With the announcement of the updated version of the Reserve protocol, many questions arose from the RSR holder community. Staking, RTokens, supply and the burning mechanism were some of the main points of discussion.
With this in mind, we decided to conduct an AMA on September 13th on the Cryptocurrency subreddit, where our CEO Nevin Freeman, COO Gabriel Jimenez and Lead Protocol developer Taylor Brent were pleased to answer all questions related to this updated protocol to be released in Q4 2021.
Why hold RSR to stake for a small APY on the new RTokens, with a risk to those tokens, when one can own USDC or BTC and get 8.8% and 6.2% APY on projects like Celsius?
If one believed that at least one RToken would get very big in the future, then one might conclude there would be an opportunity for an excellent return on capital spent on RSR today when staking that RSR later.
Here’s an illustrative example:
If RSR forms the interest/income, will this be derived from the circulating supply or freshy minted tokens?
The yield will initially exist as RToken, so if it were paid in RSR, that would be accomplished by the protocol market-buying RSR on DEXs with RToken in order to distribute RSR to stakers instead of RToken directly.
Why did you decide to abandon arbitrage for staking?
We decided we didn’t like that the prior model put all RSR holders in the same boat financially, exposing them to the risk of all RTokens attached to RSR regardless of whether they wanted that. A consequence of that property was that it would be necessary to be very protective of which RTokens were created and attached to RSR.
But we realized it would be better if we could openly encourage many approaches to RTokens, so that Reserve users could explore the space of possibilities as a crowd in a less controlled way. A super inspiring example for me personally was Uniswap — there are 35,000 pairs on Uniswap (!) because anyone can just deploy one. Permissionless exploration is one of the things that seems potentially extremely powerful about crypto, and in the domain of currency, it was actually argued by Hayek that it would be the best way to land on the best currency.
Another reason I preferred the new model once we thought of it is that it’s actually easier to think about. Rather than a vague connection via token supply changing up or down, RSR holders can strongly connect themselves financially to the RTokens they choose, where their particular RSR back the RToken and they directly earn income as a result. For the next couple of months there will be some confusion as people learn the new model, but I think in the end it will be easier to reason about.
With the new protocol, everybody will be able to create their own RToken and back it by a basket of assets. Does it mean I can create an RToken backed by 50% Bitcoin and 50% ETH ? Can I choose that the price of the RToken fluctuates or it has to be pegged to $1 ?
Yes, there is that flexibility. You’d have to use WBTC and WETH, but yeah you could create that RToken.
Will there be a lock in period when backing an RToken?
Yes, there has to be a delay on un-staking, so that RSR stakers can’t just pull their tokens in the case of a black swan default on the RToken collateral. (Basically as RSR stakers we are offering insurance, so there has to be some commitment to actually pay out.) The delay is a parameter that can be tuned via governance, and we are currently thinking somewhere between 7 and 30 days for the initial value we’ll set it to when deploying our initial RTokens at mainnet launch.
The market cap for RSR stands at 100b tokens. Is there any mechanics or plans to burn this supply?
In the updated protocol, there is no burning. On the flipside though, there is also no minting.
It would be an inefficient use of resources to burn any — when I consider that option, I tend to think that strategically distributing tokens as incentives would be a strictly better use. In general the plan is to do some staking and participation in governance, and over time to continue distributing them to people and companies that help realize the vision, in various ways as we see fit.
How will fees for using a RToken be perceived outside the app? I don’t know how blockchain works very well. Can you put a transaction fee on someone using your RToken on the blockchain? Is it a fixed fee or does it depend on the value of the transaction?
Yes, you can implement fees on the blockchain level. Our implementation leaves it open for governance to set a fee schedule that is based on transaction amount and doesn’t have to just be linear, can be more nuanced.
However, with transactions often happening on “layer two” fees get complicated. I think direct transaction fees are the least likely of the three RToken business models to thrive.
