Reserve Rights (RSR)
Reserve Rights (RSR) is an ERC20 token common across all Reserve tokens (RTokens). RSR can be staked on a particular RToken, where it has two roles:
- Staked RSR receives a portion of the RToken collateral’s revenue in exchange for being the first capital-at-risk in the case of collateral default.
- Staked RSR proposes and votes on changes to the RToken’s configuration.
All the relevant information regarding RSR’s supply, release schedule, audits, etc. can be found through the links below:
Reserve Rights (RSR) exists as an overcollateralization mechanism to protect RToken holders in the unlikely event of a collateral token default. In order for RSR holders to provide this overcollateralization, they can decide to stake on any one RToken, or divide their RSR tokens by staking on multiple RTokens. RSR holders can also decide not to stake their RSR at all.
In return for providing this overcollateralization, RSR stakers can expect to receive a portion of the revenue from the specific RToken that they stake on. As a general rule, RSR stakers can expect higher returns (APYs) as the market cap of the RToken they stake on increases.
When RSR is staked on an RToken, it's deposited into a staking contract specific to that RToken, and the staker receives a corresponding ERC-20 token, representing their staked RSR position on that particular RToken. This token is transferrable and fungible with other staked RSR balances for that RToken, so you can send any portion of the staked position to someone else or trade it, and the new holder can un-stake it if they choose to.
Staked RSR can earn rewards, based on three factors:
- The amount of revenue the RToken generates
- The portion of revenue that governance has directed to RSR stakers
- Your portion of the total RSR staked on that RToken
As a simple example, suppose (these numbers are just made up for simplicity, to make the arithmetic clear):
- A fictional RToken generated $100 in revenue in a period
- 20% of revenue was designated for RSR stakers
- 1000 total RSR was staked
- You had staked 100 of the total 1000 RSR that is staked
In this simple example, you would get $100 * 20% * (100/1000) = $2 for that period.
The protocol stores revenue for a particular RToken in different ERC20s (including RTokens). When staking rewards are distributed, it market-buys RSR via auctions with these ERC20s and deposits it into the staking contract to distribute the rewards to RSR stakers. Thus, as rewards are earned, the exchange rate of staked RSR to RSR increases.
When RSR is staked, it is actually at stake. Staked RSR can be seized by the protocol in the event of a collateral token default, in order to cover losses for RToken holders. It's seized pro-rata if this happens.
Un-staking RSR comes with a delay, which is configurable by governance, and predicted to usually be between about 7 and 30 days. This delay is necessary so that in the event of a default, the staked RSR will remain in the staking contract for long enough to allow the RToken to seize any RSR it needs to cover losses.
During the unstaking delay period, the staker does not earn any rewards. This is necessary to prevent stakers from withdrawing and re-depositing over and over in order to subvert the withdrawal delay mechanism. It is possible for users to cancel unstakings at any time.
The easiest way to stake your RSR is to use a user interface that interacts with the Reserve Protocol smart contracts, such as Register. If you're looking for an easy tutorial on how to stake, please refer to this article.
While each RToken can have its own customized governance system, we expect most RTokens to use our default configuration where the amount of RSR tokens a participant holds serves as the voting weight.
If an RToken’s overcollateralization & governance is both done by RSR token holders, there is the incentive for the RSR governance participants to keep the RToken as safe as possible, rather than taking unnecessary risk with the collateral, as it’s their funds that would be seized first if any of the RToken’s collateral were to default.
The governance process designed by Reserve follows a transparent and democratic approach. It allows holders of RSR, to propose, discuss, and vote on changes to the protocol.
It is designed to be community-driven, which means anyone can propose changes to modify or improve an RToken. Once a proposal is submitted, RSR holders vote on it. If the proposal passes and meets the required criteria, the code to update the RToken can be executed (after a pre-defined delay period).
Governor Alexios is the protocol's recommended governor implementation, which is detailed next.
