In any economic system, some relationships are transactional—one-time exchanges between strangers. Others are sustained—repeated interactions between trusted parties. The latter are more valuable to the network, yet traditional systems treat them identically.

A decentralized credit network can do better. It can recognize and reward sustained trust relationships through value loop detection and rewards.

A value loop occurs when a series of transfers creates a closed cycle:

This is not merely a circular debt (which would be netted). This is a sequence of value transfers that demonstrates sustained economic relationships. Alice sent value to Bob. Bob sent value to Charlie. Charlie sent value back to Alice. The loop is complete.

This pattern indicates:

• Sustained Trust: All three parties trust each other enough to transact repeatedly

• Productive Exchange: Value is flowing, not just accumulating as debt

• Network Health: Closed loops indicate a functioning economic ecosystem

The system rewards these loops by strengthening the trust relationships involved.

Value loops are detected by analyzing transaction patterns:

Criteria for a Valid Loop:

• Minimum 3 participants (A → B → C → A)

• Maximum 10 participants (prevents gaming)

• Transactions occur within 24-hour window

• Minimum total value threshold (e.g., 10 units)

When a transaction completes, the system:

1. Builds a graph of recent transactions

2. Searches for closed loops involving the new transaction

3. Validates loops against criteria

4. Applies rewards to qualifying loops

When a value loop is detected, each trust relationship in the loop is strengthened:

Loop Bonus = Base × Size Factor × Value Factor × Frequency Factor

Base Bonus: Fixed amount (e.g., 10 points)

Size Factor: Smaller loops receive higher rewards (1 / loop size)

• 3-node loop: 1/3 = 0.333

• 5-node loop: 1/5 = 0.200

Value Factor: Higher value loops receive higher rewards (log of average value)

Frequency Factor: Repeated loops receive diminishing bonuses (capped at 5 occurrences)

This formula ensures that:

• Tight-knit communities (small loops) are rewarded more

• Substantial economic activity (high value) is recognized

• Repeated patterns (frequency) are valued but not exploited

The calculated bonus is applied to each trust relationship in the loop:

edge.capacity += bonus
edge.credit += bonus

Both capacity (maximum borrowing limit) and credit (trust score) increase, making future transactions easier and larger.

Example:

3-node loop with 240 units total value:
- Base: 10 points
- Size factor: 1/3 = 0.333
- Value factor: log₁₀(80) ≈ 1.9
- Frequency: 1 (first occurrence) = 0.2

Bonus = 10 × 0.333 × 1.9 × 1.2 ≈ 8 points

Each edge in loop:
- capacity: +8 (e.g., 500 → 508)
- credit: +8 (e.g., 600 → 608)

Value loop rewards create powerful network effects:

Positive Feedback: Successful loops strengthen relationships, making future loops easier.

Community Formation: Tight-knit groups that transact frequently develop stronger internal bonds.

Economic Clustering: Value tends to circulate within trusted communities before flowing outward.

Organic Growth: The network naturally evolves toward more efficient structures.

These effects emerge from simple rules applied consistently, without central planning.

It's crucial to distinguish value loops from debt cycles:

Debt Cycles: Existing obligations that form a circle (netted away)

Alice owes Bob 100
Bob owes Charlie 100
Charlie owes Alice 100
→ Net to zero (no value transferred)

Value Loops: Actual transfers that form a circle (rewarded)

Alice sends Bob 100
Bob sends Charlie 80
Charlie sends Alice 60
→ Value transferred, loop rewarded

Debt cycles are eliminated. Value loops are incentivized. The system distinguishes between phantom obligations and real economic activity.

The system tracks how often specific loops occur:

Loop Signature = hash(sorted participant IDs)

This signature uniquely identifies a loop pattern. When the same pattern repeats:

• Frequency counter increments

• Frequency factor in reward calculation increases (up to cap)

• Participants are recognized for sustained relationships

This prevents gaming (diminishing returns after 5 occurrences) while rewarding genuine sustained trust.

Several mechanisms prevent exploitation:

Size Limits: Loops must be 3-10 nodes (prevents artificial inflation)

Time Window: Transactions must occur within 24 hours (prevents cherry-picking)

Value Threshold: Minimum total value required (prevents spam)

Diminishing Returns: Frequency bonus caps at 5 occurrences

Capacity Limits: Edges have maximum capacity (2000 units) and credit (850 points)

These constraints ensure rewards go to genuine economic activity, not manufactured patterns.

