{"id":91,"date":"2022-12-05T19:47:54","date_gmt":"2022-12-05T19:47:54","guid":{"rendered":"https:\/\/blog.multichainmedia.xyz\/?p=91"},"modified":"2023-03-06T20:54:05","modified_gmt":"2023-03-06T20:54:05","slug":"six-reasons-to-build-rtokens-on-reserve-protocol","status":"publish","type":"post","link":"https:\/\/blog.multichainmedia.xyz\/index.php\/2022\/12\/05\/six-reasons-to-build-rtokens-on-reserve-protocol\/","title":{"rendered":"Six Reasons to Build RTokens on Reserve Protocol"},"content":{"rendered":"\n
\"\"\/<\/figure>\n\n\n\n

Here I present six key reasons that entrepreneurs and institutions are likely to launch their own stablecoin using Reserve, and why it\u2019s likely to gain traction.<\/p>\n\n\n\n

If you\u2019re unfamiliar with Reserve Protocol, I suggest taking a look at my other article that provides an overview (hint: it\u2019s a very interesting project).<\/em><\/strong><\/p>\n\n\n\n

The reasons are as follows:<\/p>\n\n\n\n

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  1. Default protection on collateral.<\/strong><\/li>\n\n\n\n
  2. Revenue sharing.<\/strong><\/li>\n\n\n\n
  3. Increased demand for collateralized assets.<\/strong><\/li>\n\n\n\n
  4. Alternative savings and investments vehicles.<\/strong><\/li>\n\n\n\n
  5. Globalized commerce.<\/strong><\/li>\n\n\n\n
  6. Charitable missions.<\/strong><\/li>\n<\/ol>\n\n\n\n

    Many other examples exist, such as: a) censorship resistance, b) strategic moves as part of a broader ecosystem, c) and in-game currencies.<\/strong> For the purpose of this article, I will only review some that I find to be particularly interesting.<\/p>\n\n\n\n

    Additionally, I will highlight any stakeholder risks that I foresee and discuss their relevance.<\/p>\n\n\n\n

    Default Protection on Stablecoins<\/strong><\/h2>\n\n\n\n

    Stablecoins provide immense benefits, but not all are the same. As a quick review, there are three main types:<\/p>\n\n\n\n

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    1. USD-backed:<\/strong> a real USD exists backing each stablecoin. These stablecoins tend to be legally compliant with strong peg stability, although centralized.<\/li>\n\n\n\n
    2. Cryptocollateralized: <\/strong>cryptoassets are used as collateral. This provides both liquidity of funds while still benefitting from any upside price potential on the collateral. However, a sharp fall in the collateralized asset may trigger a liquidation.<\/li>\n\n\n\n
    3. Algorithmic: <\/strong>these rely on market incentives and algorithmic mechanisms in order to maintain peg stability. They tend to fall from their intended peg and have at times crashed, such as the infamous fall of UST.<\/li>\n<\/ol>\n\n\n\n

      Reserve Protocol is interesting as RTokens are backed by off-chain assets that are brought on-chain through asset tokenization. This results in collateral that\u2019s much more stable than cryptocurrencies (e.g. cryptocollateralized stablecoins), and therefore RTokens are most comparable to USD-backed stablecoins, except with a much wider range of potential backings.<\/p>\n\n\n\n

      Asset-backed, multi-collateral might be the best term.<\/strong><\/p>\n\n\n\n

      USD-backed stablecoins work great, but are only as good as the underlying collateral which is still subject to inflation. Some also expect that the U.S. Dollar may lose its dominance in the future due to reasons such as swelling debt and the potential formation of a new reserve currency for BRICS countries.<\/a> There are also concerns<\/a> at times over how the underlying USD collateral is managed.<\/p>\n\n\n\n

      \"\"\/
      Brazil, Russia, India, China, and South Africa are working together on a new reserve currency.<\/figcaption><\/figure>\n\n\n\n

      Opening up the potential for baskets of assets means that some of those may fail in the future. Black swan events are likely to occur, and even an RToken relying on real estate as collateral may be subject to unknown events rendering the collateral useless.<\/p>\n\n\n\n

      Reserve provides default protection for stablecoins, which does not currently exist in other iterations of stablecoins and represents a significant evolution in the field.<\/p>\n\n\n\n

      The way that it works is that RSR token holders may stake (deposit as collateral) their tokens either onto one or more RTokens. By staking it, a receipt token (stRSR) is created that represents ownership in the underlying staked RSR, similar to how liquid staking on Lido works. This receipt can be held to collect revenues from the RTokens.<\/p>\n\n\n\n

      Staked RSR earns rewards through yield generated on the RToken\u2019s collateral. The staked RSR is in turn used as insurance in the event of the collapse of any given collateral.<\/p>\n\n\n\n

      For a more thorough overview of how this works, I recommend reading about <\/em>Reserve Rights staking<\/em><\/a>.<\/em><\/p>\n\n\n\n

      The risk for users is that the staked RSR tokens may not be sufficient to cover the loss of collateral. Additionally, unstaking may at times be over a week (though it can be customized), meaning that users cannot always react quickly during periods of high volatility.<\/p>\n\n\n\n

      Nonetheless, having a way to provide protection to users in a transparent manner is revolutionary and the exact mechanics may be subject to improvements in the future.<\/p>\n\n\n\n

      Revenue Sharing Through Underlying Collateral<\/strong><\/h2>\n\n\n\n

      Another reason is revenue sharing on the underlying collateral.<\/p>\n\n\n\n

      The collateral will be composed of a basket of assets in the form of tokens, including:<\/p>\n\n\n\n