The Reserve team has deployed a recommended governance system for RTokens (Reserve Governor Alexios) that will be suggested to RToken deployers by default. This governance system is a slightly modified version of the OpenZeppelin Governor.
Governor Alexios allows RSR holders to participate in the decision-making process of the protocol by proposing, voting on, and executing proposals. It follows a delegation system where RSR holders can delegate their voting power to other addresses. This enables efficient participation in the decision-making process and increases voter turnout.
The governance process is divided into three sub-phases:
Proposal: Proposals can include changes to the protocol's parameters, new feature implementations, or anything else that requires the approval of RSR holders. Proposals can be created by anyone who holds the minimum required amount of tokens.
Vote: A vote is a decision made by a token holder on a proposal. Votes can be cast in favor, against, or abstain. Token holders can also delegate their voting power to another address to vote on their behalf.
Execution: Once a proposal has been approved, it can be executed to perform the intended action.
A timelock component is introduced once a proposal is approved. This adds a configurable delay between the approval of a proposal and its execution, which allows RToken holders to make a decision before something is changed.
The following parameters can be configured for the governance process:
Proposal Threshold: The minimum voting weight required to create a proposal.
Quorum: The minimum total voting weight required to consider a voting valid.
Voting snapshot delay: The time to stake between the proposal is created and the snapshot of voting weights is taken.
Voting period: The duration of the voting period for each proposal.
Execution delay: The delay before a successful vote is executed. Provides time to RToken holders to make a decision before changes are applied.
By default, the end-to-end process for approving & executing proposals is 8 days:
- Voting snapshot delay: 2 days
- Voting period: 3 days
- Execution delay: 3 days
Within RSR Governor, each RToken can have different roles assigned to it—the Pauser, the Short Freezer, the Long Freezer, and the Guardian—which can be given to any Ethereum addresses by the RToken deployer/owner. Each have the ability to put their RToken’s system into certain states in the case of an attack, exploit, or bug. These states are:
- Paused: when an RToken’s system is paused, all interactions besides redemption, ERC20 functions, staking of RSR, and rewards payout are disabled.
- Frozen: when an RToken’s system is frozen, all interactions besides ERC20 functions and staking of RSR are disabled.
For additional information, please refer to the System States + roles section.
Reserve Rights (RSR) has a fixed total supply of 100 billion tokens, out of which there are currently 50.6b in circulation. The remaining 49.4b tokens belong to the Slow Wallet.
The Slow Wallet is a locked wallet controlled by the Reserve project, used to fund RToken adoption initiatives. It's under the discretionary control of the Reserve team. However, it has a hard-coded 4-week delay after initiating each withdrawal transaction on the blockchain. Upon initiating a withdrawal transaction, the team announces the purpose of the withdrawal either through a public on-chain message or on social media. If RSR holders do not agree with the purpose of the withdrawal, they are able to sell their RSR in the 4-week period before the project is able to sell what they have withdrawn. The team can only access these withdrawn tokens after those 4 weeks.
What are RTokens?
RToken is the generic name for a stablecoin that gets created on top of the Reserve Protocol. RTokens are fully asset-backed by any combination of ERC-20 tokens and can be protected against collateral default by Reserve Rights (RSR) staking. Each RToken is governed separately.
Anyone can create an RToken
In a similar way as how anyone can create a new trading pair on Uniswap, anyone can permissionlessly create a new Reserve stablecoin (RToken) by interacting with Reserve Protocol’s smart contracts. The protocol applies a system of factory smart contracts that allows anyone to deploy their own smart contract instance.
Creating an RToken can be done either by interacting directly with the Reserve Protocol’s smart contracts or any user interface that gets built on top of it. The first user interface for these smart contracts will be released by LC Labs, a company connected to the Reserve core team that's helping with protocol development. Besides the creation of RTokens, this user interface will also support exploring usage and stats related to RTokens, RToken minting & redeeming, and RSR staking.