Value loop rewards work synergistically with other system features:

Circular Netting: Debt cycles are netted before checking for value loops, ensuring only real transfers are rewarded.

Warrant System: Loops that involve debt reduction create warrants, which also strengthen relationships.

Edge Scoring: Daily social interactions also strengthen edges, compounding with loop rewards.

The combined effect is a system that rewards both social and economic engagement.

Value loop rewards change the economics of trust networks:

Incentivized Reciprocity: Returning value to those who sent it creates rewards for all parties.

Community Cohesion: Groups that transact internally develop stronger bonds and higher capacity.

Reduced Friction: Stronger edges mean lower interest rates and higher limits.

Emergent Specialization: Communities may specialize in different economic activities, trading through loops.

This is not central planning. This is emergent order from simple incentives.

Traditional banking doesn't reward sustained relationships in this way:

Banks: Treat each transaction independently, no bonus for repeated business with same parties.

Credit Cards: Reward spending volume, not relationship quality.

Payment Networks: Charge fees per transaction, regardless of relationship history.

Value loop rewards recognize that sustained trust relationships are the foundation of economic stability and should be explicitly incentivized.

As networks mature, value loop patterns reveal economic structure:

Early Stage: Few loops, mostly random patterns

Growth Stage: Loops form around active communities

Mature Stage: Complex loop patterns indicate sophisticated economic ecosystems

Analyzing loop patterns provides insights into network health and community dynamics without requiring centralized oversight.

At its core, value loop rewards operationalize a fundamental human principle: reciprocity.

When you help someone, and they help someone else, and that help eventually returns to you—this is the foundation of community. It's how humans have cooperated for millennia.

The innovation is making this reciprocity explicit, measurable, and automatically rewarded. Not through social pressure or moral obligation, but through mathematical protocol.

The result is a system that doesn't just permit cooperation—it incentivizes it. That doesn't just allow trust—it rewards it. That doesn't just enable community—it strengthens it.

This is the power of value loop rewards: turning the ancient human practice of reciprocity into a modern economic mechanism, backed by mathematics, enforced by code, and beneficial to all participants.

In any economic system, some relationships are transactional—one-time exchanges between strangers. Others are sustained—repeated interactions between trusted parties. The latter are more valuable to the network, yet traditional systems treat them identically.

A decentralized credit network can do better. It can recognize and reward sustained trust relationships through value loop detection and rewards.

A value loop occurs when a series of transfers creates a closed cycle:

This is not merely a circular debt (which would be netted). This is a sequence of value transfers that demonstrates sustained economic relationships. Alice sent value to Bob. Bob sent value to Charlie. Charlie sent value back to Alice. The loop is complete.

This pattern indicates:

• Sustained Trust: All three parties trust each other enough to transact repeatedly

• Productive Exchange: Value is flowing, not just accumulating as debt

• Network Health: Closed loops indicate a functioning economic ecosystem

The system rewards these loops by strengthening the trust relationships involved.

Value loops are detected by analyzing transaction patterns:

Criteria for a Valid Loop:

• Minimum 3 participants (A → B → C → A)

• Maximum 10 participants (prevents gaming)

• Transactions occur within 24-hour window

• Minimum total value threshold (e.g., 10 units)

When a transaction completes, the system:

1. Builds a graph of recent transactions

2. Searches for closed loops involving the new transaction

3. Validates loops against criteria

4. Applies rewards to qualifying loops

When a value loop is detected, each trust relationship in the loop is strengthened:

Loop Bonus = Base × Size Factor × Value Factor × Frequency Factor

Base Bonus: Fixed amount (e.g., 10 points)

Size Factor: Smaller loops receive higher rewards (1 / loop size)

• 3-node loop: 1/3 = 0.333

• 5-node loop: 1/5 = 0.200

Value Factor: Higher value loops receive higher rewards (log of average value)

Frequency Factor: Repeated loops receive diminishing bonuses (capped at 5 occurrences)

This formula ensures that:

• Tight-knit communities (small loops) are rewarded more

• Substantial economic activity (high value) is recognized

• Repeated patterns (frequency) are valued but not exploited

The calculated bonus is applied to each trust relationship in the loop:

edge.capacity += bonus
edge.credit += bonus

Both capacity (maximum borrowing limit) and credit (trust score) increase, making future transactions easier and larger.