If you are running your own side chain how are you guaranteeing network security?
People sometimes use terms differently in crypto, so I’ll give my characterization of what a sidechain is first, and then try to explain where we expect to land.
When people talk about sidechains they are usually referring to any chain that has its own security model. In this sense every L1 is a sidechain to every other L1. Yes, Polygon is a sidechain to Ethereum, but Bitcoin and Ethereum are sidechains to each other as well. Once framed this way it becomes more obvious that “sidechain” isn’t a very useful term, as people are really using it to try to capture something about the intended use-case for their L1 rather than something fundamental about its security. You might as well just recognize a sidechain for what it is: a different L1 blockchain with its own security guarantees. (Caveat: Yes, I know Polygon validators have to stake MATIC on Ethereum…this doesn’t make it secured by Ethereum, it just means Ethereum can cause Polygon to stop functioning.)
To give a concrete example from my own life: I’ve been an avid AAVE user on Polygon for the past few months. Don’t get me wrong, it was great, I really appreciate what the Polygon folks have done here. But the whole time I was counting on the bridge to Ethereum to continue functioning correctly. ETH on polygon isn’t actual ETH. It’s the right to get ETH back at a later date as long as the properties of the L1s and the bridge continue to hold, and that’s a very different thing. It’s okay to use sidechains, but people need to be aware of exactly what tradeoff they’re making.
A true L2 scaling solution, on the other hand, doesn’t introduce additional assumptions about network security. The L2 can cease functioning entirely and funds are still able to be retrieved. As you might imagine, L2s are much harder to design as a technology because you just have a lot less to work with. On Bitcoin the best you can do is the Lightning Network, which is just a form of a state channel. On Ethereum we have something called rollups, which are much more powerful. They’re so powerful, in fact, that Ethereum 2.0 devs have decided to abandon execution shards entirely in favor of relying on rollups for scaling in the future. The thing is, rollups are technically quite difficult to build, which is why we see the insane Ethereum gas fees we see today. Fortunately we’re right on the cusp of the rollup revolution: Optimism, Arbitrum, ImmutableX, Aztec, zkSync, and others are all just coming to market. My long-term guess is that zkRollups will win out in the end, but in the short to medium term we should expect optimistic rollups to play a large role in the maturation of Ethereum. And contrary to L1 blockchains, a rollup only gets cheaper as more people use it.
That’s a long-winded way of saying: our main protocol will be deployed to Ethereum L1 for maximal decentralization and our stablecoin will be bridged to L2 rollups in order to support consumer-facing transfers. We expect the long-term costs on rollups, especially after ETH 2.0 data sharding, to be orders of magnitude lower than L1 Ethereum, and all without sacrificing security.
On your website you say that over the six months after mainnet launch an additional 37.4b RSR tokens will be unlocked. As someone invested in the project for a while now this worries me a lot, as I fear that this will devalue my current holdings. Any comments on this matter?
It’s a reasonable concern. People often say I’m FUDing the project when I try to make sure people understand these numbers clearly, but I think it’s important that people be aware of the numbers and make their own predictions about what will happen.
The good thing about most people in the market being aware of these numbers is that the information is more likely to be priced in. For example, many have said they have not bought RSR due to this concern, and after the unlocking period the concern will no longer be there, so perhaps there is a class of would-be participants who will join in at that point. Also, on some exchanges it’s possible to short RSR, so it may be that market participants that think this will cause a downward movement in price will have already placed their bet before the unlocking happens, and at some point shorts have to be closed via re-purchasing what was borrowed and sold.
But I’m not trying to argue that the price outcome will clearly be one way or the other. Only time will tell. It was my job to set the unlocking schedule in the first place (so if you don’t like it, I’m the one to blame) and I do my best to try to have everyone understand it, but I have to be careful not to make any price predictions about how it will play out.
Why exactly 100 billion tokens?
