Meso Money: What Can ReFi Learn from CoFi?

About sixty of us just wrapped up a week-long gathering in the foothills of the Austrian Alps. Across the collective, we could speak at least twenty four different languages. The event was held at the Commons Hub, hosted by the Crypto Commons Association and Informal, and MC’d by Matt Slater.

What brought us there? The call to build a new monetary system for the “meso” scale (between micro and macro—where most things actually happen).

Commodity vs. Credit

To begin—there are two basic theories of money: the commodity theory and the credit theory. Commodity money is backed by property claims, and can be associated with assets, such as gold and bitcoin. Credit money is relational, and is therefore based on contracts rather than property. As David Graeber establishes in his seminal text, Debt: The First 5,000 Years, credit money has been the dominant monetary paradigm throughout history, with a few notable exceptions. It gets a little complicated when talking about modern “fiat” money, but in essence, fiat is also closer to credit than to commodity.

To zoom out for a minute: it is helpful to remember that money starts and ends with people 100% of the time. We often talk about “assets” in finance, but these are constructed abstractions. Ultimately, all money comes from and goes to people. This is one reason why the credit theory is more fundamental. You could think of commodity money as running one layer up from credit money, if you were to think of money as we do programming languages.

As Keynes’ said, “anything we can actually do we can afford.” This is an important reminder when thinking about money. The vast majority of our societal constraints are malleable, and sometimes entirely arbitrary. Much of our systems surrounding money fall into this category. I’m a strong proponent of limits (such as those described through the blueprints published by r3.0), and I think these limits should tie back to meaningful social and ecological thresholds. Much of our financial system fails to meet these requirements.

So now that we’ve established the basics, what can we do with credit money?

What Credit Can Do

Back in October, Ethan Buchman told me about this recent paper he was very excited about: Liquidity-Savings through Obligation Clearing and Mutual Credit by Fleischman, Dini, and Littera. In it, the authors explore the arena of credit clearing. In any economy, each organization has a network of upstream and downstream trade partners (those whom they’re invoicing, and those from whom they’re being invoiced). If start looking at enough invoices, eventually you get to the point of critical mass where you’re able to start creating loops through trade partnerships to “clear” credit. All of this credit can be done without liquidity (especially due to the lengthy window given by net-30, net-60, and net-90 invoicing periods). Informal (the cooperative that Ethan helps steer), found this research so compelling that they ended up hiring all of the authors and launching a project (movement?) called Collaborative Finance. Earlier this year they decided it was time for a convening, so they sent out a public call for participants in the gathering described herein.

We actually played a game (developed by Informal) during the gathering to illustrate this concept, set in the 16th century European context described in the book, Private Money and Public Currencies, by Boyer-Xambeu, Deleplace and Gillard.

What’s the big deal about liquidity savings? Well, liquidity is where the economic system tends to get gummed up. That is where sovereign currencies and central banks get involved (or volatile commodities). As the history of financial crisis teaches us, in most instances, liquidity becomes the limiting factor in an economic recovery. As it so happens, most economies and most enterprises run at a roughly “break even” place. This means that the vast majority of their debts can theoretically be cleared without the need for any cash. There is an aside here regarding the massive inefficiencies (some would say downright failures) of contemporary methods that central bankers have used of liquidity injection. Without unpacking the details, it turns out that credit clearing is a vastly more efficient and effective method of cutting down on the liquidity necessary for recovery in the first place.

Credit Theory in ReFi

So what does all of this have to do with Regenerative Finance (ReFi)? Well, firstly, it seems like there is a evolved category emerging called Collaborative Finance (it is yet unclear what the ReFi:CoFi Venn diagram will look like. This first CoFi gathering was a blend of applied monetary theorists working on mesh credit, credit clearing, and mutual credit, and then a handful of crypto-adjacent groups (including Informal Systems, EthicHub, Grassroots Economics, Circles, the Economic Space Agency, BlockScience, and, of course, Regen Foundation). Maybe with the exception of Holochain (a sponsor of the gathering), pretty much all of cryptocurrency currently has a commodity-based architecture. That’s fine, as liquidity does matter—but with credit clearing, you can save the liquidity for where it matters most.

One subtext of the gathering is the colonial context in which the global finance system emerged. There was a strong contingent present at the gathering interested in foregrounding the work of anti-colonialism, so that CoFi doesn’t replicate some of the failings of our current systems.

Then there was also an emerging #MycoPunk thread evolving with Jeff Emmett’s stewardship.

I’ll also note that, from a phenomenological lens, much of the discussion could be framed from the perspective of interiority and exteriority. Here’s one diagram from ECSA which illustrates as much.

In regards to Regen Network, I did get the opportunity to host an open space session to co-design an upgrade of the $REGEN tokenomics (follow along on the forum for more on this in coming weeks)!

In conclusion, it was excellent to have the opportunity for myself (Will Szal) and my colleague (Nena Jain) to be able to participate in the inaugural CoFi gathering! I can’t wait to continue weaving CoFi and ReFi!

June 7th update: check out this ecosystem map from Marcelo!