What is Reserve?
In the not so distant past, in a world divided by wealth and resources, the nations in the first world had come up with a digitized banking system. This basic service helped millions of people gain access to loans and transfer money with the click of a button.
On the other side of the world, commonly referred as the third world, financial development stood in its tracks. People worked hard as ever, but they had limited ways to send money, and even when they could access financial services, the high fees and complex regulations made it impossible for them to use it regularly.
One day, a group of entrepreneurs realized that the unbanked population was being left behind, and they decided to create a solution that would enable anyone to access banking services without the need for a traditional bank account. That solution was the Reserve Protocol.
With the Reserve Protocol, people could use their smartphones to access financial services, allowing them to send and receive payments, store value, and access loans, all without having to go through the traditional banking system. Unlike traditional banks, the Reserve Protocol had low fees, making it affordable for anyone to use.
As word of the Reserve Protocol spread, more and more people began to use it. In countries with unstable currencies, the Reserve Protocol became a safe haven for people to store their money. In areas without access to traditional banking services, the Reserve Protocol provided a way for people to participate in the global economy. This was back in 2018, before DeFi took over, and to this day, Reserve is regarded as one of the main ways for the unbanked to participate in the global economy.
Reserve derives its value from offering fiat on-ramps, which allow users to purchase Reserve stablecoins with fiat currency. To enable these fiat on-ramps, the Reserve Protocol has established partnerships with a number of payment processors, exchanges, and other financial institutions around the world. These partners help to facilitate the exchange of fiat currency for Reserve stablecoins, and provide additional liquidity to the Reserve ecosystem.
It is worth mentioning that Reserve does require KYC for certain operations such as over-the-counter trades, or transactions above $5000. While the protocol is decentralized, some components are still operated by a centralized authority i.e. Reserve Institutional, Reserve App. Additionally, the Reserve Protocol's stablecoins are backed by a combination of token reserves and fiat collateral, which are managed by the Reserve team.
This is a major feature in terms of usability, as users have access to stablecoins that otherwise would have been out of their reach. Ultimately, unbanked users care more about making cross-border payments rather than sharing their personal data.
As of 2023, Reserve hasn't been hacked. To the team's credit, Reserve spent many resources on making the protocol as secure as possible, and regulations forced them to apply for the highest standards. The app incorporates various security features such as multi-factor authentication, biometric login, and transaction limits to help prevent unauthorized access to user accounts and funds.
How does Reserve work?
Reserve Protocol is a decentralized stablecoin platform. Built on the Ethereum blockchain, its primary goal is to facilitate a variety of stablecoin transactions across unbanked nations. The protocol stablecoin achieve stability by utilizing a combination of reserve assets, algorithms, and incentives.
For the bird's eye view, the Reserve Protocol uses a two-token model to maintain the stability of its stablecoins: the Reserve Token (RSV) and the collateral token (USDC.)
Reserve Token (RSV)
The Reserve token is the stablecoin created by the Reserve Protocol. It is designed to maintain a 1:1 peg with the US dollar, meaning that 1 RSV will always be worth 1 USD. The Reserve token is backed by a basket of assets.
This basket is, at the moment, fully comprised of USDC — so each RSV is initially redeemable with the Reserve smart contracts for 1 USDC. Since each RSV token is redeemable directly for this basket, value of the RSV token is economically linked to the value of the basket. This basket can be diversified over time through decentralized rebalancing.
Decentralized rebalancing is an important feature of the Reserve Protocol that helps to maintain the stability of its stablecoins by automatically adjusting the collateralization ratio in response to changes in market conditions.
During the rebalancing process, holders of the Reserve Token (RSV) are incentivized to contribute additional collateral to the protocol in exchange for newly minted RSV tokens. The new RSV tokens can then be used to purchase additional collateral, which is held in reserve to back the stablecoins that are currently in circulation.
As more collateral is added to the reserve pool, the collateralization ratio of the stablecoin is increased, bringing it closer to the target ratio. Conversely, if the market value of the collateral token increases relative to the stablecoin, the Reserve Protocol may initiate a reverse rebalancing process in which excess collateral is sold off and RSV tokens are burned.
Reserve rTokens
rTokens are a unique feature of the Reserve Protocol that allow users to earn interest on their stablecoin holdings. rTokens are essentially receipts that represent ownership of a certain amount of stablecoins (RUSD, REUR, or RGBP) and the interest that has accrued on those stablecoins while they are held in the Reserve Protocol's interest-generating pool.
