makes reSource pretty unique when compared to other DeFi DApps.
The other DeFi lending protocols usually ask you to overcollateralize on your loans, which means to put up more than you want to borrow. This allows you to store an unstable cryptocurrency and receive a stablecoin in return, which protects you from crazy price swings.
When ReSource users lend their assets to other users on the network, they receive what they need to expand their own business. In other words, businesses can turn their untapped resources into liquidity and growth potential.
The ReSource protocol can be adapted to accommodate the needs of numerous sectors, supply chains, and even entire industries.
The ReSource team is initially targeting small businesses, freelancers, shops, and startups. But in the future, businesses of any size could join the network.
The platform is designed to be easy to use for non-crypto natives. New users don't need to understand how web 3.0 works to use reSource's services.
More than 250 companies are already taking advantage of ReSource's platform, including food delivery companies, water suppliers, co-working spaces, and other professional services.
How is ReSource funded, and how was it built?
In August, reSource raised $1.7 million to "boost customer acquisition on the reSource Finance DApp and betting its reputation-based decentralized lines of credit to small-scale businesses".
ReSource was built on Celo, a global payment infrastructure designed for DApps targeting mobile users. The reason for this was to reduce the costs of transactions.
Additionally, celo offsets its carbon emissions related to consensus, which is in line with ReSource's company values.
How does ReSource Finance work?
ReSource users trade with other participants using assets they already have, such as unused inventory or free labour time in exchange for goods and services from other users.
When you lend another user a product or service, a debt is created in their account, and your account is credited with a corresponding amount of rUSD, the platform's stablecoin.
You can spend your rUSD balance from lending services to other users in the ReSourc marketplace on goods and services offered by the other network participants.
The begin with, rUSD will be pegged to the US dollar. but eventually, projects will be able to create their own tradable tokens pegged to almost any other asset they have. Users will also eventually be able to create their own free-floating currency which isn't pegged to anything.
rUSD is minted whenever debt is created, and it's destroyed when any debt is redeemed. This means that the supply of stable coins always matches the outstanding loans. In other words, the total amount of debt on the platform always matches the total amount of money deposits.
The ReSource system is considered "mutual" because debtors and creditors are frequently switching roles and are people in the same group. There's not a boardroom full of billionaires lending you the money for a house in exchange for extortionate interest payments.
All the money on the platform holds its value because it's required by someone else within the system to close their debt, so the supply of money always matches the demand.
The limit of the rUSD supply is determined by the number of users and the amount of debt each user can consume. Therefore, the total rUSD supply constantly contracts and expands to adapt to the evolving needs of the platform's economy.
Examples of How ReSorce Works
Imagine being able to access credit just as you would from a bank, but without creditors profiting from your debt.
Two users within the network agree on an exchange. The seller receives stablecoins, and the buyer takes on debt in exchange for goods or services.
The buyer then has to sell a product or service to another user on the network to repay their debt. Whoever buys that product or service to another user on the network to repay their debt. Whoever buys that product or service will then have to repay their debt by selling products and services to another user, and so on forever.
The diagram below shows how ReSource network works.
The example below explains the process a little more in detail and is from the ReSource whitepaper.
At the network launch, all users accounts have a zero balance, as seen below.
A user named Alice borrows a service from Bob worth 100 rUSD, which creates a deficit in her account and a surplus of 100 rUSD in Bob's account.
Another user called Carol decides she wants to borrow some products from Alice, which creates a 100 rUSD deficit in her account but brings Allice's account back to zero.
Bob then uses his 100 rUSD surpluses to purchase a service worth rUSD 100 from Carol, which then brings ReSource network back to equilibrium, as seen below.
What Happens if a Borrower Defaults?
Whenever a user wants to take out a new line of credit with another user, the transaction has to be validated by an underwriter.
To protect the network in case a borrower defaults, all underwriters must stake SOURCE tokens for all new credit lines.
This makes the underwriters financially accountable for any defaults because if a user defaults on a line of credit, the underwriter losses their SOURCE tokens.
When a user defaults, the underwriter's tokens are used to pay off the excess rUSD created by the default. If there's not enough SOURCE token, the network reserve, which contains the transaction fees, will buy up the remainder of the debt.
The SOURCE Token
The SOURCE token has four key functions:
- It holds a percentage of the platform's risk in exchange for staking rewards.
- Unstaked SOURCE tokens carry the same risk as any other unstable asset.
- It allows holders to vote on network decisions.
- It can be used to pay network fees.
- It is used by the network to pay out staking rewards.
Over time, as more credit lines are issued, more SOURCE will be locked into the network via staking contracts.
The SOURCE Token generation event (TGE) began on November 17th. The diagram below show's how token sale is divided.
To learn more about ReSource, visit the following links:
I love the concept and I'm looking forward to lending and borrowing on the reSource platform. I've also participated in the Private Sale and SOURCE will be part of my 10-year #HODL portfolio.
I will be updating the PNL page soon to reflect my position.
Investment 5 | 9 years, 10 months to go...