Crypto, specifically BTC, serves as a long-term alternative to current dominant stores of value, including Gold and USD. The case for crypto as a fiat alternative is more clear than it has been in the past, with everyday consumers experiencing the perils of inflation. However, the path for BTC and even the rest of crypto to reach mainstream adoption is ripe with volatility, rendering the asset class an inadequate alternative to any highly-regarded fiat currency. This inherent issue with the industry is more apparent than ever as rumors of war have sent frothy valuations down swiftly…
Reserve protocol is one of the many teams trying to tackle this issue, and they’ve been at it since 2019. The protocol gives users and builders the tools to deploy their own currencies and attempt to gain adoption. In today's edition, we’ll be briefing you on Reserve, a protocol that has been building for a while but whose use case is arguably as clear as ever. Reserve is an asset-backed currency platform, allowing users to deploy and govern their own stablecoin-esque currencies, dubbed ‘RTokens’.
Deploying these currencies involves specifying parameters for permissionless minting and redemptions. These tokens are yield-bearing, and asset-backed, tackling a lot of the problems present with traditional money while avoiding the volatility of the broader crypto market. Popular currencies built using the Reserve framework include both traditional USD-based assets, as well as currencies based on ETH.
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Overview
Reserve is a permissionless platform to launch and govern 1:1 asset-backed currencies. It is a decentralized protocol aiming to provide the building blocks for the development of a scalable, decentralized, and stable currency.
The primary goal is to address the need for stable money, in contrast to the inherent volatility of cryptocurrencies like Bitcoin ($BTC) and Ethereum ($ETH). This is achieved through a permissionless monetary system based on asset indexes.
The Reserve protocol allows for the creation of asset-backed, yield-bearing, and overcollateralized stablecoins on Ethereum and other EVM chains, with plans for future interoperability across major smart contract platforms.
Instead of directly building a stable currency, Reserve has developed a protocol that allows anyone to create a token, known as RToken, which is backed 1:1 by a collection of other tokens. This process can be executed within minutes without the need for coding skills.
RTokens
Stable asset-backed currencies introduced through the Reserve protocol are termed "RTokens." These RTokens are created by depositing the entire basket of backing collateral tokens and can be redeemed for the same basket. Consequently, RTokens tend to maintain a market value equal to the underlying collateral.
RTokens are backed by a combination of ERC-20 tokens and can be protected against collateral default by staking Reserve Rights ($RSR). The process of creating RTokens is completely permissionless: userssimply directly interact with the protocol smart contracts, specifically with a factory contract that allows anyone to deploy their own smart contract instance, in this case an RToken.
When someone creates an RToken they specify a list of assets and asset quantities.. It is also necessary to specify how and by whom the RToken will be governed. This process can be performed by directly interacting with the protocol smart contracts or through the RToken deployer interface. The creator specifies the following parameters, all of which will be explained in upcoming sections of the report:
Token name
Ticker
RToken mandate: describes what goals its governors should try to achieve, providing common ground for governance decisions.
Primary Basket: The target collateral basket that defines which collateral needs to be deposited for minting new units.
Emergency Collateral: To replace the base collateral in case of default.
Revenue distribution: indicates what % of revenue goes to token holders and up to N constituencies and what % of revenue goes to $RSR stakers.
Backing manager parameters:
Trading delay: how many seconds should pass after the basket has been changed before a rebalancing trade is opened.
Warmup delay: how many seconds should pass after the basket regained the SOUND status before an RToken can be issued and/or a trade can be opened.
Batch auction length: the duration of batch auctions performed via Gnosis EasyAuction
Dutch auction length: how many seconds long falling-price dutch auctions should be. A longer period will result in less slippage due to better price granularity, and a shorter period will result in more slippage.
Backing Buffer: how much extra collateral to hold before recognizing revenue. Protects against RSR seizure during rebalance.
If you’re finding this information useful, you can access our full Reserve Project Breakdown for FREE.
Our full ~80+page report goes over the intricacies and attractive attributes of Reserve, how to deploy and govern asset-backed currencies, the role the RSR token plays in the ecosystem, and more…
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