In a similar way as how anyone can create a new trading pair on Uniswap, anyone can permissionlessly create a new rToken by interacting with Reserve Protocol’s smart contracts.
In 2023, Reserve launched its 2nd type of rToken, called ETH+. It is a a community-governed, diversified, yield-bearing staked Ethereum index with overcollateralization protection.
ETH+ aims to be the easiest way to get passive yield exposure to a diversified basket of ETH liquid staked derivatives (LSDs). The initial collateral backing for ETH+ will include: 50% rETH and 50% wstETH.
Over time, the collateral backing will be adjusted to include more LSD tokens, through governance proposals issued by RSR token holders.
ETH+ holders earn passive income just from holding the token. The yield comes from the ETH staking rewards accrued by the underlying collateral. To kickstart usage, 95% of the staking yield will be passed to the rToken holders, while 5% will be distributed to the RSR stakers for providing governance and over-collateralization.
Reserve Rights (RSR)
Reserve Rights (RSR) is the governance token of the protocol. RSR holders have the ability to vote on important decisions related to the operation and development of the protocol, such as changes to the stability mechanism or the addition of new collateral assets.
In addition to its governance utility, RSR is also used as an overcollateralization mechanism to protect rToken holders in the unlikely event of a collateral token default. In order for RSR holders to provide this overcollateralization, they can decide to stake on any one rToken.
When a user wants to mint an rToken, they must first deposit collateral in the form of RSV or other supported stablecoins. The amount of collateral required depends on the current market conditions and the collateralization ratio set by the Reserve Protocol.
For example, if the collateralization ratio is set at 150%, a user would need to deposit $150 worth of collateral to mint $100 worth of rTokens. This ensures that there is always more collateral backing the rTokens than the actual value of the rTokens themselves.
The collateral deposited by the user is then held in reserve and used to maintain the stability of the rToken. If the value of the rToken drops below its peg ($1), the Reserve Protocol can sell the collateral to buy back the rToken and maintain the peg. The amount of collateral sold depends on the severity of the drop in value and the collateralization ratio.
In return for providing this overcollateralization, RSR stakers can expect to receive a portion of the revenue from the specific rToken that they stake on. As a general rule, RSR stakers can expect higher returns (APYs) as the market cap of the rToken they stake on increases.
Reserve App
All of the components described above have been wrapped into a user-friendly interface called the Rpay App. This mobile app can be used to access all of Reserve's features.
The main advantage of the Reserve App is that users can buy stablecoins using their bank account, or debit card. The team continues to explore new ways of onboarding users to their ecosystem. One option worth exploring is to enable fiat for crypto transactions via merchants. In other words, merchants with crypto holdings can transfer rTokens to users' account in exchange for fiat currency. Luckily, the Rpay shows you the availability of fiat on-ramps depending on your region.
How to make money on Reserve?
The primary method of making money on Reserve network is tied to its stablecoin. While it is primarily intended as a tool for preserving wealth, there are a few ways that you can score some profits from using Reserve.
All you need is an Ethereum wallet like MetaMask and some spare ETH to pay for the gas fees.
RSR Staking
Reserve Rights (RSR) exists as an overcollateralization mechanism to protect rToken holders in the unlikely event of a collateral token default. In order for RSR holders to provide this overcollateralization, they can decide to stake on any one rToken, or divide their RSR tokens by staking on multiple rTokens.
In return for providing this overcollateralization, RSR stakers can expect to receive a portion of the revenue from the specific rToken that they stake on. As a general rule, RSR stakers can expect higher APYs as the market cap of the rToken they stake on increases.
Here's how you stake your RSR tokens:
Open the Register.app
Go to the top left corner of the page and click on "Select rToken"
Select the token of your choice and click on the "Mint & Redeem" tab on the left side
Input the number of tokens you wish to stake
Approve the transaction
Stake
Note that unstaking comes with a 2-week withdrawal delay, where you will stop earning yield, but your RSR can still be seized in case of a default. This is to stop people gaming the system (for instance, “unstaking” instantly, which would make RSR non-suitable as overcollateralization).
rToken Minting
By minting rTokens, users can participate in the Reserve Protocol's interest-generating pool and benefit from the higher yields that are available compared to traditional bank accounts or other savings products.
Here's how rToken minting works:
Users can deposit their stablecoins (RUSD, REUR, or RGBP) into the Reserve Protocol's interest-generating pool by minting rTokens.