Example:

3-node loop with 240 units total value:
- Base: 10 points
- Size factor: 1/3 = 0.333
- Value factor: log₁₀(80) ≈ 1.9
- Frequency: 1 (first occurrence) = 0.2

Bonus = 10 × 0.333 × 1.9 × 1.2 ≈ 8 points

Each edge in loop:
- capacity: +8 (e.g., 500 → 508)
- credit: +8 (e.g., 600 → 608)

Value loop rewards create powerful network effects:

Positive Feedback: Successful loops strengthen relationships, making future loops easier.

Community Formation: Tight-knit groups that transact frequently develop stronger internal bonds.

Economic Clustering: Value tends to circulate within trusted communities before flowing outward.

Organic Growth: The network naturally evolves toward more efficient structures.

These effects emerge from simple rules applied consistently, without central planning.

It's crucial to distinguish value loops from debt cycles:

Debt Cycles: Existing obligations that form a circle (netted away)

Alice owes Bob 100
Bob owes Charlie 100
Charlie owes Alice 100
→ Net to zero (no value transferred)

Value Loops: Actual transfers that form a circle (rewarded)

Alice sends Bob 100
Bob sends Charlie 80
Charlie sends Alice 60
→ Value transferred, loop rewarded

Debt cycles are eliminated. Value loops are incentivized. The system distinguishes between phantom obligations and real economic activity.

The system tracks how often specific loops occur:

Loop Signature = hash(sorted participant IDs)

This signature uniquely identifies a loop pattern. When the same pattern repeats:

• Frequency counter increments

• Frequency factor in reward calculation increases (up to cap)

• Participants are recognized for sustained relationships

This prevents gaming (diminishing returns after 5 occurrences) while rewarding genuine sustained trust.

Several mechanisms prevent exploitation:

Size Limits: Loops must be 3-10 nodes (prevents artificial inflation)

Time Window: Transactions must occur within 24 hours (prevents cherry-picking)

Value Threshold: Minimum total value required (prevents spam)

Diminishing Returns: Frequency bonus caps at 5 occurrences

Capacity Limits: Edges have maximum capacity (2000 units) and credit (850 points)

These constraints ensure rewards go to genuine economic activity, not manufactured patterns.

Value loop rewards work synergistically with other system features:

Circular Netting: Debt cycles are netted before checking for value loops, ensuring only real transfers are rewarded.

Warrant System: Loops that involve debt reduction create warrants, which also strengthen relationships.

Edge Scoring: Daily social interactions also strengthen edges, compounding with loop rewards.

The combined effect is a system that rewards both social and economic engagement.

Value loop rewards change the economics of trust networks:

Incentivized Reciprocity: Returning value to those who sent it creates rewards for all parties.

Community Cohesion: Groups that transact internally develop stronger bonds and higher capacity.

Reduced Friction: Stronger edges mean lower interest rates and higher limits.

Emergent Specialization: Communities may specialize in different economic activities, trading through loops.

This is not central planning. This is emergent order from simple incentives.

Traditional banking doesn't reward sustained relationships in this way:

Banks: Treat each transaction independently, no bonus for repeated business with same parties.

Credit Cards: Reward spending volume, not relationship quality.

Payment Networks: Charge fees per transaction, regardless of relationship history.

Value loop rewards recognize that sustained trust relationships are the foundation of economic stability and should be explicitly incentivized.

As networks mature, value loop patterns reveal economic structure:

Early Stage: Few loops, mostly random patterns

Growth Stage: Loops form around active communities

Mature Stage: Complex loop patterns indicate sophisticated economic ecosystems

Analyzing loop patterns provides insights into network health and community dynamics without requiring centralized oversight.

At its core, value loop rewards operationalize a fundamental human principle: reciprocity.

When you help someone, and they help someone else, and that help eventually returns to you—this is the foundation of community. It's how humans have cooperated for millennia.

The innovation is making this reciprocity explicit, measurable, and automatically rewarded. Not through social pressure or moral obligation, but through mathematical protocol.

The result is a system that doesn't just permit cooperation—it incentivizes it. That doesn't just allow trust—it rewards it. That doesn't just enable community—it strengthens it.

This is the power of value loop rewards: turning the ancient human practice of reciprocity into a modern economic mechanism, backed by mathematics, enforced by code, and beneficial to all participants.