Skip to content

Local Exchange Trading Systems (LETS)#

Local Exchange Trading Systems (LETS) are innovative mutual credit associations that empower communities to create their own local currencies, fostering sustainable economies independent of traditional monetary systems. In a LETS, members can generate common credit money individually, which is then recorded in a shared ledger. This system enhances the velocity of trade, goods, and services within a community, providing a robust mechanism for economic resilience.

How LETS Works#

LETS can be visualized as a decentralized financial network where participants exchange goods and services using locally-created credit. Here's a simple example to illustrate:

Imagine Alice, with a zero balance, wants to buy a litre of raw milk from Bob.
They agree on a price, say 2 Euros, as both are residing in Ireland. Once the transaction is recorded in the LETS ledger, Alice’s balance becomes -2 Euros, and Bob’s balance becomes +2 Euros.
Bob can now spend his 2 Euros on homemade beer from Charlie, who is also part of the LETS.

This system enables economic activity even when participants have no cash, allowing for continuous trade and services within the community. Borrowing limits can be set to prevent negative or excessive positive balances, ensuring active participation and discouraging hoarding.

LETS in Times of Crisis#

LETS have historically emerged as a solution during economic crises. The first LETS was established by Michael Linton in 1981 in a Canadian town grappling with depression. Similarly, during the Argentine Great Depression (1998-2002), LETS provided a lifeline for communities facing severe economic hardship.

Most traditional LETS groups consist of 50 to 250 members, with transactions recorded manually in paper-based ledgers maintained by a committee. However, such systems have often been vulnerable to issues like counterfeit notes and administrative fraud.

Why Blockchain-Based LETS?#

A blockchain-based LETS could revolutionize this concept by offering a more secure, transparent, and scalable solution. By utilizing blockchain technology, multiple small credit systems can operate on the same ledger, enabling:

  • Interoperability: Different LETS can interact seamlessly, allowing liquidity to flow between them as needed.
  • Resilience: Blockchain ensures that transactions are immutable, secure, and transparent, reducing the risks associated with traditional paper-based systems.
  • Innovation: The ability to design new financial products that strengthen the system, such as dynamic credit limits and automated collateralization requirements.

Hundreds of LETS could coexist on the same blockchain, each with its unique participation criteria, credit limits, and other parameters, yet remain connected through gateways that manage liquidity and exposure to toxic debt.

Implementing LETS on Ergo#

Ergo's blockchain offers unique capabilities to implement a LETS system without the need for centralized control. Thanks to Sigma Protocols, we can create a Trustless LETS on Ergo with no need for a membership record or management committee, allowing the system to operate with complete autonomy.

Explore Further#