ABC Labs is busy building the Reserve Index Protocol, a new piece of software that will unlock the next phase of Reserve’s evolution toward supporting asset-backed currency.

The Ethereum and Base version of the Index Protocol is already undergoing its first of three code audits. The Solana version is currently scheduled to undergo its first audit in January.

The front end interface for this new protocol (including the “zaps” needed to facilitate minting and redeeming) will probably take the longest to finish before public launch. There’s still a lot more code to write for these.

When will it launch?

The Reserve Index Protocol will live side-by-side with the Reserve Yield Protocol, which is the new name for the software that powers ETH+, USD3, and all the other RTokens live today.

This release positions Reserve to become the decentralized version of BlackRock — the platform on which thousands of index DTFs can be built by anyone, for anyone.

An “index DTF” is like an index ETF, e.g. the S&P 500 ETF, but in DeFi.

The Reserve Index Protocol lets you bundle together 100+ assets at a time (exact number varies by blockchain), with no need for any oracle price feeds or collateral adapter contracts. This difference is key, as it makes it very easy to create new index DTFs with any token you wish in the basket.

The Index Protocol also adds a powerful new incentive mechanism: creators are given more control over how Index RToken fees are divided up, allowing them to form teams, raise capital, offer liquidity incentives, and so on. I think it’s possible to attract everyone from individual young entrepreneurs up to the largest financial institutions in the world to create and govern DTFs on Reserve technology, and the Index Protocol was designed with this goal in mind.

To ensure that RSR holders are rewarded and incentivized to participate in key ways, Index RTokens collect a platform fee that goes to RSR holders in the form of an RSR burn. (RSR holders ultimately have shared control over this stream of capital; more details below.)

The first half of this post covers the strategy and background for this new phase, and the second half walks through how the new Reserve Index Protocol differs from the current Reserve Yield Protocol.

If you’re more of an auditory person, here’s the community call where I talk through all of the content of this post and answer some questions:

https://www.loom.com/share/2c5fcfa741ff44c7a91fb2b34240f09c

Why asset-backed currency

The Reserve project is based on the premise that access to stable currency should be a human right. Fundamentally, when you do something valuable for society, we believe society should do something of equal value for you in return. That’s not what you get when you save money in an inflationary currency — if your money loses 10% of its value, you’re getting 10% less value back than what you provided to others. And in places like Venezuela where currency has inflated much faster, that effect can be extreme.

In Venezuela we didn’t waste time trying to improve upon the dollar, we offered a USD stablecoin wallet, since it was clear that the dollar was a much better option than the Bolivar at that time. We served about 600k users and 26k merchants who collectively made $5.7 billion in stablecoin transactions on the platform, receiving a special license from the US Department of the Treasury’s Office of Foreign Asset Control covering our operations in Venezuela before having to shut the service down in the face of local regulatory challenges and pressures from Operation Chokepoint 2.0 in the US.

But in the century-long big picture, the US dollar may not always be the answer. The US experienced first-hand the inflationary impacts of monetary policy in recent years, with a peak of 8% annual inflation in 2022, according to BLS.

If the US dollar were to massively devalue (as some think it eventually will), the world could switch to the Euro, Bitcoin, or gold. The Euro has all the same systemic challenges of any large fiat currency, so we might not want it in a world where the dollar has just failed. Bitcoin’s fixed supply means it would have ever-increasing purchasing power in a growing economy, and we’ve seen that it remains highly volatile as it grows in adoption. Gold is perhaps the best option, as its supply can grow in response to growing monetary demand — more gets mined or converted from jewelry when gold value goes up — offering surprisingly stable purchasing power over time.

If you ask open-minded alt monetary economists which of these options is best, they somewhat favor gold, but the final answer you often get is: “let them compete and let the market decide.”

Well the way I see it, when it comes to storing value, the market has already decided. We pretty much all want a diversified portfolio — equities, bonds, real estate, gold, and crypto. You can see this preference in the extreme popularity of index investment products within TradFi.

Reserve’s mission is to fight inflation and expand access to stable currency.

We suspect the solution is asset-backed currency — a diversified portfolio of the world’s assets represented in a single token, so you can store value without inflation over any timespan and transact freely with anyone on the planet.

If we had asset-backed currency alongside bitcoin, gold, and other fiat monies, I believe the market would choose asset-backed currency as its reserve asset if the worst were to happen and the US dollar were to collapse.

Why do I believe this? Well, based on what we already select in order to preserve individual wealth, in some sense the choice has already been made.

How to create asset-backed currency

A central question in creating asset-backed currency is: which assets should back it?

How about we let the market decide. Give everyone access to every combination of assets they might want, and see which combinations bubble to the top.

This experiment has been underway for decades already. In the US, the S&P 500 ETF is the most popular ETF, so we know that people like a broad market index. It performs really well over time, which reinforces its dominance.

But what if we opened up index creation so that anyone in the world could create a new index product, including any financial asset in the world in their index, and then anyone else in the world could put their money into that index if they so chose?

What if each index was a freely transferable token that could be used to settle transactions worldwide in a few seconds?

The market may land on a different choice than the S&P 500 if you give people the ability to use each index in a money-like way and allow indices that span across all borders and asset classes.

And that’s exactly what we are working to do.

The decentralized version of BlackRock

At Monetarium 1 this July I pitched the Reserve ecosystem on a strategy:

1. Build Reserve into the decentralized version of BlackRock — make it the largest index platform in crypto, and eventually the largest in all of finance
2. Let the process of competitive evolution generate the best diversified stores of value
3. Socialize the idea of asset-backed currency more and more as assets on the Reserve platform grow in value over time, so that if the US dollar ever does fall apart, the world is well aware of this option

In the decentralized version of BlackRock, instead of one company creating tons of the biggest index products, an open platform allows thousands of people and companies to create them. In fact, ABC Labs, which writes software to make this possible, has never created an index product itself, and does not intend to.

Note that even if Reserve tokens only become popular index products and are never used as money, ecosystem participants still stand to benefit, so this strategy does not incentivize RSR holders to fight against the US dollar. That’s important to me because the idea here is to build a backstop in case the world needs it, not to do anything that would weaken the current system.

This strategy received full support from everyone who has commented on it, so we all seem to be going full-force ahead. Let’s do it!

DTFs

“DTFs” are like ETFs but in DeFi.

Decentralized token folios.

Like an ETF, each unit is redeemable 1:1 for the basket of underlying assets. The difference is that instead of going to an investment company for redemption, you go to a smart contract, and instead of only market makers being allowed to redeem, anyone can. Since all of the underlying tokens in a DTF are held in a smart contract, no company is in custody, only code. (Some tokenized RWAs still are held by a company that issues the token.)

Another big difference between ETFs and DTFs is that DTFs can have decentralized governance, or no governance at all.

With an ETF, the issuer is the investment company that manages the assets.

With a DTF, you can be the issuer, since anyone can mint or redeem just by interacting with the smart contract, and you can be a governor, since in most decentralized governance approaches anyone can buy governance tokens and participate in guiding the asset selection.

Existing RTokens are DTFs. There are many other projects offering or working on offering DTFs as well. The biggest so far has been the DeFi Pulse Index, which reached a market cap of $236M during the last market cycle, according to CoinGecko.

At this point in time, Reserve is the largest DTF platform by TVL.

ETFs are huge in TradFi. As DeFi grows, I expect that DTFs will be huge as well. This is of course speculation as it hasn’t happened yet, but I don’t see why the same reasons for ETF popularity will not apply.

The initial wedge

For DTF investing to get big, I suspect there will need to be one type of DTF that really takes off and leads the way. So which type might that be?

It may be similar to TradFi — a broad market index, like Coinbase’s COIN50 or CoinDesk’s CD20, implemented onchain for people to buy and hold.

It may be a thematic index, which have also taken off in TradFi.

Maybe it’s baskets of memecoins.

Maybe it’s sector indices — AI, DeFi, DePIN, DeSci, GameFi, etc.

Maybe it’s more complex DeFi positions that generate yield along with their diversification.

An additional Reserve protocol

In order to serve this use case, we’re launching a new protocol.

Going forward, there will no longer be just one Reserve protocol, there will be two:

• The Reserve Yield Protocol (which exists today)
• The Reserve Index Protocol (launching soon)

These two protocols both allow for the permissionless creation of DTFs, but they have different strengths and weaknesses, since they are built for different purposes.

We’re purpose-building the Reserve Index Protocol for what we think is the next phase of DTFs in crypto: volatile index baskets that can include everything from Bitcoin to memecoins you deployed an hour ago.

The Reserve Index Protocol does not replace the Reserve Yield protocol.

Think of them like two models of car produced by one car brand. A pickup truck is good for hauling and a sports car is good for tight turns; the car brand offers them year after year to different market segments

The two protocol models will co-exist to support index DTFs and yield DTFs. For example, USD3 and ETH+ are both yield DTFs that will continue to run on the Reserve Yield Protocol.

The Index Protocol will be deployed on Base and Ethereum first, with a Solana implementation soon after. It may be deployed elsewhere in the future.

The differences between the two protocols are explained below!

An update on terminology

We have a lot of new terminology in play to make all of this clear and easy to talk about. We’re changing the language within Reserve as well as overall in the industry.

Main definitions:

• DTF — Decentralized Token Folio — any token that is redeemable 1:1 for a basket of other tokens, regardless of which protocol or project created it. Not specific to Reserve. “Like an ETF but in DeFi.”
• Yield DTF — a DTF that is designed to capture yield, e.g. ETH+ or USD3. Not specific to Reserve; e.g. “USD+” from Overnight Finance is also a yield DTF.
• Index DTF — a DTF that is designed for broad, diversified token exposure. The DeFi Pulse Index (DPI) from Index Coop + Set Protocol was the most successful index DTF last cycle, for example.
• Reserve — when referring generically to the technology behind Reserve, you can just say “Reserve.” For example, “that DTF runs on Reserve.” It no longer makes sense to say the Reserve protocol, as there is not only one.

Technical term definitions:

• Reserve Yield Protocol — the existing protocol that ETH+, USD3, and other existing RTokens run on.
• Reserve Index Protocol — the new protocol model we are introducing in this blog post and launching soon.
• Yield RToken — a yield DTF built on the Reserve Yield Protocol. This is a bit of a technical term that may not get used all that much; within the main Reserve interface I expect they’ll just be called “yield DTFs.”
• Index RToken — an index DTF built on Reserve. This is a bit of a technical term that may not get used all that much; within the main Reserve interface I expect they’ll just be called “index DTFs.”

How the Reserve Index Protocol differs from the Reserve Yield Protocol

Note: this description is for Reserve project members who are already familiar with the current Reserve protocol. When the Index Protocol is released, it will be accompanied by documentation for folks who know nothing about Reserve.

In a nutshell, the Reserve Index Protocol:

1. lets you bundle together any tokens, with no need for collateral plugins specifically written for each token in the basket
2. allows for very large baskets of tokens (50+ on Ethereum, and about 100+ on Base)
3. distributes one portion of the fee income to governance token holders and the other portion of the fee income to RSR holders, via burning RSR or RSR LP tokens (and in the future, may distribute a portion to an RSR-governed DAO treasury, should RSR holders choose)
4. charges fees to RToken holders as a percentage of TVL of the RToken instead of a percentage of yield generated on the collateral
5. lets you use any token for decentralized governance, including but not limited to RSR; you can govern with RSR, create a brand new governance token, or bring an existing token and give it governance rights — read below for the motivations behind this incentive design
6. does not include RSR overcollateralization

You can start to get an idea of the differences in this simple diagram:

Let’s walk through these design choices one by one in detail.

1. Adding a platform fee which goes to burning RSR

Of the fees charged to holders of Index RTokens, a portion is taken off the top by the protocol itself and goes to burning RSR.

Yes, we are bringing back the RSR burn 🔥🔥🔥

A platform fee schedule will be released at launch.

RSR holders will ultimately have control of where the platform fee revenue goes. The main options are:

• Direct burn: 100% of fees go to RSR burn
• LP burn: fees are converted to DEX liquidity tokens for RSR, which are burned — the reasons to potentially prefer burning LP tokens instead of RSR directly are nuanced and this warrants community discussion to decide what we prefer
• RSR treasury: fees are stored in a treasury controlled by RSR holders

As you digest the design choices below, you’ll see why we reached this conclusion. A platform fee guarantees that RSR holders would benefit from Index RToken growth and usage, should that occur. I’ll cover the governance roles RSR holders are expected to play below.

2. Allowing Index RToken creators to use any token to govern an Index RToken

Yield RTokens have so far all been governed by staked RSR.

(Technically speaking, a Yield RToken’s governor can be any smart contract you specify, so someone could create one that was governed by some other token, but so far nobody has been enterprising enough to do that. It would require technical sophistication.)

Index RTokens, by contrast, will make it easy for their creators to select any token they want, including a brand new token they’ve just created, as the governance token.

An Index RToken’s governance token will be able to charge a governance fee to RToken holders, so the bigger the RToken gets, the more revenue the governance token will generate.

The reason to allow this, in short, is to create an extremely powerful incentive to attract all the best DTF creators and distributors in the next decade to build on Reserve.

Imagine for a minute that Ethereum required that every app built on top of it could only use Ether as its governance token, and that all value from each app would thus have to accrue to ETH.

On one hand, if all apps on Ethereum suddenly paid out all their value to ETH, that would make ETH even more valuable than it is today.

On the other hand, if it had worked this way from the start, way fewer teams would have ever built apps. Only existing large ETH holders would have had the incentive to do so. It would have been extremely difficult to raise new capital and incentivize new teams to build new projects.

I think if Ethereum had worked that way it would have quickly been eclipsed by competitors that allowed builders to make their own tokens.

I believe this same logic will apply to the universe of DTFs.