Non-compatible ERC20 assets
The following types of ERC20s are not supported to be used directly in an RToken system. These tokens should be be wrapped into a compatible ERC20 token to be used within the protocol. A concrete example is the use of Static ATokens for Aave V2.
- Rebasing Tokens that return yields by increasing the balances of users
- Tokens that take a "fee" on transfer
- Tokens that do not expose the decimals() in their interface. Decimals should always be between 1 and 18.
- ERC777 tokens which could allow reentrancy attacks
- Tokens with multiple entry points (multiple addresses)
- Tokens with multiple entry points (multiple addresses)
- Tokens that do not adhere to the ERC20 standard in general
Advanced RToken parameters
When deploying an RToken, the deployer has the ability to configure many different advanced parameters. The following list goes into detail about what these parameters do and some of the factors the deployer should keep in mind to set them.
As many of these parameters concern the Protocol Operations, we advise reading through that section of the documentation first—as it will give the deployer the necessary context to fully understand all parameters.
The trading delay defines how many seconds should pass after the basket has been changed before a trade can be opened.
A collateral asset can instantly default if one of the invariants of the underlying DeFi protocol breaks. If that would happen, and we would not apply a trading delay, the protocol would react instantly by opening an auction. This would give only auctionLength seconds for people to bid on the auction, making it very possible for the protocol to lose value due to slippage.
The trading delay parameter may only be needed in the early days - before we get to a point where there is a robust market of MEV searchers. We expect that this parameter can be set to zero later on (once a robust market of MEV searchers is established).
The Reserve Protocol includes a generic trading system which can be integrated with any type of trading mechanism, but will only have an implementation for Gnosis EasyAuctions at-launch.
The auction length determines how long auctions stay open for. The situations to keep in mind when determining this value are:
- If it is set too low, back-to-back auctions may not give arbitrageurs enough time to complete arbitrage loops that involve centralized exchanges. We don’t want capital-constrained traders to have to sit out every-other auction.
- If it is set too high, fewer auctions will fill and the protocol will take more time holding the asset being sold. This is because the price can swing more than maximum trade slippage in the unfavorable direction.
Backing buffer (%)
As collateral tokens appreciate, RTokens can be minted by the protocol whenever it gathers the correct ratios of all collateral tokens. This is the most efficient form of revenue capture, because it requires minimal trading of the excess collateral (and thus, a minimal spend on gas fees and trading slippage).
When the protocol is able to gather all the required parts of an RToken, these parts (collateral tokens) get sent to the RevenueTrader contract, where it performs an internal mint to create more RTokens. These new RTokens are then used as yield for both RToken holders and RSR stakers.
The backing buffer parameter is a percentage value that describes how much additional collateral tokens the protocol should hold on to before sending collateral tokens to the RevenueTraders. If this were set to “0”, then it’s possible (though unlikely) that collateral could “take turns” appreciating, causing the protocol to forward individual collateral tokens to the RevenueTraders and never assemble it into new RTokens.
Max trade slippage (%)
The maximum trade slippage is a percentage value that describes the maximum deviation from oracle prices that any trade that the protocol performs can clear at. Oracle prices have ranges of their own; the maximum trade slippage permits additional price movement beyond the worst-case oracle price.
Setting this percentage too high could cause the protocol to take high losses if auctions are illiquid.
Minimum trade volume
The minimum trade volume represents the smallest amount of value that is worth executing a trade for.
Setting this too high will result in auctions happening infrequently or the RToken taking a haircut when it cannot be sure it has enough staked RSR to succeed in rebalancing at par.
Setting this too low may allow griefers to delay important auctions. The variable should be set such that donations of size minTradeVolume would be worth delaying trading auctionLength seconds.
We expect auction bidders to pass-through any gas fees they pay during trading to the protocol. They are under competition, so those that do not will find themselves with less capital over time relative to those that do.
In order for the protocol not to take losses it’s important it knows that bidders will bid in the auction near market prices, which requires that gas prices are not significant relative to the volume of the auction.
