Circles Litepaper

A first look at how we are reinventing money, moving issuance into the hands of the people, creating a decentralized currency framework built for a borderless, global economy

If you run a community, organization or a group - you can become a launch partner. DM Circles to know more https://xcancel.com/aboutcircles/status/1892609499753582775

For whom is interested, there is quite a heated discussion between Martin Köppelmann and Ameen Soleimani. Ameen posted yesterday that ‘Circles is retarded’. They organized a space that has just ended where Köppelmann is ‘ready to prove him wrong’. Sadly the space ended with Soleimani getting rude. What didn’t help the discussion is that Köppelmann‘s German accent finding English words versus Soleimani’s fluid English American creates an unequal balance. Next time maybe in German ;)

Soleimani’s initial post: https://xcancel.com/ameensol/status/1892190530995441715?s=46

Replay of the Circles space that followed: https://twitter.com/i/spaces/1ypKdZDYemvJW

I mostly agree with Ameen.

I have tons of respect to Martin, but I think focusing on pushing Circles so much when Gnosis has real products that are growing is a waste of his precious time.

I said a few months ago on Kiwi:

was at Martin's talk about Circles and although I like the idea, I have a question that might be hard to answer at this point, but I will ask it anyway..

understand why all Circles have the same monetary policy. It's easier to manage and interoperate. But can it actually work for different micro-economies?

he way currency supply works in the real economy is that it's tied to the economic output.

f the country produces a lot of value, we can print more currency without causing inflation because there are many things to spend this money on (a bit oversimplifying here but that's the gist of it). If we have a small economic output - like in COVID where supply chains made it hard to ship things to spend money on - printing money can cause a high inflation.

ow does it relate to Circles?

Well, let's say I have a Circle A. I invited my friends and we love it! I pay with CRC for renting my friend's car, he pays with CRC for me delivering him groceries, the other friend even starts a garage sale where we can buy stuff with CRC. Nice!

f we continue growing our community, the Circle A issuance rate would eventually be too low. We'd not have enough CRC to pay for things, especially if a friend after garage sale just gets most of the supply and doesn't want to spend it yet.

Then there's a Circle B, where only a few people actually use this currency, and the 'economic output measured in CRC' is much lower. For them, on the other hand, the issuance rate might be too aggressive, effectively inflating the money they earned.

Not sure how to solve it by having a flat issuance fee. But maybe we don't need to fix it because Circles bigger idea is focused on something else? Idk, would love to have Martin in the comments here.

Maybe Circles are a genius idea and Martin just can't communicate it well. Or maybe they need to iterate on it. But as of today, it doesn't make any sense to me. And I'm saying that with sadness because I think Gnosis is doing a lot of great things and seeing their CEO being nerdsniped by a dead-end street idea is not something I want to see.

Last days I have been thinking about this a lot. The idea boggles me. But maybe you have to think outside the box of how crypto is currently being build and conceived?

In crypto we are building so-called 'trustless' systems, so to operate without having to trust the party on the other side. But on the other hand, we see these 'trustless' systems being exploited. It seems we can't secure them enough for particular one thing, the human factor. The recent Bybit hack was also in essence just deception. Systems get so complex it is too hard for normal humans to do all the checks. We are trusting to much on the technology, the Ledgers, the Safe and this trust can be exploited. It is maybe mistaking technology for a solution when it is only a tool, while maybe the solution lies within ourselves.

What if we could bring trust to 'trustless' systems, or that you in fact need to trust the other party before transacting? Ameen talks a lot about the 'trust me bro' factor of Circles, which he regards as one of the weakest points, maybe even the point of failure. But what if the 'trust me bro' is actually Circles strongest point?

A way to think about Circles is not to see it as a coin, but as a tool. A tool to set up micro-economies amongst trusted peers in order to disconnect your community or group from the main economy. The value of $CRC is determined within your group and it is of course also your $CRC, the token is unique to you. So it is your tool, and you can decide how to use it. It gives you and the group within your participating ownership of your micro-economy.

It is, as Martin also states, very liberal. Also you are effectively decentralizing the economy into a future of millions of micro-economies, a mesh of interconnected islands spanning the planet with no centralized control. Within in the islands, and the individual holders, there is a high level of agency and economic freedom.

The key is trust. It will only work if you really trust the other party, thus bringing back human trust within 'trustless' systems. This is much more secure and resistant than just trusting on the technology. Maybe even with the AI revolution, human trust is more needed than ever.

So what is most important when starting out with Circles that you only connect with people you really know and trust. You will have to 'trust your bro', otherwise it might not even make sense to use Circles. The stronger the trust in your peers, the stronger your micro-economy will be and in the end the stronger the interconnected mesh of micro-economies will be.

Summarizing, Circles could be the tool crypto is missing. As I am putting it now it is of course a very idealistic perspective. But I don't think Circles has anything to do with communism or anything like that. It is liberating yourself from the pitfalls of centralized economies, where you have little to no agency, creating para-institutions and micro-economies, filling the gaps. It is a complimentary real world use case tool to crypto.

As I see it Circles is either super brilliant or just a worthless idea, lol.

I have decided to go try it out in the small unit that is my close family and see how it works in reality. Just creating our home micro-economy, set some of our own rules and a base peer-to-peer value. It is going to be a fun experiment I think hopefully educating my kids and myself at the same time!

I think the trust part of Circles is very interesting, especially since it can also be used as a Proof of Personhood, created by peers.

My main problem is that every circle has the same economic parameters (mainly: inflation). I understand why they designed it that way, but if you run a micro economy, you should have control over your issuance imo.

The Proof of Personhood is a very good point!

Also now with more trusts coming into my wallet I can see it creates a network of trust, like a social graph. Maybe looking at Circles you should not focus on the idea of money as value, but trust as the value. You could have at some point a network of trust that might be far more valuable than the value it represents as a coin, which is in itself, without the network, worthless. Also with the AI and machines joining the web Proof of Personhood might become very important.

So in that respect you could see Circles as a kind of Lego to build all kinds of stuff on top of it; social apps, DAOs, even DeFi. Since it is not speculative by nature, it can be used to build solid social scaffolding. (Instead of memecoins that evaporate or coins with huge volatility, which could be a distraction from the social use case.)

I could imagine a scenario where you integrate with Kiwi and your trust graph as curator could be an indicator for the value of your curations. You’d have to pay a certain amount of $CRC to get in, which could be set up that as long as you are part of the community a percentage of the $CRC that you create automatically every hour goes to Kiwi. So you’d have automatic organic subscriptions too.

But yeah what to buy for your $CRC? Haha. We have to see how and if it catches on.

"I could imagine a scenario where you integrate with Kiwi and your trust graph as curator could be an indicator for the value of your curations. "

That's an interesting path. Imagine that every curator can add other curators to their circles. We could track who is trusted by the most diverse group of people (and is probably legit) and where there's a group of people who do "follow for follow" just to hack the system.

And we just use $CRC as (probably economically worthless) points that you could use for tipping the best submissions and comments.