In Circles, money is generated collectively by many individuals over time rather than by a central authority at specific events.
When you become part of the Circles network, every person has their own personal Circles token and receives one Circle (CRC) per hour, unconditionally.
The trust network forms a social graph where each trust relationship acts as a link, allowing tokens to flow between individuals through these connections. This ensures that the value of Circles is supported by genuine social relationships, fostering a community-driven economy.
At the same time, this mechanism is an effective soft sybil protection, as it decentralises the verification process and relies on human judgment for trust, preventing fake accounts from compromising the network. Since the connections between Circles accounts have a limited capacity (defined by their balances of fungible tokens), this limits the impact of fake accounts that manage to get trusted by a credible member of the network to their direct surroundings.
Personal Currencies and Trust Path
Personal currencies are unique and require trust to be transferred to others. To send tokens, other users must first trust your personal currency. When someone trusts your tokens, they become fungible with their own tokens.
This fungibility allows for the transfer of tokens along a trust path, enabling transactions even between people who do not directly trust each other.
Group Currencies
Additionally, Circles v2 introduces support for group currencies, allowing communities to share a currency backed by their members' personal tokens.
This collective currency reduces risk, simplifies payments, and enhances market creation by aggregating individual tokens into a more stable and fungible group currency. Group currencies make it easier to integrate Circles into existing economic structures and protocols, further promoting a robust and interconnected community economy.
Circles is all about creating a fairer money system. Our current monetary system and most cryptocurrencies tend to benefit those with established wealth and market positions, making it challenging for newcomers to catch up. Wealth grows disproportionately for those already in the market, as time in the market often beats time to market.
Circles aims to solve this by ensuring equal opportunity for all. Each user continuously generates tokens at a rate of one Circle (CRC) per hour, regardless of when they join. Additionally, existing Circles incur a demurrage fee of 7% per year. By tying the issuance of tokens to time, a resource everyone has, Circles promotes fairness by giving everyone a chance to accumulate tokens and encouraging the active circulation of currency.
Circles employs a unique token issuance mechanism where each user generates their own currency (CRC) at a steady rate of one token per hour. The minting rules are encoded in the so-called Hub, a token factory from which all individual Circles tokens are created.
All tokens are automatically demurred at a rate of 7% per year.
For human users, the demurrage is offset by the steady income of new CRC. Only after minting for 80 years (roughly a human lifespan) or through economic activity can a person become negatively affected by demurrage. Once the person dies, no new tokens are minted and all of the person's tokens are subjected to demurrage.
The following graph visualizes the balance of an account over time, assuming no economic activity and continuous minting of all CRC.
If understood as a tax, then the tax would be negative at first (you get money), but once your balance reaches the threshold of 125.000 Circles, it turns positive (you loose money).
Circles v2 is built on the ERC1155 token standard. Here, the Hub uses a standard allowance to facilitate path transfers. The token metadata mimics as profile.
In Circles v2, there is a limit that allows a maximum minting amount of 14 days' worth of Circles. Minting can be stopped manually if required.
In addition to individual CRC currencies, Circles has introduced the concept of Group Avatars and Currencies. The idea behind Group currencies is to aggregate social-economic value amongst groups, without the geographical bounds of where groups are generated or created. Group avatar tokens can't be minted based on time, rather they depend on collateral deposits from trusted tokens.
Group participation operates through Circles' trust network rather than formal membership. To receive and accept group tokens, you need to trust the group address, which allows you to hold and transact with their tokens. The group, in turn, must trust the types of tokens it will accept as collateral for minting.
Group token minting is a permissionless process open to anyone holding tokens that the group trusts. When you want to mint group tokens, you deposit your trusted tokens (which can be personal CRC, other group tokens, or any Circles tokens) as collateral through the groupMint() function. The group mints new group tokens proportional to the collateral deposited, while your collateral tokens are held in the group's treasury.
This is not a direct swap but rather a collateralization mechanism - your original tokens remain in the group's treasury and can be redeemed later by burning group tokens through the groupRedeem() function. The current system allows minting based on any quantity of trusted Circles tokens you hold, not limited to personal CRC tokens.
The trust relationships work bidirectionally: you trust the group to accept their tokens, and the group trusts specific token types to accept them as collateral. This creates a flexible, decentralized system where group currencies can be backed by diverse collateral from across the Circles ecosystem, enabling economic coordination without geographic or membership constraints.