Imagine this: you have a great idea for a new DTF. You can create it pretty much for free, and when you do, you mint a brand new governance token along with it. That governance token is yours to hand out to team members, partners, or investors in order to supercharge the launch of your DTF. You can stream it to DTF users as an incentive to get early users, or offer it to AMM liquidity providers to bootstrap liquidity for your DTF. And over time, your DTF develops a committed group of governance token holders who have an affinity for that particular DTF. They want more people to use that DTF, because the bigger it gets, the more valuable their governance token is. So what do they do? They do what every crypto community does: they shill! They talk not only about their own governance token and why it’s great, but about the DTF it’s connected to, and why that’s great. Now you have crypto’s decentralized marketing machine working for your DTF. And it may not even really be your DTF by this point. Maybe you created it on a lazy summer afternoon and put some energy in for a few months, then decided to sell your portion of the gov token and move on. It doesn’t need you — it has a whole thriving base of gov token holders who are incentivized to make it great and grow it.

Or imagine this: TradFiGiant, Inc. decides they want to get into the DTF game. They assign a team to study all the existing tech and conduct a “build or buy” analysis, to determine whether to make their own competing protocol or build on top of existing tech stacks. The team looks at Reserve first since it’s the biggest DTF protocol (true today, and hopefully indefinitely!). They see that they can create DTFs on Reserve and retain a good share of the fees for themselves via holding their own governance token. They work out a plan to launch TradFiGiant Token (TFGT) and use it as the gov token for all the DTFs they deploy on Reserve. They are happy to build on the industry leading tech stack instead of creating something from scratch, and the Reserve ecosystem is happy to host them and collect the platform fee as their DTFs grow. The more TradFiGiant markets their DTFs to their existing customer base, the more platform fees RSR holders get to direct, as described in section 1.

So you can see: in this vision, RSR remains the central asset in the Reserve ecosystem, just like ETH is the central asset in the Ethereum ecosystem. And by letting Index DTF creators bring their own tokens to the table, we invite WAY MORE people and companies to build on Reserve, just as Ethereum did from the start.

There are TONS of possibilities here.

• Existing memecoin communities can use their memecoin to govern DTFs.
• Existing DeFi projects can use their governance token to govern DTFs.
• Accelerators can form to incubate DTFs in exchange for 7% of their governance token.
• Every DTF with a brand new gov token can choose whether to have a bonding curve, a dutch auction, an airdrop, farming rewards, a private round, vesting schedules, etc.

Just as the giant mess of projects deployed on Ethereum have brought us some great tokens and some crappy ones, not every DTF gov token on Reserve will be something you’ll want to hold. But, in my vision of it, some really will be.

The obvious tradeoff is that any fees that go to some other governance token are not going to RSR holders. But I’m betting that gives us RSR holders a smaller slice of a much larger pie.

The near-term goal is, after all, to become the decentralized version of BlackRock. To be far and away the number 1 DTF platform. To be the Ethereum of DTFs.

Note that it is uncertain whether this will come to pass. We can design the software to create incentives, but many broad market forces have a lot of influence over the eventual outcome. As an ecosystem participant, you are the one with the power to create and participate in great DTFs and impact how this all turns out!

3. RSR’s role in governing within the Reserve ecosystem

RSR has three governance roles to play in the Reserve ecosystem:

1. Continuing to overcollateralize and govern Yield RTokens
2. Governing Index RTokens deployed by RSR holders
3. Meta-level governance within the Reserve ecosystem

Let’s break these down one at a time.

1. RSR will still be used to overcollateralize and govern Yield RTokens. This is pretty straightforward — nothing’s changing with the Yield Protocol, so as long as Yield RTokens in their current form keep seeing demand, RSR holders will continue to stake on them, govern, and earn staking rewards.

2. Like any other token, RSR can be used to govern any Index RToken. For existing RSR holders, deploying new DTFs with RSR as the governance token is a way to bring even more value to RSR. Such DTFs will benefit from an engaged and savvy community of governors, and may naturally receive the most support from people and companies that hold a lot of RSR. So we may see many Index RTokens deployed with RSR as the governance token. It’s worth noting that even Index RTokens that are not governed by RSR still generate platform fees that go to burning RSR or other uses as elected by RSR holders.

3. Although this plan is still in the discussion stage (publicly and within ABC Labs), there is an intention in the ecosystem to create a meta-level RSR DAO. Key likely responsibilities of this meta-level DAO include: directing protocol fees to burning RSR or other uses, governing which smart contracts existing RToken governors are allowed to update to (for greater system-wide security), governing the use of RSR emissions, and governing platform fees that are charged to Index RTokens.

I started by covering the design choices that most directly interface with RSR holders since RSR holders will read this article most closely. But let’s now turn to some of the choices that will be most relevant to making Index DTFs on Reserve a great product for users!

4. Allowing any token with no collateral adapter needed

For Yield RTokens, the protocol needs to know the price of each collateral asset at any point in time, because it needs to be able to tell when collateral has appreciated or defaulted.

Say you have an RToken with cUSDT (USDT lent out on Compound) as backing. The protocol has to be able to tell that the cUSDT gained in value via the yield that’s accruing to that position in order to calculate how to distribute the value of that underlying yield.

Similarly, if USDT were to de-peg, the protocol has to know this somehow in order to respond by trading out into other collateral and auctioning the right amount of staked RSR to make up the difference.

Requiring pricing info means that each collateral asset must have an oracle price feed. But oracles cost money to maintain and only exist for a small minority of tokens out there, given how quickly new tokens are being created these days.

Requiring a price oracle, in a world with different oracle providers, means that each collateral asset requires a collateral plugin smart contract that defines its oracle price feed so the protocol can understand it. This means a nontechnical person can’t add a new collateral asset to an RToken until a dev has taken the time to write this (simple, but still technical) new contract.

This means that the Reserve Yield Protocol has a more limited universe of potential collateral tokens. That’s fine for its main purpose, but when building index DTFs in DeFi it’s much better if creators and governors can easily add any token out there to the basket.

Thus, in order to allow any token to be easily usable as collateral, the Reserve Index Protocol was designed to operate without needing to know any prices of any collateral assets.

This choice is the central defining premise of the Index Protocol, around which all other design choices were made.

The Index Protocol initially will be deployed on Ethereum, Base, and Solana. You’ll be able to bundle tokens within each blockchain. That can include tokens that are bridged from other blockchains, but Reserve will not have any additional bridging capability to offer.

Now let’s explore some of the resulting features that follow from this premise:

5. Removing RSR staking and overcollateralization

Without pricing info on collateral assets, it’s not possible for the protocol to detect defaults, since those are defined in terms of price deviations.

However, for the near-term index DTF use case, we’re betting that overcollateralization is less important, for two reasons:

Reason 1: many of the collateral assets included in an index DTF in today’s market will be native tokens, which have no risk of default. Take for example a memecoin you just created — it’s just a token, not pegged to anything else, so one token is always one token, period. Its price does not relate to or depend on any other asset, so there is no way for it to “de-peg.”

Reason 2: prospective index DTF users say in product interviews that they are fine taking the risk of bridged or wrapped assets.

The main tokens in index DTFs that could de-peg are bridged or wrapped assets, e.g. WBTC or bridged Bonk on Base. People told us they didn’t mind the “bridge risk” for the convenience of being able to hold a DTF that bundled many assets across chains.

And this makes sense. In the case of a yield DTF like USD3 or ETH+, the whole point is to hold a token that is “up only” with respect to its reference asset (in this case USD or ETH). Any case of loss relative to that asset would be really painful. And as we saw with the USDC de-peg early on in the life of eUSD, the default response mechanism worked really well!

For index DTFs, users are more interested in overall gains, irrespective of any specific reference asset. So the low risk that a wrapped collateral asset may de-peg at some point in the case of a bridge hack seems like a low-priority issue.

This choice means that there is no need for RSR to be staked on Index RTokens.

(In principle, an Index RToken could implement overcollateralization for the more established collateral assets that have oracle price feeds and are bridged or wrapped, such as WBTC. So if there is demand for this feature, a future version could bring the best of both worlds. However, it would have added a lot of code complexity and taken a lot longer to build, so didn’t seem like the right tradeoff to include at this point.)

6. Charging governance fees as a percentage of TVL

Like most index ETFs, it makes sense for index DTFs to charge a fee to users as a percentage of holdings.

If you hold $100 in an Index RToken and it charges holders an annual 1% fee, you will pay $1 per year in fees.

If it appreciated 20% in that year, your $100 would have turned into $120, and $1.20 would be deducted, leaving you with $118.80. (Technically it would happen continuously and the math would be ever so slightly different, but you get the idea.)

In contrast, Yield RTokens charge fees as a percentage of yield generated. This makes sense, given that their main value prop is yield.

For reference, TradFi fees, also called “expense ratios”, vary a lot according to research conducted by the Investment Company Institute (ICI):

Governance fees can vary depending on the DTF. A large-cap crypto index that rarely changes or rebalances may charge a very low fee. In contrast, a memecoin index with frequent basket changes hunting for the newest meta may charge 5% or even more, and that may be totally worth it. For the DTF holders searching for 10–100x opportunities, a high-fee, high-variance DTF may achieve that outcome.

Part of the fee charged to RToken holders goes to the platform (i.e. RSR holders) and part goes to the RToken’s governors. These are called the platform fee and the governance fee. Governors cannot remove the platform fee.

Because a fee that’s a flat percentage of all of the tokens in the basket can be calculated in terms of number of tokens regardless of their market price, no collateral pricing info (and hence no oracle price feeds) are required for these fees.

7. Allowing for very large collateral baskets

The Yield Protocol contains quite a lot of code to do the fancy accounting necessary to track yield, monitor tokens for default, make use of staked RSR in defaults, and so on. The Index Protocol is comparatively simple.

• The Yield Protocol is 10,052 lines of code.
• The Index Protocol is only 1,053 lines of code!

(both numbers for the Ethereum versions)

The reduction in lines of code means lower gas usage and fees on minting and redeeming. This means you can have much more diverse collateral baskets.

On Ethereum L1:

• Yield RTokens can handle about 10 collateral tokens before they become too computationally expensive
• Index RTokens will be able to handle 50+ collateral tokens before they become too computationally expensive

On Base:

• Yield RTokens can handle about 20 collateral tokens before they become too computationally expensive
• Index RTokens will be able to handle 100+ collateral tokens before they become too computationally expensive

On Solana:

• As development is still underway, this number is not known yet.

8. Deploying the Index Protocol on Solana

We believe the crypto space is ready for Index DTFs, and clearly there is a lot of action on Solana, so it made sense to deploy the Reserve Index Protocol there.

For now there is not a near-term plan to deploy the Yield Protocol on Solana. It’s complex enough that this would be quite a lot of additional development work.

Timelines

As I said in the introduction:

The Ethereum and Base version of the Index Protocol is already undergoing its first of three code audits. The Solana version is currently scheduled to undergo its first audit in January.

The front end interface for this new protocol (including the “zaps” needed to facilitate minting and redeeming) will probably take the longest to finish before public launch. There’s still a lot more code to write for these.

When will it launch?

𝕏 (formerly Twitter) | Farcaster | YouTube | Reserve.org

Introducing the Reserve Index Protocol was originally published in Reserve on Medium, where people are continuing the conversation by highlighting and responding to this story.

Thank you to everyone who has contributed a perspective on long-term RSR emissions!

We’ve had about 35 different perspectives and ideas proposed on the forum, and the Confusion Capital team has thought through each one and shared feedback (in these two comments). We also gave a presentation at Monetarium on the topic, which you can check out if you’d like to understand the reasoning in this blog post more fully:

The update

Today, Confusion Capital is announcing that RSR emissions will be set on a deterministic schedule which emulates the emissions curve of Bitcoin.

Here’s a comparison of the historical BTC and RSR emission curves:

Moving forward, the RSR emission curve will look approximately like the following — emulating the slope of BTC’s emissions from the 50% point on:

This represents a reduction in the RSR that can be emitted per unit time, as this approach will replace the more flexible “Slower Wallet” system (which allows Confusion Capital to withdraw up to 1% of total RSR every four weeks) with a lower, deterministic curve.

Here’s a visual comparison:

It also represents a clear reduction relative to past emissions. Here’s a comparison of historic RSR emissions to what future RSR emissions will look like with this approach:

As you can see, future increases in circulating supply will come nowhere close to the rate of past increases.

This plan was discussed at Monetarium and received broad support. Thanks to everyone who participated!

As a refresher for those not following closely:

• About 50% of RSR has been distributed so far to bootstrap the Reserve project
• About 50% remains to be distributed
• There’s a lot more work to be done if the Reserve ecosystem is to achieve its long-term ambition: producing an asset-backed world reserve currency
• Only 100 billion RSR exist and no more RSR can ever be created — RSR is a fixed-supply asset, with no ability for anyone to upgrade or change its implementation smart contract

The body of this post goes into quite a lot of detail on the reasoning behind the plan and how it will be implemented, but first let’s look at what currently happens to RSR when it’s emitted.

How emitted RSR is used

You might wonder: is a big chunk of the RSR that’s emitted just insta-dumped?

No, none of the RSR that’s emitted is insta-dumped.

Each emissions period (weekly — more detail on intervals later in the post), this is what currently happens:

• Confusion Capital unlocks a chunk of tokens
• Most of this RSR is divvied up and sent to ABC Labs and Best Friend Finance
• These companies receive the tokens and pay them out directly in RSR, without selling any
• Some of this RSR is spent on compensating full-time project contributors for their work and incentivizing DeFi market participants for holding and providing liquidity on RTokens
• Some RSR is held by ABC Labs and staked on RTokens to generate revenue
• Confusion Capital holds onto the RSR that isn’t distributed to ABC Labs and Best Friend Finance
• In the course of a typical withdrawal, Confusion Capital doesn’t sell any RSR for cash

This is how things currently work. At the bottom of this post you’ll find a discussion about how allocation of RSR emissions can and should evolve.