Note: Every collateral in the basket should be a large enough portion of the basket that is worth trading at the configured minTradeVolume, even when we are only looking at 5% or 10% of its balance.
RToken max trade volume
This represents the maximum sized trade for any trade involving RToken, in terms of value.
It is important to remark that in addition to the RToken, each collateral plugin will also have its own max trade volume defined.
RToken supply throttles
In order to restrict the system to organic patterns of behavior, we maintain two supply throttles, one for net issuance and one for net redemption.
When a supply change occurs, a check is performed to ensure this does not move the supply more than an acceptable range over a period; a period is fixed to be an hour.
The throttling mechanism works as a battery, where, after a large issuance/redemption, the limit recharges linearly to the defined maximum at a defined speed of recharge.
Limits can be defined (for issuance and redemption) in rToken amounts and/or as a percentage of the RToken supply.
Issuance throttle amount
A quantity of RToken that serves as a lower-bound for how much net issuance to allow per hour. This quantity is defined in RToken amounts.
Must be at least 1 whole RToken. Can be set to a very high numer (e.g. 1e48) to effectively disable the issuance throttle.
Issuance throttle rate (%)
A fraction of the RToken supply that indicates how much net issuance to allow per hour.
Can even be set to 0, to solely rely on throttle amount.
Redemption throttle amount
A quantity of RToken that serves as a lower-bound for how much net redemption to allow per hour.
Defined in RToken amounts.
Must be at least 1 whole RToken. Can be set to a very high numer (e.g. 1e48) to effectively disable the redemption throttle.
Redemption throttle rate (%)
A fraction of the RToken supply that indicates how much net redemption to allow per hour.
Can be 0 to solely rely on the throttle amount.
Long freeze duration(s)
The number of seconds a long freeze lasts.
Long freezes can be disabled by removing all addresses associated to the role.
The unstaking delay is the number of seconds that all RSR unstakings must be delayed in order to account for stakers trying to frontrun defaults.
In the case of a collateral token default, RSR holders are not given a choice as to whether their RSR is used to cover the default, since selfish anonymous actors would often choose not to follow through. So, there must be a delay when withdrawing RSR from the staking contract.
In practice, whenever an RSR staker chooses to withdraw their RSR, they must submit a transaction, wait X amount of time, and then submit another transaction to complete the withdrawal. During the waiting period, their RSR continues to be subject to forfeiture in the case of a collateral token default, but stops earning its pro-rata share of the RToken’s revenue.
The goal of this delay is to make it so that at any point in time, staked RSR that has not had a withdrawal transaction initiated is at least X time away from being withdrawn.
Reward ratio (decimals)
The reward ratio is the percentage of the current reward amount that should be handed out per block.
Default value: 3209014700000 = a half life of 30 days at a period of 12s.
Mainnet reasonable range: 1e11 to 1e13
Use cases of RTokens
The RToken platform is a tool to aggregate relatively stable assets together to create basket-backed stablecoins. Our intention in the long term is to facilitate the creation of an asset-backed currency that is independent of fiat monetary systems. We envision this becoming possible once enough asset types are tokenized.
We are laying the groundwork early, as not many assets are tokenized yet. Today, the main use-cases we see are (1) a more decentralized USD-backed coin, which reduces dependence on any one fiatcoin issuer, and (2) a single simple USD-based coin that packages the yield of DeFi protocols.
The main purpose of allowing and encouraging many RTokens is so that open exploration and competition can lead to the discovery of the best type of basket and governance system. There's a lot to explore, and it's better not to keep that under the control of the initial founding team. That said, we still anticipate a single dominant RToken emerging over time through that evolutionary process, and we think consolidation into one or two dominant options is a good thing, since simplicity and ubiquity are important for an asset to really be a currency.
We also can imagine fintech companies using the protocol to launch their own branded basket-backed stablecoins, though this wasn't the central intent of opening up the platform.
We don't expect lots of RTokens to be created right after protocol launch. Rather, we think that if one or two RTokens become large and known, that will inspire the creation of more over time.