We picked a big number in part because we have hopes that the project will succeed and that could bring RSR to a very high market cap — if that happens, we don’t want the individual coins to feel too expensive like Bitcoin does, where some people feel it’s not accessible to them. But at the end of the day the market cap and your percentage are what matter, not the number of individual units you hold.
How will the team resist the temptation to “print” a bunch of tokens for themselves?
Only the smart contract system itself will have the power to print more stablecoins. It will only do this when it takes in assets of comparable value.
What is the team planning to do with the 50b tokens?
Deploy them slowly and carefully for as long as it takes to make the project a success. We’re working on an updated lockup mechanism that will commit us to not releasing too many at once.
Can we have non-chain assets as collaterals? How about cash?
All collateral must be a token, so any off-chain collateral would need to be tokenized first.
Can RSR be part of the collateral basket of an RToken? Can any other tokens insure an RToken?
It could be, though that would be a pretty volatile RToken, so I’d be surprised if anyone wanted to use it as a currency!
RTokens, in our current design, can only be insured by RSR.
What is going to make you more appealing than all the other stablecoins out there?
The reason our current stablecoin is used in the countries we work in is not because of any properties of the coin itself, but because the Reserve app makes it convenient to convert local currencies in and out of it quickly and cheaply.
In the future, we intend to support a few different kinds of stablecoins — one that’s pure USD backing, one that’s USD with yield baked directly into the coin (where you don’t have to do anything to receive appreciation relative to USD, the value of the coin just goes up a little each year), and eventually one that’s not pegged to the dollar and instead is backed by a basket of more diversified assets.
How are you different from what UST&LUNA(Terra) is doing? What’s your main talking point?
On a high level, I’d say the main difference is that we have focused on making RSV accessible in markets with significant currency problems, where there is a really significant organic demand for an alternative, whereas Terra has focused on getting UST used in markets that (in my personal opinion) are in less need of an alternative currency through use of extrinsic incentives.
I think these different strategies come from different underlying intentions, where the Terra team is intending to maximize the price of LUNA in the short term through whatever means is most effective, and the Reserve team is intending to make stable currency universally accessible to all (even if USD has problems in the future), with the aim to make a healthy profit in the long term.
Does Nevin and the team anticipate there is a large market for companies/people to create their own stable coins?
We’re not sure yet, but interestingly that isn’t actually the main hypothesis behind making it so that anyone can easily deploy a basket-backed stablecoin with the Reserve.
The main idea is that allowing different baskets to be created and compete against each other is a more reliable way to discover the basket that the market is most in favor of. This idea was popularized by Hayek in a book called “the denationalization of money,” where the argument is that if private firms can create currencies, capitalist-style competitive pressures will lead to a better currency outcome than a government monopoly.
The goal isn’t to have a zillion different currencies that are all popular, but rather to allow open competition for one or maybe two to rise to the top and take over.
What is the teams definition of ‘stable’ when it comes to stable coins. The US dollar was inflated by close to 5% the past year… does that mean stablecoins should go up in value 5% to be worth $1.05? Will a true ‘stable’ coin increase in value to keep up with annual inflation?
The goal is stability in actual purchasing power, so ideally you should be able to pay for the same amount of rent 10 years from now as you can today if you held the coin in the meantime. It’s not easy to achieve! But that’s the goal.
Are you planning to go the DAO route in the future?
The protocol development and governance is definitely headed that direction.
You recently announced a great partnership with Axie Infinity. Have you other partnerships in the pipeline? And if you can’t talk about them publicly, can you let I’d know if we should expect any news on this front in 2021?
Technically the Axie integration wasn’t a partnership, we just listed their tokens so that users can convert their Axie earnings into local currency. That has been pretty popular so far! We’re continuing to watch the Play to Earn phenomenon and may list others if they gain traction in our markets, but don’t have any such listings scheduled.
What other projects in the Play to Earn category are you keeping an eye on?