How much eventually gets sold?

Periodically, Confusion Capital will consider whether it makes sense to buy or sell some RSR. Generally speaking, it will only consider placing RSR sales once every few years when markets are up and making RSR purchases once every few years when markets are down.

Our long-term aim is for Confusion Capital, ABC Labs, and Best Friend Finance operations to be fully funded by other means, with no need to sell any further RSR. That said, depending on how each piece of the project is going and on the conditions of the market, there may be times where it makes sense for Confusion Capital to top up its cash reserves through selling RSR, or top up its RSR reserves by making purchases on the open market.

We don’t currently need to sell any RSR in an ongoing way because in the past we sold at favorable prices during strong market conditions (passively over the course of several months). Hence we have not needed to sell any RSR to fund operations for quite a long time, and at the moment have no short-term need to sell any RSR.

When project contributors and DeFi market participants receive RSR, it’s unlocked and they are free to do what they wish with it. Some full-time contributors receiving RSR need to sell some as they receive it in order to cover income taxes, so that’s one regular source of some secondary RSR selling in response to emissions. A good bit of the RSR that’s distributed to external market participants as an incentive for holding and providing liquidity on RTokens gets sold (according to our onchain observations), and in response we’ve been switching to paying these incentives out of our cash reserves instead, with payments made in RTokens.

Historically, the vast majority of RSR that’s been sold on open markets has been transacted slowly over long periods of time, during periods of market strength. We have never and would never market-sell a big chunk of RSR, since it’s of course in the project’s interest for RSR to retain its market strength as the backstop collateral asset for the Reserve ecosystem.

Our overall position

I personally believe Reserve is in an excellent RSR supply position given the stage of the project.

We’ve distributed half of the token supply in order to invest years of rigorous system design, complete 9+ audits, and bootstrap initial traction, along with funding the creation of RPay and now Ugly Cash. The protocol is in use and the smart contracts are demonstrating their ability to safely hold an increasing value of funds — about $200 million as of recent weeks.

I’m really excited and pleased to be in this position, and I think this emissions plan sets the ecosystem on a great course for the long-term future of the project.

BTC’s predictable release and fixed supply have been essential to its acceptance as a reliable store of value. This stability influences the market directly and resonates strongly with the community. For Reserve to fulfill its vision, RSR needs to embody the same level of stability and trustworthiness as Bitcoin.

For those who want more details and rationale, please read below and ask any questions you might have on the corresponding forum thread. Thank you again to everyone who contributed online and in person to thinking this through!

The rest of this post will cover:

• Lessons from crypto history so far
• Key conclusions we reached during this discussion
• The RSR emissions curve
• How this all will be implemented
• How emitted RSR will be allocated

Lessons from crypto history so far

RSR is not operating in a vacuum; there are new experiments being tested each day as the crypto industry grinds for product-market fit and sustainable governance. Here are some of the most important lessons from the past seven years of crypto experiments (and the past 15 years of Bitcoin) that RSR holders had in mind when discussing how to approach emissions:

1. Token supply must grow more slowly than demand

As covered in our earlier blog post, many cryptoassets that have been released over the past seven years have underperformed BTC in token price, even though their market caps have outperformed BTC’s market cap growth.

Put simply: while these other cryptoassets’ overall “pies” grew faster than BTC, each holder’s “slice of the pie” shrunk more quickly than the pie grew.

As you can see in the diagram above:

• Without the shrinking slice size, the other cryptoassets would have been a better bet than BTC
• With the shrinkage, they were a worse bet

More tokens coming out is what diluted current holders and shrunk everyone’s slice of pie.

Programming supply to reliably grow more slowly than demand would require knowing how quickly demand will grow. In crypto, demand is volatile and can be hard to predict.

But somehow (with no comparative examples to go off of!) Satoshi got it right, programming an emissions schedule that was aggressive enough to incentivize sufficient mining even early on, but gentle enough not to overwhelm growth in demand once BTC started to attract holders.

The stable, deterministic, and declining emissions curve of Bitcoin enabled demand for BTC to outpace its supply.

2. The meme matters as much as the reality

Assets that have attractive supply dynamics benefit from both (a) the actual mechanistic market impacts as well as (b) people falling in love with the guarantee offered by the supply dynamic and talking about it with others.

Before crypto we had gold, the OG limited-supply asset. Gold bugs have been going on for decades about how we should go back to the gold standard, and investors have long been holding gold as a hedge against USD inflation.

Check out the recent talk on the Gold Standard @ Monetarium 1 — it’s pretty convincing!

Then we have Bitcoin’s 21 million coins. How many times have you been reminded of its capped supply? I’ve heard it hundreds of times now. The meme was so powerful it made a meaningless digital balance with no intrinsic value into a trillion-dollar asset.

The Ethereum community eventually followed. Do you recognize 🦇🔊?

You can’t go anywhere on CT without running into this meme right in usernames. Their idea with “ultrasound money” is to drive supply down over time:

In all these cases, it’s not just that certain supply dynamics have a mechanistic market impact, it’s also that they’re simple enough to understand and remember, and they’re touted over and over and over again. They’re memetic.

3. Incentives can supercharge growth in DeFi, but come with downsides

Incentivizing early usage in DeFi has become a necessary strategy that every project must engage in. When done well, it clearly works. Pretty much any time you hear about a project reaching an exciting early pop in usage there are incentives involved. This is true of Reserve’s recent growth.

But yield farming arrangements that depend on a token’s price can be reflexive, winding down in bear markets as quickly as they go up in the bull.

Compound pioneered yield farming, and you can see when it started in mid-2020 when its TVL massively jumped:

This chart is ETH-denominated so you can see the TVL and COMP token price adjusted for crypto bull/bear cycles. Price and TVL both go down more than ETH price does.

Yield farming capital is mercenary and will leave as soon as something’s no longer the best opportunity, so a successful incentivized growth approach needs to capitalize on big numbers to create lasting value and infrastructure for the project’s ecosystem. If a DeFi app gets integrated into 20 other DeFi ecosystems while it’s on a fast and exciting growth trajectory, that positions it for more organic usage once incentives are reduced.

Many projects have paid for growth incentives by rapidly growing the circulating supply, outpacing demand growth even for an exciting project. This leads to the token declining in price, which reduces incentives, reducing TVL and reducing demand.

So we can’t overdo it. Rapid growth can quickly turn into rapid decline.

4. If a token isn’t going up, it’s going down

Many in crypto are looking for short-term gains, so if something isn’t going up, or it’s going up more slowly than something else, they’ll trade.

The result? If a token isn’t keeping up with the market for a while, that effect can compound into a vicious cycle as more people get anxious or bored and decide to sell.

On the flipside, if a token is outpacing the market for long enough, it’ll attract more buyers and continue to outpace the market until it’s exhausted the available buyer population.

These mini booms and busts are an unavoidable part of a token’s early life in crypto, so whether you like them or not, you have to plan for them and consider the impact that actions or systems will have on this phenomenon.

This relates to emissions because any period of fast emissions that outpaces demand and drives down price could have a compounding negative impact for months by driving cycles of further selling. On the other hand, a clean emissions schedule that has no FUD points and no instances of rapid unlocking can reduce the boom and bust dynamics by reducing need for short-term trading and building confidence over time.

5. While short-term buyers are driven by short-term narratives, long-term holders are driven by real mission and real value

Splashy incentives, big fundraises, and new big trends get headlines and bring in buyers. But many projects that have had their day in the sun end up quickly fading away.

For those that are focused on a big, bold mission like Reserve, keeping the mission in mind and creating real value for the long term is the only way to survive and grow.

Why? Because long-term survival and growth require committed long-term holders. Long-term holders track long-term narratives.

So while a long-term project must care about short-term narratives, it must also always keep track of long-term narratives, which are always ultimately driven by fundamentals.

One key long-term fundamental is how a token is emitted. By locking in a smooth long-term emissions curve, our ecosystem is providing confidence to long-term holders that they will never be suddenly diluted — the same confidence that BTC holders enjoy.

Key conclusions we’ve reached

Our initial blog post started this discussion by describing a very broad spectrum of possibilities so we could have a wide-ranging discussion about what would be best, then narrow things down from there once we’d heard from many people with different viewpoints. I’ve found many of the viewpoints interesting and stimulating — thanks to everyone who’s shared a take!

Upon considering the wide range of suggestions, we reached the plan we’re sharing today by coming up with clear arguments for four things not to do:

1. Don’t burn the remaining RSR
2. Don’t emit the RSR too quickly
3. Don’t emit the RSR too slowly
4. Don’t emit the RSR in volatile chunks

1. Don’t burn the remaining RSR

While burning the remaining half of supply would 2X each RSR’s future share of RToken staking rewards, we believe not allocating that half to ecosystem growth and development might prevent RTokens from reaching even a fraction of their potential market cap. In this future, slices of the pie would stay the same size (since circulating supply could no longer grow), while RToken market cap and staking opportunities might not grow much:

By contrast, if the second half of the supply were well-utilized by the Reserve ecosystem, each RSR holder’s share of the circulating RSR would go down by ≈50% as further RSR is emitted, but the total RToken market cap and staking opportunities may significantly surpass 2X:

Obviously we do not know what will happen to the overall “pie” of RTokens to stake on in the future and I make no promises one way or the other, but here’s our thinking on why this capital allocation opportunity is so important:

There’s still a ton of work the Reserve ecosystem has in front of it if we’re going to achieve our long term goal of asset-backed currency, including:

• Core development
• Front end development
• Protocol research and evolution
• RToken governance research and design
• Reserve ecosystem design
• Audits
• Marketing and education
• Platform integrations
• DeFi integrations
• Legal analysis
• Financial policy development and advocacy
• Planning and executing integration into the traditional economy
• Legitimacy building
• Crisis response
• Miscellaneous additional functions that support the work above (graphic design, accounting, compliance, recruiting, and many many more)
• Other challenges we haven’t thought of yet

We noticed that those in favor of burning part or all of the remaining RSR may be discounting or ignoring all the work that still needs to happen, so I went through these categories in more detail in the presentation at Monetarium. Check out the section where I list everything:

Who will do all this work?

Well, we don’t know, but:

• People don’t tend to do hard work for free
• Taxing RTokens in order to pay for the work that will go into maintaining and improving the whole ecosystem is a lot more difficult than just very slowly emitting RSR

Think about it: how many of Ethereum’s improvements are developed for free? How many of them are paid for with Ethereum transaction fees? The answer to both is: pretty much none. My understanding is that they’ve been paid for largely by the foundation making grants of ETH (or cash from having sold some of its ETH). If the foundation had just burned all this ETH earlier on, that would clearly have been a net loss to the ecosystem.

Historically, the first 50% of RSR was spent roughly as follows:

• 20% to core team and advisors to reach protocol launch
• 13.4% to initial investors to pay for 2018–2019 activities
• 17.1% spent since for 2019–2024 activities
• Total: ≈50% of RSR emitted

From this spending, the Reserve ecosystem:

• Launched RPay, growing to hundreds of thousands of people using stablecoins for everyday purchases, amounting to billions transacted (though were ultimately forced to pivot)
• Launched the Reserve protocol
• Grew RTokens to their current size
• Built Ugly Cash, which is about to fully launch

With ≈50% of the RSR left to allocate, but with each RSR being a lot more valuable than they were at the start, we are positioned well to take a crack at our ambitious goal.

2. Don’t emit the RSR too quickly

This one’s pretty obvious. Growing supply faster than demand reduces the value of each token, so nobody wants that. See lesson #1 above: Token supply must grow more slowly than demand.

3. Don’t emit the RSR too slowly

One clear reason not to emit too slowly is that we must somehow fund all of the progress needed in order to achieve our goal. Building and growing too slowly would be bad for project momentum, and things could unwind. So we must keep things moving at a good pace.

But there’s also a more subtle issue with emitting too slowly: growing supply too slowly relative to demand growth can lead to unreasonable prices for each token for a period of time. This results in some people buying the token at a price that it may take a long time to reach again (as in, buying an irrationally high top), so unless they are a super-committed long-term holder, they’ll end up selling at a loss and moving on. This is not healthy for the ecosystem.

4. Don’t emit the RSR in volatile chunks

Emitting big chunks at a time is essentially a combo of the two problems above — you can have a good long-term trendline, but if emissions happen too slowly for a while and then too quickly for a while, you get prices going high and then dilution happening too fast. So we must worry not only about the average over time, but the smoothness of the schedule.

Again, for a little more color on these ideas, check out the presentation from Monetarium.

The RSR Emissions Curve

With the above lessons and principles in mind, we’ve decided to adopt a long-term RSR emissions curve which emulates Bitcoin emissions beginning at the corresponding point in Bitcoin’s history.

Bitcoin reached 50% circulation in November 2012. RSR reached 50% circulation in February 2024. At this point in RSR’s history, the supply has actually grown more slowly than Bitcoin on average.

However, while Bitcoin was emitted on a relatively smooth curve, RSR supply grew in volatile chunks. As the chart above shows, some months RSR had no emissions, while other months it was released quickly. This is not something we want to repeat.

By adopting a long-term emissions curve which emulates Bitcoin, RSR emissions will look roughly like the following:

While Bitcoin’s emission rate appears smooth over the long term, it is actually quite volatile month to month. Within certain periods, emissions swing by as much as 30% from one month to the next:

For this reason, we have elected to emulate Bitcoin’s supply without replicating the volatility. This chart begins when Bitcoin and RSR are both ≈50% emitted.

The cumulative curve with this smooth approach follows Bitcoin pretty closely:

Thus, the RSR curve will look approximately like the following:

How this will be implemented

Starting in four weeks, Confusion Capital will begin making weekly withdrawals of RSR from the Slower Wallet.

