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 is app.reserve.org released by ABC Labs the company that's leading 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.

The Reserve Protocol applies a system of factory smart contracts that allows anyone to deploy their own smart contract instance.

When someone decides to create an RToken, they will have to define exactly what the initial configuration of that RToken will look like. This includes choosing which ERC-20 assets & back-up assets the RToken will be backed by, what weight each of these assets will have in the basket, but also how and by whom the RToken will be governed. There are also many more nuanced parameters that the RToken creator will have to consider.

Non-compatible ERC-20 assets

The following types of ERC-20s are not supported to be used directly in an RToken system:

These tokens should be be wrapped into a compatible ERC-20 token to be used within the protocol. A concrete example is the use of Static ATokens for Aave V2.

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 RToken to be created during the early stages. Rather, we think that if one or two RTokens become large and known, that will inspire the creation of more over time.

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.

Trading delay (s)

The trading delay defines how many seconds should pass after the basket has been changed before a trade can be opened. It can be useful to have some buffer time before rebalancing in order to ensure sufficient auction participation.

However, in the modern MEV day it's a bit unnecessary. Some new RTokens may still find it useful to set a nonzero value, but in general it can be safely set to 0 for most RTokens.

Default value: 0 = 0s

Batch auction length (s)

The length of a Gnosis EasyAuction, one of two trading methods supported by the Reserve Protocol.

The situations to keep in mind when determining this value are:

If it is set too low, back-to-back batch 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 in general due to organic price movement, and the protocol will be much slower to rebalance. This is because the price can swing more than maximum trade slippage in the unfavorable direction.

Default value: 900 = 15 minutes

Dutch auction length (s)

The length of the custom Dutch Auction, one of two trading methods supported by the Reserve Protocol.

The situations to keep in mind when determining this value are:

If it is set too low, more slippage will be encountered due to precision loss. If it is set too high, the protocol will be slow to rebalance.

Default value (mainnet): 1800 = 30 minutes;

Default value (base/arbitrum): 900 = 15 minutes

Warmup period

The warmup period defines how many seconds should pass after a collateral asset resumes being SOUND before issuance or trading can resume.

This parameter is useful to defend against short-term oracle manipulation attacks and in cases where asset prices may be experiencing larger fluctuations.

Default value: 900 = 15 minutes

Withdrawal leak (%)

Most RSR withdrawals will not trigger a refresh of asset prices (which can determine whether collateral has defaulted), allowing for cheaper withdrawals. The tradeoff of not refreshing prices with every withdrawal is that the system runs the risk of prices becoming stale, and the system not being able to react sufficiently swiftly to market conditions.

This parameter attemps to balance these tradeoffs, by setting a fraction of RSR stake that should be permitted to withdraw without a refresh of asset prices. When cumulative withdrawals (or a single large withdrawal) exceed this fraction, gas must be spent to refresh all assets. Setting this number larger allows unstakers to save more on gas at the cost of allowing more RSR to exit improperly in the event of a default.

Default value (mainnet): 5e16 = 5%

Default value (base/arbitrum): 1e16 = 1%

Backing buffer (%)

The backing buffer is a percentage value that describes how much extra collateral to hold as backing in the BackingManager. It is important for preventing RSR seizure during normal rebalancing.

Too low a backing buffer can result in RSR seizure during normal rebalancing. While unpleasant, the stronger reason to avoid this is to prevent situations where RSR stakers are incentivized to unstake before rebalancing proposals in order to avoid paying their fair share. The backing buffer should be set high enough to prevent this outcome.

On the other hand, too high a backing buffer can cause RToken and RSR staker yields to drop during large supply increases as new issuance creates additional debt burdens that must be filled in with new appreciation. In general the amount of time this takes is short, but when an RToken grows fast enough it can outpace and result in no revenue being recognized for a while.

Note: It is not important to consider the backing buffer for default scenarios, only governance-led rebalances.

There is no one-size-fits-all -- each RToken should customize their backing buffer parametrization based on the following factors:

(i) how many days of yield will it take to fill the backing buffer (ii) the expected loss due to slippage if the least-liquid backing collateral is removed; and (iii) the sensitivity of RToken holders to variance in their yield.

Default value: 15e14 = 0.15%

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.

Default value: 0.005e18 = 0.5%

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 result in more slippage or 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.

Warning: Every collateral in the basket should be a large enough portion of the basket that is worth trading at the configured minTradeVolume at typical supply levels.

Default value: 1e21 = $1k

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.

Any trade will be sized to be less than or equal to the minimum of both plugin's max trade volumes.

Default value: 1e24 = $1m

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.

The redemption throttle must always exceed the issunace throttle.

Issuance throttle amount

A quantity of RToken that serves as a lower-bound for how much net issuance to allow per hour.

Defined in RToken amounts.

Must be at least 1 whole RToken. Can be set to 0 to solely rely on the issuance throttle rate.

Default value: 2e24 = 2,000,000 RToken

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 issuance throttle amount.

Default value: 1e17 = 10% per hour

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 0 to solely rely on the redemption throttle rate.

Default value: 2.5e24 = 2,500,000 RToken

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 redemption throttle amount.

Default value: 12.5e16 = 12.5% per hour

Short freeze duration (s)

The number of seconds a short freeze lasts.

Governance can freeze forever.

Default value: 259200 = 3 days

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.

Default value: 604800 = 1 week

Unstaking delay (s)

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.

Default value: 1209600 = 2 weeks

Reward ratio (decimals)

The reward ratio is the percentage of the current reward amount that should be handed out per second. It applies to both the Furnace (RToken melting) and StRSR (RSR rewards).