We are looking into this area to further expand the options for the markets that we are available on, given the opportunity that they represent for emerging markets. The goal is to make it easier and more accessible for people in those markets, to change it to their local currency.
The projects that already have traction on those markets are the ones that we are taking a look at. PvU has plenty of adoption in Venezuela and we are considering a possible listing if the demand is high.
When will be the Coinbase listing ? Q4 2021?
We’re not allowed to comment on that.
Will there be a marketing roadmap for Q4? What upcoming marketing campaign/event are you most excited for if any?
Marketing priorities are adapted to our customer-centric approach but on emergent markets that is where the app is focused has particular considerations. Facing an economic crisis with a humanitarian dimension required your marketing to be centered on the community as is our strategy, and dynamic by design.
We are not out there trying to shill the project but instead focused on building the solutions that can change millions of people’s life.
However, we have started to publicly talk about what we are doing, about our experience with crypto as a tool for change. And you can expect more of that in Q4.
Do you have any plans to support other regions?
Yep, we intend to eventually offer service all over the world. I want the Reserve app to be a universally accessible way to use stable currency and to allow you to transact with anyone anywhere in the world. We’re taking it country by country at the beginning though.
We are generally planning to expand through Latin America first, but also have our eyes on the US, Lebanon, Zimbabwe, China, and are generally open minded on the question of where to go next.
Currently you are operating in Venezuela, Argentina, Colombia & Panama. What other countries do you have planned for roll out in 2021 and beyond.
When do you envisage a move into Europe, US, Asia and Africa?
We have been working to launch in Mexico, and we are aiming to do that this year. Other countries that we are considering from LATAM as our next target to open are Peru and Chile. We have started our BD there to find the right independent liquidity providers to work with, But we don’t have a target date for those countries yet.
For other areas of the world is part of the vision to serve first, in those places where is needed the most. Lebanon, Nigeria, is on our radar and we are doing research on those countries. Is in our plan to open there, but is a move that won’t happen this year.
Do you guys have plans to expand into Africa? I know usually it’s us as users who expand coins into certain territories but do you plan on educating in Africa who has near-identical use case opportunities to those you have described?
I am in Zimbabwe, we have had the worst inflation in the history of inflation. We would benefit from what you guys are doing.
Yes, it is my intention to eventually bring the project to Africa, including (especially) Zimbabwe. We don’t know much about it yet as total outsiders, so step one is our own self-education and bringing on team members who are well suited to lead that part of the project. I have one open line of dialog with someone who’s an expert in order to start learning more.
In Ethiopia it’s really hard for citizens to transact from birr to USD since the banks limit access and withdrawals. Being that most citizens are unbanked and ATMs are controlled by the government. How would an Ethiopian citizen on ramp? (Terra also hasn’t solved this problem yet)
Thats what our experience in challenging countries like Venezuela and Argentina allows us to optimize. Every country has their own problems, but many lessons are applicable with other countries with capital controls.
I still cannot relate to the particular difficulties in Ethiopia. However, once that we are ready to further get to the African market we might apply many of the solutions that we have already built for that problem
I’m curious about the end state you envision for Reserve in Venezuela. Do you think the government will allow RSR to replace the Bolivar as the most used currency?
We are not aiming to replace the bolivar or local currencies. We want people to have an option, an alternative that they can access to a stable currency and connect them to the international market.
Freedom of choice and financial freedom means that people don’t have to be limited anymore to a currency that is losing value. Local regulation in Venezuela states that the government guarantees that cryptocurrencies can be used as a means of payment. (I worked in order to make that possible in Venezuela)
Your app is currently not supported by iOS. When will this be rolled out?
We are definitely getting ready now for it. There are going to be a few UX/UI changes to the app in the following weeks, and right after that, the support for iOS is going to become our priority to be released.
Do you have any place we can see the number of new users each month using the app? I would be interested to see the data and growth rate of you can provide it?
We dont have currently public dashboards and public stats. It is our intention to provide those live stats in the future
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