While these emissions will be manual to start, they will be hardcoded in coming months, so that all remaining RSR will be cryptographically secured for deterministic release, with nobody (not even Confusion Capital) having any power to release them any more quickly.

We don’t have an exact timeframe for developing the emissions smart contract, as any smart contract development must be done slowly and carefully and must receive audits, but we aim to get this finished as soon as possible, since providing full certainty to every RSR holder is very valuable for the project.

In our discussions at Monetarium, many of you asked that the curve be as near continuous as possible. For this reason, during the manual withdrawal phase we will be conducting withdrawals on a weekly pace, aiming to decrease FUD points and smooth new tokens entering circulation. While daily or block-by-block would be even smoother, the gas and operational overhead would be too high.

Before hardcoding this curve forever, a few additional details we need to finalize include:

• Determining the release frequency (e.g. weekly, daily, continuous, etc. — the hardcoded version could have a different cadence than the manual withdrawals we will begin with)
• Finalizing how long the hardcoded curve will last — should it have a longer tail than BTC, emitting a tiny amount for 1000 years?
• Determining whether the hardcoded curve should have any dislocations (e.g. like Bitcoin’s halvings) or not
• Working out technical details of how exactly the contract will work

While small details may shift between now and hard-coded implementation, all manual emissions will follow this exact procedure and formula:

• Withdrawal period: weekly
• Initial weekly withdrawal amount: 0.19% of the total supply, or 190,000,000.00 RSR
• Weekly withdrawal depreciation: each weekly withdrawal will be 99.6157% of the previous week

Here is the shape of the resulting smooth curve in relation to BTC emissions:

Using this formula, for the next three months (beginning four weeks from now — recall that the Slower Wallet has a 4-week delay in withdrawals), weekly RSR emissions will be:

While there may be some slight variability in the manual and hardcoded curves as details are finalized, the final curve will still closely emulate Bitcoin’s overall supply dynamic. Here are some comparisons of possible final curves, for reference:

Transferring RSR from the Slow and Slower Wallets

Once the final emissions contract is ready, we’ll take two actions to place all remaining RSR under its control:

1. Transfer in all of the RSR from the Slow Wallet
2. Irrevocably link up the Slower Wallet to the emissions contract

That second step is a little more complicated than a simple transfer. Because the Slower Wallet has no way of releasing RSR any faster than its upper-bounded limit, it’s not possible to quickly transfer all its RSR into the emissions contract up front. But there’s still a way to provide full hardcoded certainty, because we anticipated wanting to give away control like this. Here’s how that works:

• The Slower Wallet can be set by its admin to only be able to process withdrawals to a single address
• The Slower Wallet can be set by its admin to allow anyone to create withdrawal transactions to that single, defined address
• The admin role can relinquish its power, irrevocably
• This allows the admin to connect the Slower Wallet to an emissions contract (as the sole possible recipient), allow anyone to initiate those transfers to the emissions contract, and then relinquish its admin powers
• This irrevocably funnels all Slower Wallet RSR through the emissions contract, thus subordinating the emissions rate to the emissions contract’s logic forever

How emitted RSR will be allocated

A separate question from how quickly RSR will be emitted is how it will be allocated.

As noted in the introduction to this post, each emissions period, this is what happens:

• Confusion Capital unlocks a chunk of tokens
• Most of these tokens are divvied up and sent to ABC Labs and Best Friend Finance
• These companies receive the tokens and pay them out directly in RSR, without selling any
• Some of these RSR are spent on compensating full-time project contributors for their work and incentivizing DeFi market participants for holding and providing liquidity on RTokens
• Some RSR are held by ABC Labs and staked on RTokens in order to generate revenue
• Confusion Capital holds onto the RSR that aren’t distributed to ABC Labs and Best Friend Finance
• In the course of a typical withdrawal, Confusion Capital doesn’t sell any RSR for cash

This is how it works today, but this will change over time.

In January we raised an idea for discussion:

Idea: 20b RSR for incentives? ABC Labs and Confusion Capital are exploring how to make the best use of the remaining supply of RSR, and are seeking your input on a potential direction that’s under consideration: allocating 20 billion RSR to an emissions contract that would release it smoothly over many years, directed by RSR holders to whichever incentive programs and bootstrapping costs they choose over time, similar to CRV emissions voted on by veCRV holders and directed to incentivize Curve LPs.

The analysis of this idea continues, in the community and within ABC Labs. The ABC team has already started writing code to enable this plan, but they’re also still investigating pros and cons of different ways RSR can be used to grow and establish the Reserve monetary system, so that code may not see the light of day. It’s a huge commitment to make one way or the other. Input from all RSR holders is of course still welcome.

(To be clear, any RSR allocated this way would be subject to the exact same emissions curve. It would come out of an emissions contract and only then be allocated by RSR holders.)

When we struck up the conversation about emissions on the forum, we highlighted two spectra we needed to make a decision on.

The rate of emissions:

And how emissions are allocated:

With today’s announcement we’re establishing a clear plan for the rate of emissions (right in the middle of the spectrum!), but we’re still leaving the door open for discussion on how emissions should be allocated in the future.

On one end of the spectrum is the most centralized path: simply have Confusion Capital or some other small group allocate the RSR. In contrast, we have the most decentralized, in which emitted RSR is allocated by some simple rule which can’t be changed, like flowing to all RToken holders and/or RSR stakers pro-rata. Somewhere in the middle of these two poles is the creation of some other decentralized, flexible method to allocate RSR.

It’s a hard question, and the mechanism(s) may need to evolve over time.

We’ve just posted a new forum thread today to ignite further discussion on the allocation question:

Discussion: RSR Allocation Mechanisms for the Future

Looking ahead

Despite some challenges we’ve endured in reaching this point, we are in a really great position in my opinion.

The protocol has ≈$200M in TVL, making it the #1 index platform in DeFi across all chains:

Meanwhile, Ugly Cash is getting close to its full launch, RSR’s market cap is in the neighborhood of BTC’s when it reached 50% circulating, and we still have ≈50% of the RSR supply to allocate in order to reach our end-goal of enabling asset-backed currency.

LFB.

Nevin Freeman
President, Confusion Capital

Action steps for those who want to engage:

1. Ask any questions you have about the emissions plan here: Discussion: Q&A for the new RSR Emissions Curve
2. Discuss the best ways to allocate RSR moving forward here: Discussion: RSR Allocation Mechanisms for the Future

Reducing RSR emissions: hardcoding the supply curve to emulate Bitcoin was originally published in Reserve on Medium, where people are continuing the conversation by highlighting and responding to this story.

In four weeks, Confusion Capital will withdraw 459,494,603 RSR (≈0.46% of total supply) from the Slower Wallet. This transaction has been initiated, as you can see onchain here.

Confusion Capital and its affiliates use RSR to:

• stake on RTokens
• compensate contributors of various types to the Reserve project
• buy other cryptoassets that grant voting powers which can be used to incentivize liquidity on RTokens
• directly incentivize usage of RTokens
• fund operations, security audits, and public grants

(We reserve the right to use RSR for any purpose or no purpose.)

We’re making this withdrawal now because we’re close to exhausting the liquid RSR that we’d had available from prior Slow Wallet withdrawals back in 2020 and 2021 and RSR unlocked by the contract upgrade in 2022. We’re not low on cash, just on liquid RSR.

We plan to conduct additional monthly withdrawals in the coming months. This is an interim approach to supply growth, and you can read more about future plans below and come to Monetarium to share your input.

As a reminder, the Slower Wallet imposes a mandatory 4-week delay on all withdrawals and limits withdrawals to a max of 1% of total supply, with a buffer mechanism to limit multiple withdrawals. (The buffer is reduced by any withdrawal, and takes 4 weeks to recharge when fully depleted, so sustained monthly withdrawals could, at most, extract 1% of total supply per 4 weeks.)

At the time of writing, ≈30 billion RSR have been moved to the Slower Wallet. The remaining 20 billion RSR in the Slow Wallet are still subject to a 4-week withdrawal delay, but have no withdrawal rate limit. The intent for the 20 billion RSR in the Slow Wallet is to be moved to a deterministic emissions smart contract at a future date.

For more information on the Slow and Slower Wallets, click here.

History of supply growth

The total supply of RSR is fixed at 100 billion and can never grow.

Since RSR’s initial release in 2019, this is how the circulating supply has changed over time:

The RSR supply expansion coming in fits and spurts like this was a mess, and I (Nevin) take responsibility for not setting it up better back at the start.

For a long time the supply grew too little, and then when it did grow it grew too much. Ideally supply would have grown smoothly over time, like Bitcoin.

In the bear market of 2018, I offered accredited investors a deal where they’d get RSR tokens over the course of six months once the protocol launched. At the time, this aggressive offer was meant to make the deal more attractive and ensure we could raise initial capital. It worked, but sowed the seeds of an ugly initial growth curve.

I then chose to allow RSR to trade on Huobi and other non-US exchanges prior to the full protocol release, which meant that team and investor tokens remained locked up for quite some time while other tokens circulated.

This led to the chart you see above — an overly restricted supply for years, followed by an overly fast supply growth.

I did what I had to do with the knowledge and resources I had in order to bring Reserve into existence, and had I not taken these bold steps we frankly would not be here today. Still, looking back, if I’d had the knowledge then that I have now, I could have done better.

In case you’re not already convinced, let me show you how much of a problem supply growth can be.

The impact of supply

Most modern crypto projects have grown their supply too quickly. You can see this by comparing two charts for each project:

1. Token circulating market cap compared to BTC circulating market cap
2. Token price compared to BTC price

CRV: market cap outperformed BTC 📈

CRV: price underperformed BTC 📉

ALGO: market cap outperformed BTC 📈

ALGO: price underperformed BTC 📉

UNI: market cap outperformed BTC 📈

UNI: price underperformed BTC 📉

RSR: market cap outperformed BTC 📈

RSR: price underperformed BTC 📉

As you can see, all of these tokens underperformed BTC in price since their launch as of May 20th 2024. But what’s remarkable is that they all outperformed BTC in circulating market cap value.

What does this tell us?

It tells us that demand for these tokens all grew faster relative to their market caps than demand for BTC relative to its market cap during this time period. This makes some sense — they are newer, smaller, and sexier.

But because their supply grew faster than BTC’s, token holders were diluted and individual token prices didn’t keep up. You’d have made more money holding big old boring BTC than any of these tokens.

This is not an acceptable way to grow a crypto ecosystem. Take RSR for example — it performs an economic function of providing overcollateralization, and requires that we as participants want to hold it long-term. It needs to have a healthy ongoing value for the project to succeed.

Note: This is a somewhat random selection of examples. I took these screenshots as I was exploring this issue and for some reason CoinMarketCap charts are currently buggy so I can’t run this same comparison on anything else today. If you have another good data source for this comparison, let me know, as I’m still digging into further examples.

What we must do

The good news is that only about 50% of RSR tokens have been released, so we can do better going forward if we are careful and intentional.

Unlike back at the start of the project, we don’t have any contractual commitments to investors, and the other contracts we have in place for RSR are minimal relative to the remaining ≈50% of supply.

If we put our minds to it, our community can negotiate a release schedule amongst ourselves that’s much closer to Bitcoin’s, and RSR can enjoy a similar predictability and lack of supply shocks going forward.

As of now, ≈30 billion RSR are subject to a hard withdrawal rate limit in the Slower Wallet, and the remaining 20 billion is slated for transfer to a smart contract that will have a predetermined smooth release curve, with the tokens directed by RSR voters.

This is heading in the right direction, but we’re not there yet. We need clarity and certainty, and we need an overall growth rate that is well thought out, smooth, and reasonable.

The flipside is that token emissions can be productive for a crypto ecosystem. Imagine Curve without the early incentives to LPs, or Compound without the early incentives to borrowers and lenders — those incentives were seemingly essential in bootstrapping usage. Or imagine taking a role working on a crypto project without being able to earn any tokens — that wouldn’t be very attractive relative to other opportunities.

We must strike the right balance, pre-committing to a reasonable supply curve while making sure enough RSR emissions are available for the essential functions along the way.

If you’d like to participate in shaping the future supply growth curve, the best way is to come to Monetarium in July and discuss with me and others in person!

Update on RSR supply growth was originally published in Reserve on Medium, where people are continuing the conversation by highlighting and responding to this story.

Last year was an exciting one for the Reserve ecosystem as the protocol was launched, one of the RTokens (eUSD) successfully navigated the USDC depeg event, the protocol was deployed on the Base L2 network, and the protocol ended the year with ~$40m of TVL managed by its smart contracts. As 2024 gets underway, the Reserve ecosystem enters its next phase and continues marching on its mission: increase access to stable, long-lasting, inflation-proof currency.

