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There is nothing in the world more powerful than an idea whose time has come.
-Victor Hugo-
Greetings to the entire hive and to the outstanding members of this community. Nothing in the world is perfect, everything needs to be revised and improved. Especially when it comes to technology as a human creation. However, if we stop to think about the previous sentence, it is logical that things happen that way and are expressed that way.
Within a real and pragmatic environment, beings and things have to evolve to change what needs to be improved, or otherwise or simultaneously maintain what deserves to be preserved. That is the essence of life, everything is energy, vibration, movement and change. What is not renewed stops growing, stagnates and dies.
In that order of ideas, even the death or disappearance of something, understood as part of a continuum or progressive line, is fully justified in many situations, although not in all. From the understanding of the above, another phrase very often heard in different areas arises: "nothing is eternal", which may be longer-lived than a star, but nevertheless has its beginning and its end.
In bear markets, the shortcomings of all projects are often seen in concurrent ways. When the market is rising, investors line up to come in and milk the cow. But when that curve is cut off and the whales want to withdraw their investments, the debacle occurs. Even in projects that seemed to have solid foundations.
With the collapse of the moneda digital LUNA and UST added to the collapse of the lending platform Celsius due to lack of liquidity, DeFi have suffered a hard blow. They lost investor credibility (which is the most important thing for any project), but, above all, trust in the crypto ecosystem was lost.
The positive thing about all these events is that governments became much more interested in regulating this type of assets in order to protect the investor. The ecosystem also started a public reflection and learned a lot about its mistakes. For their part, investors started to understand that the crypto path is long term, it is not something we are going to build overnight.
One of these facts that shows an evolution, which constitutes an opportunity for both experienced investors with capital, as well as for those of us who are still in the process of consolidation in the crypto world, is regenerative finance by its acronym (ReFi).
Their goal is to create a renewed and improved financial system through decentralized projects with economic systems that generate more balanced relationships between us and our natural ecosystems. Their economies focus on people and the planet, not on conglomerate for-profit organizations. Their primary goal is to positively impact the lives of people, communities and small businesses.
From the beginning, it was designed to put money in the hands of projects that work for a better future and to boost communities that, for some reason, have not been able to be part of the traditional financial system. A concrete example will help us better understand the economic and social potential of this development.
One case we can look at is the Resource case. This is a project that allows access to a zero-rate loan, which is wonderful if I am asking for a loan, but from the point of view of the financial investor it is crazy. Who in their right mind would risk capital to obtain zero profit?
While the fiduciary or traditional system depends on the aggregate capital of its members (which it then manages, lends and invests on their behalf), a mutual credit system does not depend on pre-existing capital in the form of money, but relies on the non-monetary capital of its members (such as unsold inventory, productive capacities, etc.). From this non-monetary capital, it creates its own internal backed currency.
Basically, by being able to create their own money, mutual credit systems do not need to borrow to lend to a third party, so they have the capacity to generate loans with a rate close to zero %. Something that has an impressive impact when it comes to projects with potential, which are often overlooked by large financiers.
It sounds strange when we talk about "creating your own money", but this system works more like an accounting device that keeps track of mutual obligations to give an example:
Take Carlos, Raul and Carolina. None of them have money, but they have productive capabilities. All three can deliver goods or provide services (if not now, then at some point in the foreseeable future).
Money is entered into the system once a participant (let's say Carlos) decides to buy an item from another supplier (let's say Raul). When he does so, a deficit is created in his account and a deposit appears in Raul's account. In this way, the money is effectively "spent into existence".
In the same way, Carolina spends from her account to buy an item or service from Carlos. This returns Carlos' balance to zero.
If Raul now decides to buy an item or service from Carolina, his deposits will be remitted to her, covering Carolina's deficit as their balances return to zero. At this stage, the network will return to its zero-deposit equilibrium state in which there is no debt and thus no money within the system.
If we only had three participants, this system would be very limited in scope and usefulness. For it to work, the three participants would have to match each other's demand with the supply they can generate. But if we think about it big, with millions of participants interacting, it is easier to find that my service is of use to someone and that someone else is offering something that interests me.
The example is very ideal, but what if in this case Carol has nothing to offer Raul? Raul would have 100 credits that he could not spend, he would be hurt, and he would have worked for nothing. Raul's example shows us that since mutual credit money is minted when the commitment is issued and destroyed when the debts are paid, unpaid debt generates inflation.
If we expand this system to hundreds or thousands of participants, we can see how defaults degrade the system's currency over time, robbing everyone of purchasing power. Worse, as this inflation is accompanied by fewer and fewer purchasable items (each default means that a supplier, Carolina in our case, has left the system). In reality, we will be talking about stagflation, which is the worst thing that can happen to an economy.
This type of situation usually occurs in the so-called "community currencies", where optimism reigns at first, but after a while the system's failures begin to deflate and leave many people with a pile of money that is worthless.
This causes numerous such projects to fail and others to grow at a slower rate than normal. Experience whose results have been disastrous in these community and crypto markets. We will continue to develop this interesting topic in a future post.
See you soon.
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