When a user mints rTokens, they receive a certain amount of rTokens in exchange for their stablecoins. The amount of rTokens received is based on the current interest rate and the amount of stablecoins deposited.
As long as the user holds their rTokens, they will earn interest on their stablecoins. The interest rate is set dynamically based on market conditions and is designed to be competitive with other interest-earning products in the cryptocurrency space.
When a user wants to redeem their stablecoins, they can burn their rTokens and receive the corresponding amount of stablecoins plus the interest that has accrued.
Reserve Token (RSV)
RSV is pegged to the U.S. dollar, so it has to sustain its $1 value consistently. The protocol relies on arbitrage in order to help maintain its dollar peg.
When you mint RSV using USDC as collateral, you have created a collateralized debt position. By doing so, you can borrow RSV at a stable interest rate, which can be lower than other borrowing options.
Here comes the interesting part. RSV relies on an arbitrage mechanism to maintain its price stability. If the market price of RSV deviates from the target price of $1, the arbitrage mechanism can be used to bring the price back into alignment.
The process works as follows: If the market price of RSV falls below $1, users can buy RSV on the open market. This reduces the supply of RSV in circulation and increases the demand, which helps to push the price back up towards the target price of $1.
If the market price of RSV rises above $1, excess RSV is sold and swapped for RSR or other tokenized assets, which pushes RSV’s value back down to the $1 mark.
So, the basic idea is to mint RSV when the price of RSV is below $1 and exchange the RSV for other assets when the price rises back up to $1. By doing so, you can potentially earn a profit from the difference between the market price and the target price of RSV.
Here's how you mint RSV:
Open the Register.app
Go to the top left corner of the page, click on "Select rToken" and select RSV
Click on the "Mint & Redeem" tab on the left side
Input the number of RSR you wish to mint
Approve the transaction
Mint
On the same page you will be able to redeem your RSR for USDC and hopefully score some profit from the difference.
Price Prediction for Reserve — Can it hit $1000?
Buying and hodling RSR — the native token of Reserve Protocol— is one way of potentially making money on Reserve Protocol.
By looking at its current price, it’s natural to think about the chance of RSR hitting $1000 per token. This can happen sooner, or way in the future, and is determined by a couple of ever changing factors.
Let’s examine the potential growth of the RSR token by analyzing its tokenomics. RSR’s current market cap sits comfortably at ${MARKET_CAP}. With {CIRCULATING_SUPPLY} RSR tokens being in circulation today, that means a price of {PRICE} per RSR.
How did we come to that calculation? It’s quite easy, the price of an RSR token is equal to its current market cap divided by the number of tokens in circulation. Dividing ${MARKET_CAP} by {CIRCULATING_SUPPLY} gives us a result of {PRICE} for each RSR coin.
By changing the order in the simple formula above we can use it to calculate other things as well. This helps us a lot because we can deduce the market cap of RSR at different token prices. Then, we can use the result to compare it to the current state of the network and see what would be required for RSR to hit that price.
At a price of $1000 per token, that means the current market cap of RSR would equal ${{CIRCULATING_SUPPLY} * 1000}. Remember that we arrived at this number by multiplying the amount of circulating tokens by $1000.
Now let’s shift our attention to the fully diluted market cap.
Some blockchains may have their tokenomics built in a way that only a small percentage of tokens are circulating at the beginning. This can be misleading because we don’t have the full picture and only take into account the current number of coins released in the market.
The fully diluted market cap represents the total value of a coin if all tokens were in circulation. RSR’s whole supply of tokens is {MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY} RSR which means that no more coins above that number will ever be created.
These tokens are not created at the discretion of a specific entity. They are created automatically by the network to reward different actors that keep it secure.
How does this impact the price of RSR? Taking into account the current price of an RSR token, that would result in a fully diluted market cap of ${MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY * PRICE}. RSR coins that have been burned are not taken into consideration because they have been permanently removed from circulation.
Whether it seems gigantic or not, the number we came to above only takes into account the current price of an RSR token. Doing the same calculation but with a price of $1000 gives us a result of ${{MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY} * 1000} for the RSR protocol fully diluted market cap.
These are all crucial details to know when calculating if RSR can reach the price of $1000 per token. If the diluted market capitalization is way too high, the token has little room left to grow. Blockchains in general have no cap on the value they can reach, whether that number seems possible it’s totally up to you.
The future of RSR depends solely on its growth as a network used by tens and hundreds of millions of users.
If you’re looking to add some RSR to your portfolio, the most trusted places to get some are Binance and Coinbase.