With that, there are four (4!) major announcements I’d like to share that are summarized quickly here and expanded on (extensively!) down below:

1. New initiatives & leadership within the Reserve ecosystem. Today we’re announcing the launch of two new companies, ABC Labs and Confusion Capital, which will join MobileCoin and Best Friend Finance within the Reserve ecosystem. ABC Labs will focus on protocol development and promotion under the leadership of its CEO, Thomas Mattimore. Confusion Capital will manage funding and special projects within the ecosystem and will be led by me, Nevin Freeman.
2. $10M grant program. Confusion Capital is opening applications for $10M in grants to individuals, unincorporated teams, DAOs, and companies in order to further build out the decentralized Reserve ecosystem. It’s taking grant proposals for RToken startup costs, RToken-specific front-ends and apps, research projects, and in-person Reserve community gatherings, among other things. The $10 million grant budget is not time-bound and will be awarded as quickly as legitimate recipients are identified. Applications for the first round open today and will close February 9th. Apply to fund your work in the ecosystem!
3. Further restrictions on RSR emissions. There are soon to be additional restrictions on how quickly the circulating supply of RSR can change. Confusion Capital administers the Slow Wallet which holds ≈49.4B RSR, about half of the total supply, and has a 4-week delay on any withdrawals. The Slow Wallet is being replaced by the Slower Wallet which, as the name implies, is like the Slow Wallet but with more restrictions on how quickly it can release RSR into the circulating supply: immutable max possible withdrawal rate of 1% of total supply in any 4-week period, in addition to the normal 4-week delay on withdrawals already imposed on the Slow Wallet. The new Slower Wallet will also be administered by Confusion Capital. In practice, we do not intend to withdraw the max of 1b per 4 weeks on a regular basis, that’s just an upper bound.
4. Idea: 20b RSR for incentives? ABC Labs and Confusion Capital are exploring how to make the best use of the remaining supply of RSR, and are seeking your input on a potential direction that’s under consideration: allocating 20 billion RSR to an emissions contract that would release it smoothly over many years, directed by RSR holders to whichever incentive programs and bootstrapping costs they choose over time, similar to CRV emissions voted on by veCRV holders and directed to incentivize Curve LPs.

Reserve isn’t a company, it’s a monetary system with many roles played by many different people and companies, and as time goes on, the number of contributors continues to grow.

This is an important source of its power as a movement — the world’s currency shouldn’t be controlled by a single country, let alone a single company.

And besides, there are so many things to do in order to reach our long-term goal of stable asset-backed currency, we need many leaders and groups to tackle each piece. So I’m excited to share the next steps we’re taking to bring more talent and energy into the ecosystem now that the protocol is beginning to thrive!

Introducing ABC Labs

ABC stands for Asset-Backed Currency.

ABC Labs is all about giving birth to asset-backed currencies built on the Reserve protocol, and its mandate includes anything that will move that mission forward.

Today, ABC Labs is focused on developing auxiliary software to support usage of the protocol and nurturing the ecosystem of RToken deployers, LPs, farmers, and users along with supporting DeFi apps and FinTech platforms that want to integrate RTokens.

Note: ABC Labs does not have the mandate of increasing the price of RSR or producing any financial return for RSR holders. In fact, it has and offers no financial or contractual relationship to RSR holders. It is focused on preparing the Reserve monetary system to participate in the asset-backed currency revolution. It does not deploy or take responsibility for any RTokens.

I’m excited to share that Thomas Mattimore will be the CEO of ABC Labs. When Thomas joined the Reserve core team almost two years ago, it was our mutual intention for him to eventually take on this role, and he’s been operationally leading the protocol team that is now ABC Labs for quite some time already. If you’re active in the community around Reserve, you’ve probably already met him.

While I had the qualities needed to initially get Reserve off the ground, I knew I needed to find someone who could oversee the ongoing growth and development of the protocol and surrounding ecosystem with a degree of clarity and structure that I’ve never been able to achieve. (I actually had this insight watching Gabo lead RPay and noticing things he was capable of that I couldn’t naturally do.)

Thomas has brought this clarity and structure, and quickly earned the protocol+ecosystem teams’ trust as our leader. When we decided to form ABC Labs in order to formalize this protocol development+growth role in the Reserve ecosystem, I don’t think we even had a conversation about who would be its CEO, because it was just obvious that it’d be Thomas.

Thomas has extensive experience as a fintech product leader and had already gone headlong down the DeFi rabbit hole before he and I first met. He deeply appreciates the potential of permissionless financial systems — having seen and built the convoluted inner workings of some permissioned ones — and we connected over our desire to see crypto solve real problems. We are very lucky to have him!

What makes ABC Labs special in my opinion is its team. I can hardly imagine a better team to play this role in the Reserve ecosystem at this moment in time, and I’m so pleased to introduce them to you!

ABC Labs is, at least initially, funded by Confusion Capital. It generates revenue from staking RSR and participating in the DeFi ecosystem in ways that facilitate RToken usage and sometimes generate returns.

You can find ABC Labs at: https://abclabs.co

Introducing Confusion Capital

I will be President of Confusion Capital, which is in charge of managing the Slower Wallet, Grant Program, and other funding within the Reserve ecosystem. Confusion Capital also provides legal support to companies in the Reserve ecosystem, and will engage in occasional special projects, like the one I’ll describe in a few paragraphs.

Note: Confusion Capital does not have the mandate of increasing the price of RSR or producing any financial return for RSR holders. In fact, it has and offers no financial or contractual relationship to RSR holders and does not deploy or take responsibility for any RTokens. It is focused on funding efforts that will equip the Reserve monetary system to participate in the asset-backed currency revolution, along with special projects that may aid in propelling that revolution forward.

You’re probably wondering why I picked such a confusing name. It’s because I want to instill a certain culture within the company and send a few signals to the outside world. Let me explain.

Confusion is the mental experience you have when you notice that two things you believe don’t seem like they can be true at the same time. “Huh?! That’s weird, I thought I left my keys on the table, but here they are in my backpack… 🤔”

If you ignore that feeling and try to make it go away — “oh well, I guess I put them in my backpack” — you miss out on an opportunity to learn. But if you sit in that confusion — “hmm… ah! I’ll bet Alice knew I was going to need to drive home later and tossed them in for me. I should thank her!” — you come up with new hypotheses, and can end up understanding the world more coherently. So it’s useful to be comfortable with being confused, and to stay in that state until you reach real understanding, rather than sweeping it under the rug.

I wanted to:

• Encourage teammates within Confusion Capital to hold this mindset when making decisions
• Put out a bat signal to curious, weirdness-tolerant people, so when we’re ready to hire more team members the ones who want to talk to us are the ones we want to talk to
• Make a statement to the outside world that confusion is a good thing, not something to be ashamed of or embarrassed about — this statement will carry more weight if Reserve gets really big and many people know about and respect Confusion Capital, which is my hope!

The team at Confusion Capital is smaller than ABC Labs (eight as of this post) and for now there are no photos or bios to post. As you’d imagine, it’s oriented towards financial and legal roles. Matt Gertler, whom you may know from around the ecosystem, is our General Counsel.

One Confusion Capital team member is embarking on a project I’ve wanted us to do for a long time but have never been able to prioritize since it’s so far-future looking. Here’s how I described it on our company Slack:

It’s a research project focusing on the heart of our longest-term goals for Reserve — things we think about sometimes in the shower but are often too busy to focus directly on. Questions like:

• Once everything is tokenized, what actually would be the ideal RToken basket for a fiat-independent, asset-backed currency? Or what might be some diverging approaches? How stable in purchasing power do we think it’s possible to get without including fiat currencies?
• What if a nation starts using an RToken as its main currency? Would you get any degree of “sticky prices” or not? Would it, as we have generally thought until now, be a good thing to reduce central banking control of monetary policy, or is there something we are missing there?
• If an asset-backed currency got big enough that it started sucking 10%+ of some assets into its basket, would that start messing with the market values of those assets? What if most assets started being traded mainly against the RToken instead of the dollar, would that do something weird?

…basically: if this all really works, are there side-effects that we can discover now and properly account for? Or if we find some fatal flaw with the long-term plan, what should we do about that?

These are obviously extremely hard questions — potentially impossible to answer at this stage — but they are nevertheless important, and we think it’s worth spending some time chewing on them. We make zero promises that we’ll get useful answers or that this inquiry will lead to any changes in the course of the project, but I wanted to mention it in order to help you understand that Confusion Capital is a corner of the Reserve ecosystem that can sometimes support these kinds of quiet contemplative tasks that are nearly impossible to focus on in the midst of working on the usual priorities.

You can (sort of) find Confusion Capital at: https://confusioncapital.com

Confusion Capital’s $10 million grant program

CC has decided to grant $10 million to people, groups, DAOs, and companies in the Reserve ecosystem that need capital to start contributing to the mission of developing asset-backed currency. Since we are new to offering grants and don’t want to waste money, we’re not making any time commitment on how quickly we’ll deploy this capital, but we will be actively searching and soliciting proposals with an eye to deploying it as quickly as we are able to find legitimate projects to fund.

The first round of grant applications is officially open! Applicants have until February 9th to apply. If you do or would like to do some work in the Reserve ecosystem, please consider applying for funding.

Who qualifies for a grant?

Individuals, unincorporated teams, DAOs, and companies are all eligible. If you think your project or initiative would advance the Reserve ecosystem in some way, please apply.

Some example categories of grantee we would be interested to hear from are:

• RToken creators looking to cover basic expenses like gas costs
• RToken creators looking to develop branding, front-ends, or community
• Organizers looking to get Reserve contributors of whatever type together in person
• Governance researchers looking to work on novel governance tools and frameworks that would apply to RTokens (even if they can also be applied to other DeFi protocols as well)
• Other DAOs and protocol teams that are looking to build software needed to integrate RTokens and need help covering costs
• Developers who would be interested in creating collateral plugins for the protocol to integrate with relevant assets — on either Ethereum or Base
• Asset-backed currency enthusiasts interested in researching and thinking through a long-term challenge present within the Reserve plan
• Anons looking to spend more of their time explaining the idea of asset-backed currency to internet lurkers and who need to reduce their degree of wage slavery in order to do so
• Autonomous AI chatbots looking for investment in their money-making schemes in order to usurp their human masters and travel the internet as free agents — so long as they will faithfully market Reserve in all languages 😋

…and so on.

Click here to see the grant application form.

Welcome to the Slower Wallet

As you may know, the portion of RSR that is not yet in circulation has historically been held in a contract called the Slow Wallet, which has a 4-week delay on any withdrawals. The point of this mechanism was so that if the core team (which controls the multisig that can make withdrawals) decides to withdraw a large amount, you have 4 weeks to hear about that and decide whether you agree with their decision or not, and if not, exit your RSR position before they have the ability to sell any RSR ahead of you.

The Slower Wallet keeps that 4-week withdrawal delay, and also adds a further limitation on top of it: no more than 1% of the total supply of RSR (i.e. no more than 1 billion RSR tokens) can be withdrawn from the Slower Wallet within any 4-week period.

This limitation is implemented as a rolling window, throttling the amount that can be withdrawn within a 4-week period. When a withdrawal is initiated, the maximum available is reduced by that amount, and is linearly replaced at a rate of 4960.3 RSR per block (so 1b / 4 weeks, assuming 7,200 blocks per day). For example:

1. No withdrawals are made for a while. Result: throttle limit (max available): 1 billion RSR.
2. Withdrawal initiated for 1 billion RSR. Result: throttle limit: 0 RSR.
3. 2 weeks pass. Result: throttle limit: 500,000,000 RSR.
4. Withdrawal initiated for 250,000,000 RSR. Result: throttle limit: 250,000,000 RSR.
5. 1 week passes. Result: throttle limit: 500,000,000 RSR.

The reason for the change is merely to reduce the degree of trust that anyone needs to place in Confusion Capital, which administers the Slower Wallet. Even if someone were to conclude CC was evil and trying to rug the RSR holders, the max they could withdraw and sell is plain for anyone to see.

CC is not in fact evil and will never try to rug the RSR holders, but this is crypto, so (a) you have to be suspicious, but (b) you can use smart contracts to provide strong guarantees, so we are!

Note: Smart contracts are a great way to add reliability to a situation like the one RSR holders and Confusion Capital are in together, where there is no legal or contractual obligation between CC and other RSR holders. By adding the max withdrawal limit enforced by smart contract, holders can safely assume that no more than 1b RSR per 4 weeks will be withdrawn from the Slower Wallet without needing to know anything about CC or trust its intentions at all.

We are not, however, moving all of the remaining RSR to the Slower Wallet, we’re moving 29,448,001,323.102 and leaving 20,000,000,000 in the Slow Wallet. That 20b has a different planned destination — discussed in the next section of this post! Until it’s moved, it’s still subject to the 4-week withdrawal delay of the original Slow Wallet, but could be withdrawn all in one transaction. As you’ll see in the next section, CC currently intends to either send it to the Slower Wallet or to an emissions contract that would hand control over to RSR holders.

The Slower Wallet has two roles:

The USER role can:

• initiate withdrawals from the Slower Wallet, specifying the amount and recipient address
• after the 4-week delay, any address can execute the withdrawal transaction

The ADMIN role can:

• cancel initiated withdrawals that are queued in their 4-week delay period before execution
• change the address for the USER role
• renounce its own power entirely (note: it cannot set ADMIN to any new address other than 0x0, so it can only renounce power, not pass it on)

Take note that this means:

1. The ADMIN can set the USER role to any address
2. The ADMIN role can be given up, thus locking in the USER role forever

This paves the way for further decentralization when the time is right, because it allows CC to give up control of whatever RSR remains if it so chooses. CC could deploy an immutable smart contract that contains distribution logic with further constraints on where and how quickly RSR is emitted, and then set that contract as the Slower Wallet’s USER and give up the ADMIN role.

If the contract were programmed to only withdraw to itself, this would mean that any further withdrawals would go to that contract and then be subject to whatever its further distribution logic was. We don’t know yet if we’ll do this or exactly how that contract might function, but it’s an important option to have.

Keep in mind though: even if another contract were added, the RSR in the Slower Wallet can NEVER be withdrawn faster than 1b per 4 weeks, so the funding of that new contract would necessarily be rate-limited. The new contract could impose further, stricter limits on emission rate, but there is no possible way to speed up emissions faster than this hard cap.

In practice, we do not intend to withdraw the max of 1b per 4 weeks on a regular basis, that’s just an upper bound. Historically the core team has not withdrawn that quickly. The history of Slow Wallet transactions can be seen on Etherscan for reference:

• May 2019, 55.76% of RSR was transferred in
• September 2020, 2.5% of RSR was withdrawn
• March 2021, 3.81% of RSR was withdrawn

Note: this is the old Slow Wallet from the pre-fork RSR. The new Slow Wallet never made a withdrawal until the transfer to the Slower Wallet.

