Local Exchange Trading Systems (LETS)
Innovative mutual credit associations that empower communities to create their own local currencies, fostering sustainable economies independent of traditional monetary systems.
What are LETS?
Local Exchange Trading Systems (LETS) are innovative mutual credit associations that empower communities to create their own local currencies. 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.
Community-Driven
LETS enable communities to create their own local currencies, fostering sustainable economies independent of traditional monetary systems.
- Local credit generation
- Shared ledger system
- Community autonomy
Economic Resilience
LETS provide economic resilience during crises, enabling trade and services even when participants have no traditional cash.
- Crisis-resistant trading
- No cash requirements
- Continuous economic activity
Blockchain Integration
Blockchain-based LETS offer secure, transparent, and scalable solutions with interoperability between different systems.
- Immutable transactions
- Cross-system liquidity
- Automated governance
Trustless Operation
Ergo's Sigma Protocols enable trustless LETS operation without centralized control or management committees.
- No central authority
- Autonomous operation
- Sigma Protocol security
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 the process:
Step 1: Transaction Initiation
Alice wants to buy milk from Bob, both with zero balance initially.
Step 2: Credit Exchange
They agree on price (2 Euros), Alice's balance becomes -2, Bob's becomes +2.
Step 3: Credit Circulation
Bob spends his 2 Euros on beer from Charlie, continuing the cycle.
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.
Traditional LETS Characteristics:
- Most groups consist of 50 to 250 members
- Transactions recorded manually in paper-based ledgers
- Maintained by a committee
- Vulnerable to 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.
Key Advantages on Ergo:
- Sigma Protocols enable trustless operation
- No centralized membership management
- Complete system autonomy
- ErgoScript for custom logic
Explore Further
Draft Contracts
For a basic implementation of LETS, check out our basic implementation guide.
Trustless LETS
Learn more about creating a fully autonomous LETS system with Trustless LETS.
Community Insights
Read our blog post for a deeper introduction to LETS.
Latest Developments
Join the ongoing discussion in the LETS Discussion Summary on ErgoForum to stay updated on the latest developments.