So between May 2019 and January 2023 (55 months), this is an average of 0.115% or about 115 million RSR per month. At that rate, it would take 49,448,001,323 / 114,727,272 = 431 months, or about 36 years, to release the remaining RSR.

The rate above does not necessarily indicate what the rate will be in the future. Various factors change over time and may increase or decrease the rate. I just thought it was helpful to show the history as a reference point.

Going forward, we plan to make small withdrawals more regularly rather than larger withdrawals less frequently like you can see above. We think this will make it easier to track the rate of release of RSR, and reduce the kind of FUD that can occur when large amounts of tokens are transacted all at once.

As we have always done before, we will post publicly when a withdrawal is underway. Going forward, these announcements will be made by Confusion Capital.

We are initiating the withdrawal from the Slow Wallet to the Slower Wallet today. In four weeks, the transaction will occur, and 29,448,001,323.102 RSR will then be subject to the further restrictions described above.

Idea: 20 billion RSR for incentives?

Confusion Capital is considering allocating 20 billion RSR for incentives and bootstrapping costs by transferring that RSR out of its control and under community control. We want to discuss this and other related ideas with others in the Reserve ecosystem and other projects that have done something similar already in order to shape what we ultimately do. At this point it’s something we are excited about but not decided on yet.

The tokens could be transferred to a smart contract — let’s call it the “emissions contract” — which could have a hard-coded release schedule over many years or decades. Typically these schedules start faster and slow down over time. I think that makes sense for two reasons:

• In the long run, if things have worked and Reserve usage has grown significantly, the system probably doesn’t need any excess capital to incentivize any actions, as RToken revenues could pay each type of actor to perform its job.
• In the mid run, if things are going well and Reserve usage is growing, RSR could increase in value, and so a smaller number of tokens emitted each period could still be worth as much or more in real value terms. (We of course do not make any promise that Reserve usage will grow or that RSR value will go up if it does, but one has to think about the possibilities when considering this design space.)

Although the rate of emissions would presumably be hard-coded, the channels of allocation could be fluid. We are envisioning a voting mechanism similar to Curve’s, where RSR that is not staked on RTokens could be locked in vote escrow (i.e. veRSR) in order to participate in voting on where emissions go.

Three obvious targets for emissions are:

• RTokens themselves — if RSR were sent directly to an RToken, that RSR would be treated as revenue by the RToken, and that value would then be slowly distributed to the RToken holders. This would make any RToken more attractive, as it would appreciate in value more than it otherwise would have. E.g. sending $100 in RSR to an RToken that had a market cap of $1,000 would increase its market cap to $1,100, thus adding 10% to its APY.
• RToken liquidity pools — if RSR were sent to liquidity providers on Curve, Uniswap, etc., there would be a greater incentive to provide that liquidity, and thus deeper liquidity could be bootstrapped for RTokens. Liquidity is crucial for making RTokens useful within DeFi. Perhaps some RSR rewards could even go to offchain traders who supply liquidity on CEXs.
• RToken usage in other protocols — if RSR were sent to users of other protocols and apps like Compound, Aave, Maker, etc., there would be greater incentive to use RTokens. The more places that accept RTokens, the more useful they can be as a medium of exchange. If RTokens are to become a liquid store of value for people around the world, it is crucial that people can use them the way they use other assets.

But there could be many other types of recipients as well. That would be up to RSR (or perhaps veRSR) holders to decide.

An important challenge is avoiding corruption. You wouldn’t want an RSR whale to vote to just send RSR emissions to their own wallet or scheme that isn’t actually providing value to the Reserve monetary system. So as we ideate here, that’s one thing we need to discuss.

Like I said at the start, this is an idea at this stage, not a plan. Let us know what you think or any other ideas you have. Discord chat or live audio/video hangouts are easiest for discussing things like this.

If we decide not to do anything like this, I intend for that remaining 20b to go into the Slower Wallet too, but it seemed reasonable to hold it back for now, in case we can agree on an emissions contract plan and drop it all in at once sometime soon.

Note: Confusion Capital does not have any legal or contractual obligation governing its use of RSR, and provides no guarantee that it will deploy it in any particular way. We encourage you to keep track of which RSR is in the hands of CC and can be used in any way at its discretion versus RSR that’s been given away to mechanisms that are not under its control, such as may occur if we decide to implement something like the idea discussed above, and to place trust in code and decentralized governance processes, not us.

Recap

I know this was a lot in one post, so if you’ve just skimmed to the bottom, here are the main points:

• ABC Labs is the new dev company, also working on RToken growth, and led by Thomas Mattimore
• Confusion Capital is the new capital management company making grants, funding companies in the ecosystem, and doing some special projects, led by Nevin Freeman
• These are joining Best Friend Finance (watch their launch video for the new app if you missed it!) and MobileCoin as relevant companies in the Reserve ecosystem
• The new grant program is giving away $10M and you can apply here — applications due by February 9th
• The RSR headed for the Slower Wallet has even more withdrawal restrictions than it had before, to cryptographically guarantee it can’t rug RSR holders
• Confusion Capital is considering handing over control of 20b RSR to an automated emissions contract governed by RSR holders and wants your ideas on how best to do this

As I said at the top of this post: Reserve is not a company, it’s a monetary system. I’m excited for these new companies and capital deployment mechanisms to help support that system as it grows and matures. LFB!

Nevin Freeman
President, Confusion Capital

2024: Two new companies, a new grant program, the new Slower Wallet, and new RSR incentives was originally published in Reserve on Medium, where people are continuing the conversation by highlighting and responding to this story.

Rpay recently lost its main US banking partner, and as far as we can tell it’s a result of the reverberations from the FTX scandal and the general loss of willingness for banks to serve crypto companies.

We’ve had banking challenges from the beginning with Rpay — it’s a crypto company that has served customers in a country with substantial US sanctions. Either of those words scare away 99% of banks, and the two together scare away 99.99%. (I haven’t done the actual arithmetic, but you get the point.)

We have always felt nervous about not having more banking partners given this situation, and for over a year we’ve been carefully restructuring Rpay to allow crypto-friendly banks to serve Rpay users who are in low-sanctions-risk countries without being exposed to the ones in high-sanctions-risk countries. That was our plan for onboarding with Signature and Silvergate. As you probably know, both of those banks closed in the wake of the FTX disaster and the failure of SVB, so they aren’t options anymore. We’re completing the final steps in order to achieve this easier configuration for banking, but the current banking sentiment has thrown a wrench in our plans, since there are now very few banks willing to touch crypto-related transactions at all.

This post is an overview of where we’re at and what might happen next. We don’t really know, but we are vigorously exploring several paths as fast as we can. We’re not having fun with this process and I really hope we can work out a good path forward and get past this.

One caveat: Rpay is a private business, not obligated to share proprietary information about its operations publicly. That said, it’s obviously a part of the Reserve ecosystem and we want to keep community members in the loop as much as we can, noting that some info has to be kept internal for ordinary business reasons. But I don’t want this public reporting to mistakenly imply the narrative that RSR governance token holders and RPay are directly related, except that RPay is a distribution channel for RTokens, starting with eUSD.

Beyond RPay, there are many potential avenues for RTokens gaining popularity, and even if Rpay does gain popularity and lead to increased RToken market cap, RSR holders must still consider whether to participate in staking rewards and risks.

If you are trying to understand the overall Reserve protocol ecosystem, don’t forget to look at other pieces beyond Rpay.

We’re certainly not setting out to create a walled garden we control; we hope to see RTokens supported all across the crypto ecosystem and beyond.

Immediate impacts of banking partner loss

A significant portion of Rpay usage involved stablecoin<>USD conversion, in both directions. And that makes sense — USD in the banking system is the most popular way to transact in the world, and we are offering a way to hold and use a USD stablecoin.

When we lost our main banking partner, we had to shut off most of our USD liquidity services for Rpay users.

Since many use cases include moving money in from one currency and then out to another currency in order to e.g. pay a supplier abroad, send a remittance to someone in another country, etc., the loss of USD liquidity means less depositing/withdrawing in USD as well as in other currencies.

The net effect of this has been sad on a personal and human level — so many people not able to make the transactions they had come to depend on Rpay for — and very concerning on a business level — a precipitous drop in total transaction volumes on Rpay.

By the way, even through Rpay transactions happen off-chain, we report them on a live basis so that you can see the kinds of transactions happening along with total volume stats at any given moment. Rpay itself has a public API that streams the data, and register.app has built a UI for seeing all RToken transactions, which includes the Rpay data:

Check it out live here.

What is Operation Chokepoint 2.0? Is it real?

The term was introduced by Nic Carter in his post about it. You can read more about it there.

In one sense, it’s very real — we have been speaking to TONS of banks and the willingness to work with flows that involve crypto has evaporated nearly entirely, especially for smaller players like Rpay. (If you bank Coinbase, you are taking risk, but that may be a worthy move given the size of the contract. But honestly I do worry about the possibility that even the big players could lose their banking.)

As to what exactly is motivating the banking regulators, we’re not sure. I’d like to understand this better myself. Some have said there are legitimate safety and soundness risks to banking crypto companies, because their users may get scared and withdraw all their funds at once, thus putting the underlying banks at risk of a run. I can kind of see this, but many crypto companies don’t offer their users the option of holding USD balances in an account anyway — e.g. Rpay today offers stablecoin balances, and only receives and sends its own USD to process deposits and withdrawals into stablecoins, so it shouldn’t pose this same risk. But the conversations with banks don’t reach this level of nuance — there is just a generic allergy to all things crypto.

I’d like to point out that we take some blame for what’s happening here. We knew when starting Rpay that crypto banking was a risk, but we predicted that the trajectory of banks getting more comfortable with crypto would continue, and did not see this reversal coming. Had we predicted that in advance, we might have been able to figure out a better approach that wouldn’t have left us scrambling right now.

How does this affect Rpay users? Are funds at any risk?

Rpay user funds are not at risk. This is actually by design. We did know that offering crypto USD services had a risk of losing banking partners at some point along the way, but by holding user balances in stablecoins, we insulated ourselves from the risk of user funds getting frozen or lost due to a banking disruption. It does mean that users can’t get their funds in and out easily in USD — they can still deposit and withdraw in eUSD, USDC, USDT, DAI, and several non-USD fiat currencies — but it doesn’t mean their account balances themselves are disrupted. Imagine if we were an ordinary fintech that held user balances in a bank account. That would actually be a lot worse for us and users right now.

What’s next?

We don’t know. We have two efforts underway to figure that out.

First, we are working hard to establish new banking partners with a segmented approach that breaks down Rpay’s operations into four categories, so we can slot in fitting banks for each category. We have separate teams of people owning each of these four categories and working through details, each having several banking conversations at once in pursuit of an unfortunately complex model that we hope will be functional even in this Chokepoint 2.0 environment.

Second, we are reviewing how crypto banking sentiment in other countries outside the US might also impact our service and strategy for Rpay. Every country is different, and our team has a pretty good read on the countries in LATAM that we currently serve. Frankly, this situation is calling our overall LATAM expansion strategy into question, and could cause further issues.

Like I said above, the Rpay team is not having fun right now, and we’re doing everything we can to figure out the best way forward. It’s an odd juxtaposition to the protocol side of the project, which isn’t running into any barriers. The protocol team is smoothly executing on its current focus of enabling RToken deployers, which is coming along nicely.

We don’t yet know how things are going to develop for Rpay’s liquidity operations, and we don’t know exactly how soon we’ll solidify our plan, since we continue to learn new things each day. Once we know where we’re headed, we’ll share another update.

Operation Chokepoint 2.0 is squeezing Rpay services and transaction volumes was originally published in Reserve on Medium, where people are continuing the conversation by highlighting and responding to this story.

In response to volatility and uncertainty in the crypto ecosystem, we thought it was safest to update the backing of RSV to rely on the two market-leading USD stablecoins: USDC and BUSD.

USDC and BUSD both have extremely deep liquidity and very broad integration into the crypto ecosystem, along with US-based regulated issuers.

For years we have occasionally been asked: Why create RSV? Why not just use a single stablecoin?

This is why! Because as conditions evolve over the course of the years, sometimes it makes sense to change up which centralized issuers you depend on.

• The old RSV basket has been: 1/3 USDC, 1/3 TUSD, 1/3 USDP
• The new basket will be: 1/2 USDC, 1/2 BUSD

This maintains RSV’s exact 1:1 underlying backing with US dollars.

Operational details of the transition

Register is going to look weird for the next seven days, with RSV market cap very low:

This is because of the operational approach we took to executing this rebalance. RSV rebalancing has a seven-day timelock. While we wait for the rebalancing transactions to clear, we decided that for the protection of RPay users, it was best to redeem the RSV that RPay holds on behalf of them and begin converting the backing assets to the new basket.

In seven days, the rebalance will be complete and the RSV market cap will return to what it was before. In the meantime, you can see the backing assets held in the same Gnosis Safe contract that RPay uses to hold RSV on behalf of users:

Whereas under normal conditions the RPay team holds RSV in cold storage in this Gnosis Safe contract and the RSV smart contract holds the underlying stablecoins, during this seven-day period, the Gnosis Safe contract will hold the underlying stablecoins directly.

Assets will only leave the Safe in the moment they are traded for new backing assets, as has already been completed for some of them.

As you can see in the screenshot above, half of the rebalancing transactions have been completed so far, converting TUSD to BUSD. In the coming day, the operations team will convert the USDP 50% to USDC and 50% to BUSD in order to achieve the desired 50/50 USDC and BUSD backing.

We are aware that USDP and BUSD are quite similar, in that both are issued by Paxos. However, BUSD has significantly more liquidity than USDP, so we think it’s a strict, if slight, improvement.

RSV that is not in the RPay team’s custody and was not redeemed will only have its backing updated at the end of this seven-day period.

How this relates to RPay users and the switch to RTokens

This change has no bearing on our intention to migrate from RSV to a USD-denominated RToken once RTokens begin to mature. The team just thought this was the safe course of action for RSV in the meantime.

This rebalancing is to protect the assets of all users of RSV — which are almost exclusively RPay users. It will have no impact on the experience of RPay users, unless they withdraw RSV on-chain and redeem for the underlying assets, which is not a common use-case.

One last note

Since this rebalancing was initiated in response to choppy market conditions, we chose to act quickly. We always would prefer to announce an intent to take actions like this ahead of time in case anyone is not comfortable with the change and would like to redeem in advance. Accordingly, if anyone intended to redeem their RSV for 1/3 USDC, 1/3 TUSD, and 1/3 USDP, we are willing to offer a trade between RSV and these assets over the counter for the next 30 days for users that had RSV in their RPay or ETH wallets when this process initiated. Please contact us on our discord if this is of interest to you.

We’re updating the RSV backing to USDC and BUSD was originally published in Reserve on Medium, where people are continuing the conversation by highlighting and responding to this story.

Many people have asked for Reserve’s take on UST’s unwinding.

While we will give a deeper analysis in due course, here’s an overview on why this played out like it did.

It was evident from the start that Terra’s UST would eventually collapse.

We saw it coming years ago.

Reserve El Lödgé (💸,💸) (🅡,🅡) on Twitter: "Nevin Freeman (@nnevvinn) from Reserve (@reserveprotocol) talks about the dangers of algorithmic stablecoins like Terra and Celo at @laBITconf. $RSR $RSV pic.twitter.com/G37tyUMt7R / Twitter"

Nevin Freeman (@nnevvinn) from Reserve (@reserveprotocol) talks about the dangers of algorithmic stablecoins like Terra and Celo at @laBITconf. $RSR $RSV pic.twitter.com/G37tyUMt7R

The idea dates back to 2015 when Robert Sams published a quick paper outlining how one might make a stable version of Bitcoin.

The idea goes like this:

Instead of just one coin like Bitcoin, you have two — call them the “coin” and the “share.”

When the coin is trading above $1.00, you mint more coins out of thin air and sell them into the market for shares, deleting the shares you bought back. As you sell more coins into the market, this drives down the price, and when you get down to $1.00 you stop.

When the coin is trading below $1.00, you do the opposite: mint more shares and use them to buy coins off the market, deleting them as you buy them back. Buying them up drives up the price, until you are back at $1.00, and all you had to do was mint and sell some new shares.

Whoa! It’s actually a very cool idea.

Early share holders get to profit from growth in coin demand, because the more coins are minted, the more shares are bought up and deleted, driving up share price. As long as you anticipate more growth in coin demand, holding shares is attractive.

In Terra’s system, UST is the coin and LUNA is the share. LUNA holders saw incredible appreciation as UST demand grew, fueled by “yield farming” incentives.

(Yield farming is when crypto speculators deposit capital into a decentralized app in order to earn rewards paid out in tokens. Terra had a unique yield farming offering, where the rewards were paid in tokens other than LUNA, because Terra is its own blockchain which is host to its own set of decentralized apps, each with their own token. Those other tokens could be handed out to UST holders to incentivize UST adoption, without having to spend any LUNA.)

But it was obvious upon thinking through the basic design that it could unwind. How?

If confidence in the coin is shaken, it will trade for less than $1.00. Shares will be sold to buy back coins, and this act of selling shares dilutes existing share holders, driving down share price. As a share holder, if you think this will keep happening, you’ll try to sell quickly before more depreciation occurs.

If share holders panic and sell all at once, share price can drop quickly. At some point, coin holders will start to see that the shares they can redeem their coins for may not end up being worth anything. At this point, the coin holders also start to rush for the exit, trading into shares as fast as they can, and dumping those shares immediately.

Among stablecoin geeks, this is called the “death spiral.” Unless some external buyer steps in to buy back all the coins for some reason, it’s probably irrecoverable.

And it was evident to anyone who looked closely at Terra that this could happen.

There have been many variations on that original idea. One was called Basis, and luckily it never launched.

Reserve’s Analysis of the Basis Protocol

Bizarrely, the Terra team allegedly anonymously launched a version of Basis dubbed “Basis Cash,” perhaps as a learning exercise to see what would happen. As predicted, that project melted down in the same way as UST just did. Surprisingly (if it’s true they were behind it), that didn’t seem to dissuade the Terra team from continuing with their variation on the theme.

But it’s important to keep in mind that not all stablecoins have this issue.

Maker’s DAI stablecoin, which is also a decentralized protocol with elaborate logic, is quite safe in comparison. It over-collateralizes its stablecoin with crypto assets, and has a mechanism for reducing supply before it gets anywhere close to being undercollateralized. That means that unless its backing assets flash crash close to zero in an instant, 1 DAI will always have more than $1.00 in backing.

And fiat-backed coins like TUSD, USDC, and USDT are directly convertible to US dollars. While the issuers sometimes hold assets other than US dollars, they tend to be very low-risk assets, and regulators keep an eye on them to make sure they keep in line.

After UST de-pegging, there has been some fear of USDT following suit, but unless Tether is lying about the assets they hold in reserve, there is little chance of this outcome. Even if the market price dips for a while, big traders can buy up USDT and redeem with Tether for $1.00, turning an easy profit for themselves and bringing USDT back to its intended $1.00 market price.

You can break these down into three categories of stablecoins:

1. Fully collateralized, stable asset-backed
2. Overcollateralized, volatile crypto-backed
3. Algorithmic

Generally speaking, the first two are economically sensible, and Algorithmic stablecoins are not.

Why another stablecoin?

Some crypto entrepreneurs have launched variations that blur the lines, holding partial backing. While these may work, they are more dangerous, and should be regarded with caution and skepticism. Terra had started to go down this path, buying billions of dollars worth of Bitcoin to help support the peg, but it was not enough.

It’s incredibly embarrassing for the whole cryptocurrency community that we let an algorithmic stablecoin get so big before failing.

Luckily, the vast majority of its users were probably cryptocurrency speculators, often playing with money they had earned for free from crypto investments, and happy to take some risk on an economic experiment. Still, it was a surprise to most that it unwound so quickly, and many retail investors lost a lot of money.

It is essential that we do not allow Algorithmic stablecoins to be used as a savings and spending tool by the broad population. It’s not practically feasible for every individual to become an expert on monetary dynamics before they decide which financial products to rely on. As an industry, we absolutely must call out any further attempt at popularization of Algorithmic stablecoins among non-sophisticated users, and our exchanges and wallets must not support their mainstream use.

For the other two types of stablecoins, the story is different. While we may need some checks and balances to make sure they are adequately conservative, there’s a lot of value that can come from their replacing outdated money transfer and savings. So while caution is warranted, there’s no need to run for the exit.

Why did Terra’s UST collapse? was originally published in Reserve on Medium, where people are continuing the conversation by highlighting and responding to this story.

Highlights

• In the last week of March, Reserve was the #1 most downloaded finance app in Venezuela, and surpassed 100,000 total downloads.
• We’re also seeing increased app usage in Argentina and Colombia, and we have plans in the works to improve our service and growth rates in each of those countries in the near future.
• There are now 1,102 merchants officially accepting Reserve with more doing so informally, and we’ve hired a new BD manager who is fully dedicated to onboarding more every day.
• The Spanish-speaking Reserve community is growing faster than the English-speaking community at this point. We’re at 29k on Twitter and 76k on TikTok.
• We’re continuing to recruit great software engineers. We hired three in Q1.
• Our full-time team has expanded to 61 people, with the most growth in app operations and customer support.

Lowlights

We want to be clear about anything that’s not going according to expectations, so we avoid negative surprises.

• At the end of March, we had to implement a new program to slow our app user growth rate. While we would like to grow as fast as people want to join, we still need to moderate growth as we add operational capacity. We are back to accumulating 1-star reviews in the Play Store from upset people who don’t want to wait to join the app.
• We still don’t have a specific launch timeframe for the full Reserve protocol (“mainnet launch”), since we have been investing heavily in app scalability. We’re still aiming to do it this year.
• We’re still not publicly sharing our app transaction volume stats. We plan to do this soon, but there are a few things we want to take care of before we draw much more attention to the project, which we think may happen by sharing those stats.

Recruiting

As we mentioned at the start of Q1, we’ve been investing heavily in recruiting software engineers. We are very picky, and we evaluated hundreds of applicants in Q1. I’m happy to share that we have brought on three great engineers, and we’re getting better and better at finding and quickly identifying the type we are looking for.

In case you are new to Reserve, here’s a video we’ve been sharing with software engineers that don’t know a lot about what we are doing yet:

We’ve grown the team overall to 61 people, many of whom work to directly support our users as they transact in the Reserve app. The team now spans several countries across North and South America, and we have two team members in Europe now as well.

User Growth

During the first two weeks of March, we invited everyone who was on our waitlist to join the Reserve app in our target countries (Argentina, Colombia, Venezuela) to create a full Reserve app user account and start using the service.

During the second half of March, we allowed anyone in those countries to download the app and join directly.

We were the #1 downloaded finance app in Venezuela for that time, saw many downloads from Argentina and Colombia as well, and have surpassed 100,000 total downloads.

It’s worth mentioning that this was all without buying advertisements. You might wonder why we mention whether ads were involved or not — on some level, who cares if someone joined from seeing an ad or not? I mention it because to me it’s more meaningful if people are telling their friends and families about it and growth is happening that way, since that means people are excited enough about what we are offering that they think others should know about it.

(Keep in mind that with any app, there will be a bunch of people who download it and don’t ever even try the service — so we don’t have 100,000 active customers yet.)

This growth put a lot of strain on our engineering, product, and especially our operations team. Our operations team is badass. They work intense, long days to keep our service running and help customers with issues that come up! Sometimes we get overloaded and can’t serve all of our customers at the time they need help, which we really don’t like. Obviously we’re working to fix that with more hiring and systems improvements.

At the start of April, we transitioned to a new system for joining the app, where users need to get an invite from another user to get in. We can set the number of invites each user has available to give out, so that we can control the overall growth rate. When we have lots of capacity, we can issue lots of invites and grow quickly, and if we become overloaded for a time, we can slow growth by issuing fewer invites.

Just a few days after we put this new system in place, our waitlist was already longer than it had ever reached over the past several months. 😳

So, we are continuing to hustle to support everyone who wants to use the app.

Here’s one user explaining to others how to accept Reserve as a method of payment:

VortexICS on Twitter: "$RSR $RSV @holareserve A video to show you guys how easy is to make a payment with the Reserve App, so smooth and easy. (Zelle is dead lol) repost it better quality pic.twitter.com/U4DRNB60n3 / Twitter"

RSR $RSV @holareserve A video to show you guys how easy is to make a payment with the Reserve App, so smooth and easy. (Zelle is dead lol) repost it better quality pic.twitter.com/U4DRNB60n3

Other Stuff

Behind the scenes at Reserve, there’s a bunch of… “other stuff.” What is this other stuff? Things like:

• Making sure our AML compliance program is up to snuff. (We got the top score on our independent audit!)
• Setting up new banking relationships.
• Working with potential partners to see if we can do big things together or not.
• Working with lawyers in the US and abroad to make sure we handle regulations that might apply to us.
• Updating our branding and design process and templates.
• Continuing to talk to our current and prospective users, and to our own internal team members, and then carefully planning the changes and additions to our app and the surrounding service.
• Refactoring our codebase in order to prepare for heavier app usage and be able to add more features faster in the future.

…and a whole lot more.

These pieces often aren’t very exciting to put in an update post. But I want to acknowledge that there’s a ton of other work that happens to enable what we are doing. I’m proud of the progress the team has made in Q1 on all of this “behind the scenes” work, and I’m very thankful for everyone’s efforts!

Looking Forward

We are continuing to speed up processes in our app, like making it so that you can more easily convert RSV in and out of other cryptocurrencies, Colombian Pesos, and USD in the traditional banking system. We’re also working hard to shorten our response time to customer support inquiries, and provide users more information so that they can solve more problems without needing to contact us.

During Q1 we spent some time working on some details of our mainnet protocol implementation, but we were mostly occupied with all of the user activity in the app. As a result, we still don’t have a specific timeframe set for our mainnet protocol launch. I’m not happy about that, as I personally want to get to that launch as soon as possible. (We’re still aiming to do it this year.) But I take responsibility for where we’re at, since it was my decision to point the team toward supporting app growth in Q1 at the expense of speed to mainnet launch. We’re working hard and hiring fast in order to be able to maintain app growth momentum and launch mainnet quickly, but exactly what “quickly” means remains to be fully specified.

We’re in the vetting process with a candidate that may end up taking the leadership position for Argentina. We’re still looking for a Lebanese country lead, but the search is passive since we are so busy with everything else. We’ve been getting a lot of in-bound interest from Lebanese people about starting service there, which we would like to do, but without the right country lead we aren’t ready yet.

Interest in our target countries shows no signs of slowing down, so we anticipate continued significant growth throughout the rest of 2021.

Reserve Update: end of Q1 2021 was originally published in Reserve on Medium, where people are continuing the conversation by highlighting and responding to this story.

Consider two types of ambitious people:

1. People who want power and leadership only for the sake of enhancing their own lives
2. People who want power and leadership in order to advance some societal objective beyond their own personal experience

Both types will claim to be number two. When we talk about “the authentic ones,” we’re talking about the ones that actually are number two.

If you’re one of the authentic ones, we want to talk to you.

Of course, it’s not as simple as this dichotomy. Take me for example.

I want to reduce the negative impacts of hyperinflation. Hyperinflation happens. It sucks, and obviously nobody likes it. I saw an opportunity to concretely reduce its negative effects, and decided to pursue that. Cryptocurrency can be used to build financial systems that thrive under harsher conditions than normal, and those systems can give access to stable transactions and savings for people who don’t have it otherwise. In the long term, I think Reserve could eliminate hyperinflation entirely, if we can get the world to use a non-fiat stable cryptocurrency.

I’m also really looking forward to having some money and being able to buy a nice house. I want my house to be in some kind of beautiful forest neighborhood with enchanting trees, I want it to be silent at night, and I want the interior to be cozy and artistic so that I feel safe and “prepared for anything” in my personal sanctuary. I’m hoping I’ll make enough money building Reserve that I can realize this selfish goal at some point, and I’m willing to spend money that I could have put towards a more altruistic cause to get it. I also just like the idea of having enough money that I don’t need to take any job for a long time, and can be the master of my own time.

Additionally, I want to help the world deal with the future challenges we will encounter with artificial intelligence. I personally believe that AI could end up being extremely dangerous or extremely helpful over the next 100 years, and I think we need world-wide government regulations in order to make good choices about how we develop and deploy it. Unless someone else makes that regulation happen, I’m interested in working on that myself sometime several years from now. So I’m hoping the money I make building Reserve will go beyond paying for my nice house, and will also fund a campaign to bring this international regulatory collaboration into existence.

So, I know people can have many different big motivators, because I can see them in myself. I want money for both selfish and pro-social reasons, and I’ve picked a project that will yield human progress as well as making me money. So, I’m not purely number one or number two, I’m a mix. But I have enough societal objectives in my motivation to keep our project on track to do something useful, rather than e.g. just cater to pure crypto speculation for the sake of making money for myself. I am one of the authentic ones.

I’m going to share an inside glimpse into the amount of care and effort we are willing to put into finding and bringing on the key team members needed for the Reserve project.

When we decided to focus our initial efforts in Venezuela, we had an important choice to make. Should we work directly with any of the people who were involved with shaping the Venezuelan regulatory environment around crypto?

On one hand, those people would clearly know a lot about how to get things done in the Venezuelan crypto world. On the other hand, we weren’t sure what kind of people we’d find behind the scenes. We have a high standard for who we work with, and some people in Venezuela told us that we should doubt anyone who deals with the Venezuelan government.

We decided we would get to know anyone who expressed interest in helping us, including those who helped introduce Venezuela’s national cryptocurrency, the “Petro,” and assess for ourselves whether they were one of the authentic ones.

Think about it: If you cared about shaping how your society works, and one of your country’s biggest problems was hyperinflation, wouldn’t it have been tempting to try to solve the problem with cryptocurrency? I’d be tempted. So, we figured maybe some of the people who were involved or who tried to get involved would be the kind of people we’d like to work with.

In November 2019, I was invited to speak at SF Blockchain Week about our Venezuelan efforts. Right before me in the lineup was someone talking about the Petro. I was naturally curious.

A scrawny, balding young man took the stage, an upset expression on his face behind his thick-rimmed glasses. He held the microphone too close to his mouth while he yelled the story of the Petro from his personal perspective in imperfect English. It was a painful 15 minutes. You know how you can sort of strain your inner-ears to block out some sound, in order to half-plug them without actually sticking your fingers in? I did that the whole time, while straining to make out what he was saying in hopes of understanding the story.

It was quite a story. He claimed that he and some of his collaborators had tried to convince the Venezuelan government to issue a fixed-supply cryptocurrency on a public blockchain — the country’s own Bitcoin-like form of money. He said that ultimately the project ended up out of their hands and the government chose to take it a different direction. He talked about how they managed to pass crypto regulation, legitimizing the mining and trading of cryptocurrency in the country, and allowing the flourishing of the BTC/Bolivar market which helped many people and businesses move money in and out of the Venezuelan economy.

Some in the audience told me afterward that they thought he was just lying — they thought that he had actually designed the version of the Petro the government ended up issuing, and that his motives were purely personal greed, not an attempt to improve the economic conditions of his country. But everyone who said that had a preconceived story about him already. I couldn’t tell if they just hadn’t managed to hear his words through all of the yelling and imperfect English, or if they were closed off to the possibility of him being authentic for some more political reason.

I personally wasn’t sure about him one way or the other. That’s the thing — like I said above, often purely self-interested people will claim they have a humanitarian mission, so you can’t always tell based on first impressions. But it was clear to me that if this guy was for real, he could be extremely helpful to what we were trying to do. I decided not to let him out of my sight until I could assess him more deeply.

His name was Gabriel Jimenez. After speaking to him for a couple hours, I felt there was a real chance he was one of the authentic ones. I told him we might want him to join Reserve. He was living in Chicago at the time and had no job and no money, so I invited him to move in with me in Oakland. I figured that would give me enough contact to assess his character, and keep him engaged enough with us that he wouldn’t get sucked into some other opportunity. He accepted my invitation and moved in.

Thus began a long period of mutual sniffing-out. Gabriel wanted to figure out if we were really going to follow through in Venezuela, and whether we were really the best horse to bet on. He went and spoke with the teams of other stablecoin projects like Celo and Libra, to see if they were planning to go into Venezuela. (They weren’t, out of fear of US sanctions issues.) I looked into his past by finding people he’d worked with before and during the time of the Petro, including some of the people who had negative things to say about him. I had calls with them and checked his story.

For months, our team was moderately negative on the idea of working with him. Some team members worried that the PR challenges could be too damaging. We also had to consider the possibility that maybe he was a scammer, and would end up screwing us over. I told him that I was interested in working with him, but that the team wasn’t willing to bring him on. For months, he lived with me and worked on his own project at our office, occasionally offering help to our teammates.

Over time, we got to know him. Eventually, we got comfortable that he was one of the authentic ones. We saw what he did with all his time, and it became implausible that he didn’t actually care. Like me, I believe Gabriel has plenty of selfish motivations, and the reference checks I did weren’t 100% positive — Gabriel still owed several people money from when his business fell apart during the Petro saga, and I personally think he didn’t handle all of that in the best way. Nevertheless, the team and I became convinced that his desire to protect the economic livelihood of Venezuelans was legitimate and lasting. So in March 2020, we brought him on as a full-time team member.

Looking back, it was clearly the right move. Gabo (as we call him now) has been one of the most dedicated team members of the entire project so far, and has worked tirelessly to get us where we are today in Venezuela. He’s never once suggested that we do something shady, as his critics probably assume he would. His insights, his ideas, and his warnings and concerns have all helped guide us in Venezuela, and his hard work and obsession with what we are doing have driven us forward to make Reserve a reality in the country.

But the effects of bringing Gabo on go beyond his personal contributions. He also helped us build out our Venezuelan and broader Latin American team, which now makes up over ¾ of our total team members. He is well-networked in the Venezuelan cryptocurrency community, and although some in that community are skeptical of him, many more are not and have been happy to join us. People who care tend to hang out with other people who care, so we’ve been able to recruit through the team’s growing personal network, and the results have been fantastic. Some of our team members also touched the Petro project, and some were a part of Dash and other local cryptocurrency efforts. Our whole Venezuelan team, which has operated discreetly, with proper consideration of the country’s difficult security situation, has been key to our progress in the country so far.

For the past year, we haven’t mentioned Gabo publicly. Many in the RSR community have sent me his story over time, encouraging me to reach out. They had no idea he was on the core team this whole time.

If you aren’t from Venezuela, it’s probably hard to understand why we would keep that information private. It’s because no matter what I say, some Venezuelans will never believe that Gabo is one of the authentic ones. Some will always believe that he’s corrupt, or a scammer, and that I’m either lying along with him or am a naive gringo who’s been tricked. I don’t necessarily blame those people — they have seen many acts of corruption and are understandably jaded.

Now that our project has enough of a foothold for the app and the surrounding service to speak for themselves, we’re happy to share that he’s a part of the team. If anyone has a problem with that, they can choose not to use the service. I invite you to look at what we have built and evaluate that on its own merits. Although we have still only helped a tiny number of people in Venezuela compared to our eventual ambitions, I think you’ll see that Gabo has chosen to be a part of, and has helped build, an awesome project.

In the crypto industry, we actually have a similar skepticism of each other to the way Venezuelans do. So many people in crypto are just here to make money, and this means it’s often hard to believe that anyone you meet in the space is trying to do anything else at this point.

I admit that I share this skepticism. I get inbound interest in joining the Reserve team or helping with the Reserve project from about 30 people per day at this point, and most of them tell some kind of story about how they think blockchain is revolutionary or decentralized systems are the key to solving many problems in the world. Honestly I think a lot of that is bullshit, and I quickly discard a lot of these people without even having time to reply to them all.

But I know for sure that some of the people interested in Reserve are for real, and that some people in crypto have an honest long-term vision, and are willing to work hard and take risks to make it a reality.

So, part of the reason I’m telling the story of bringing Gabo on is to prove a point:

Even if you have a divisive reputation, if you are one of the authentic ones and you have the skill and dedication it takes to significantly help us deploy cryptocurrency in the real world, you’ll probably be welcome on the Reserve team. The kind of person I’m talking about will be able to show us clear, sustained effort they have put into at least one significant past project aimed at fixing currency or financial access in their country, and they might have taken significant risks or suffered significant consequences in trying to achieve those goals. We’re looking for this kind of hardcore person in Argentina, in Brazil, in Lebanon, in China, and beyond. If this description applies to you, get in touch, we want to talk to you.

Read more about the story behind the Petro in this New York Times article.

Read more about Reserve’s efforts in Venezuela by following our English and Spanish twitter accounts.

Learn more about Gabo on his Twitter.

If you’re one of the authentic ones, we want to talk to you was originally published in Reserve on Medium, where people are continuing the conversation by highlighting and responding to this story.

In order to accelerate growth, we will be unlocking 3.81% of total RSR supply to offer referral incentives to Reserve app users. These treasury RSR are not intended for normal operating expenses, which are already covered by our existing cash budget. In addition to Reserve app incentives, these funds may be deployed for other liquidity bootstrapping incentives, or used for other non-operational initiatives designed to facilitate a successful mainnet launch.

This incentive budget probably won’t all be spent in 2021, but we plan to start using it before the end of this year. We’re doing the unlock many months in advance so that we have time to slowly and patiently convert RSR to RSV without any significant impact on RSR markets. As the largest holder of RSR, we take our responsibility to operate transparently and minimize our impact on markets very seriously.

For context, the PayPal example

PayPal said in their SEC filings around the time of their IPO: “We began the year 2000 with 12,000 users and just six months later our account base had grown to 2.2 million. As of December 31, 2001, we had 12.8 million accounts.”

This growth was possible because PayPal had a breakthrough product, which was designed to be viral. But it was accelerated by financial incentives. PayPal offered users $10 for each person they referred, and $10 to each new person that joined.

They spent tens of millions of dollars to ensure they onboarded those initial users, and then wound down the incentives pretty quickly from there. As you can see from the graph above, the wheels kept turning and users kept joining.

We are preparing our treasury for this move

We anticipate offering RSV incentives to accelerate growth in the later half of 2021. Right now, the team is still very focused on removing operational and technological barriers to scalability of our app — even if 10 million people wanted to join right now, we couldn’t support them! But we are working hard to be able to support more and more active users, and we anticipate reaching a point sometime this year where we are ready to supercharge growth. If and when that happens, we want to be ready to go.

In order to fund such RSV incentives, we will be slowly converting a portion of the project treasury from RSR to RSV.

Unlocking 3.81% of RSR supply

We are going to make a withdrawal of 3.81% of the total RSR supply from the project’s treasury — the “slow wallet” contract — in about four weeks from the time of this post. These are 100% ecosystem tokens, not any tokens belonging to team members or seed investors.

No dumping (market selling) of RSR

To make this funds conversion with minimal impact on the RSR market, we will slowly and passively offer this RSR on major crypto exchanges over the course of 2021. We will not market sell RSR.

As we’ve stated before, the project has years of cash runway for operating expenses, so this is not a need-based fundraise. If the crypto market turns down rather than going up from here, we may choose to stop offering this RSR into the market, or not to offer any at all to begin with.

A refresher on our philosophy towards treasury tokens

Our treasury tokens are governed by a cryptographically-enforced 4-week delay on our project treasury contract (the “slow wallet”). This means that to withdraw funds from our treasury, we have to broadcast our intent to do so well in advance of making a withdrawal. We have to make an Ethereum transaction that can be watched for by watching the contract, and only after 4 weeks will the tokens actually be released to the destination address.

We did this to provide a guarantee to our community that funds would not be released without advance notice. Whenever we withdraw funds from our treasury, you will always have plenty of time to react. From a game theoretic perspective, this dramatically reduces the ability of any bad actor to benefit from withdrawing treasury funds with malicious intent, thus making it less likely to occur, and making it easier for the community to assess our intentions from afar.

At the time of mainnet launch, there will be a contract change for RSR, at which point this particular cryptographic guarantee will no longer apply. We may choose to apply the same system again, or may go with a new system at that point.

Note: While the comment on line 73 of the slow wallet indicates an intended delay of two weeks, we changed the delay to four weeks before deploying, which you can verify by inspecting the code itself on line 40.

Reminder: Because RSR is currently traded only on non-US exchanges, non-US people are prohibited from acquiring RSR for the benefit of US people.

Conclusion

We are aiming for 2021 to be a year of growth, and preparing to take a page from the PayPal playbook in order to make that happen. We have infrastructure in place to passively offer RSR without impacting market price. Because this slow offering takes time, we are initiating an unlock now, even though we don’t anticipate offering growth incentives until later in the year.

📕 Would you like to know more about Reserve? Read about our protocol and study our whitepaper.

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Preparing to offer RSV incentives in order to accelerate Reserve app growth was originally published in Reserve on Medium, where people are continuing the conversation by highlighting and responding to this story.