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What is The Reserve Project (Protocol)? - RSR

By TMod_Marco | TMod_Marco | 2 Dec 2020


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Reserve is building a stablecoin that can’t be shut down, and a network of decentralized fiat on/off ramps. This is how The Reserve Project briefly describes themselves. They strongly believe anyone should be able to transact with anyone else (in a legitimate way). Where banks and governments have showed they cannot be trusted, Reserve believes their decentralized and stable cryptocurrency is up for the job.

The Reserve Project

Their mission doesn’t come without challenges. Reserve mentioned their current user base mainly consists of normal people and business owners in Venezuela. For those who have missed what’s going on their, Venezuela is seeing hyperinflation on their local currency, which led to many people converting their fiat to cryptocurrency.

Reserve already offers a fully working product with fiat on/off ramps, their user-base is growing and their vision is to not just provide this in Venezuela, but worldwide. They want to go beyond the basic transactions by offering card payments, and various other features.

The biggest challenge is to convert people to using their product. Now that might sound very straight-forward, but there are various barriers that make this more difficult:

  • Some countries don’t allow for their citizens to access foreign currencies.
  • Reserve writes; ‘’Some countries are seen as too high risk by global financial institutions, so their citizens are either not allowed to have accounts, or they are but accounts are highly limited and frozen so often that it's hard to just do normal business.’’

The upside here is that The Reserver Project (and RSV currency) is decentralized, making it much harder for governments to prevent their citizens from using their product. Which ultimately makes this all come down to marketing and mass awareness, to further scale the user-base. Which is a phase many project are currently at.

The Reserve Protocol

As often seen with decentralized projects, they don’t initially start fully decentralized. In fact, The Reserve Project and protocol currently operate in a centralized way. This is described as phase one, which will transition into phase two, where Reserve is still stabilised against the US dollar backed by a changing basket of assets. Eventually, this will transition into phase three, where Reserve is no longer stabilised against the US dollar, making Reserve fully independent.

The below image, taken from the Reserve website, offers the best summary of what the Reserve Protocol is and how it works:

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  1. When the price of RSV goes above $1 on exchange, the protocol sells newly minted or excess vault RSV for either tokenised assets or RSR, driving the price of RSV on exchanges back down to $1.
  2. When the price of RSV falls below $1 on exchanges, the protocol purchases RSV for tokenised assets, bringing the price of RSV on exchanges back up to $1.
  3. When (as a result of asset appreciation or transactions fees) the vault has accumulated excess RSV, RSR holders can purchase this with their RSR as part of stabilising the price of RSV, which maintains the vault’ ratio of assets and reduces the supply of RSR.
  4. When the vault’s ratio of tokenised assets goes below the target range, the protocol sells RSR for tokenized assets, thereby replenishing the backing for RSV.

So summarized, the protocol uses excess reserve and tokenized assets to back Reserve and to keep RSV at a price of $1, making it a true stablecoin.

The Tokens (RSV and RSR)

The Reserve Protocol uses two native tokens and also interacts with collateral tokens. We’ve basically covered what RSV is about. RSV is Reserve’s stablecoin, currently pegged against the US dollar while operating in a still centralized way. However, the protocol heavily relies on speculators and arbitrage takers. When the price falls below $1, users are incentivised to purchase RSV and convert it to collateral worth $1 each, whereas when the price is above $1, users can purchase RSV for $1 from the platform and sell it for a profit on the listed exchanges.

RSR however, is something else. RSR is the Reserve Rights Token. RSR is currently rank #77 on CoinGecko and counts a market cap of $189,967,961. It’s trading on top-tier exchanges such as Binance, OKEx, Huobi and Uniswap.

Charlie Smith, the head of Business Development at Reserve, explained the most simple way to see RSR is to compare it to BNB. To use the Reserve Protocol, a small transaction fee is charged which will also generate yield. These funds are used for buybacks and burning RSR through the arbitrage mechanism. Which further decreases supply and increases demand.

RSR is also used as a governance token, to enable token holders to vote on proposals.

That said, there are a lot of different layers to this project and I would highly recommend to browse through their website for 30-60 minutes and really explore in more detail what all of this means.

The Team and partners

The Reserve Project is headquartered in Oakland, California, USA. Their team page gives a good overview of their current team members and their experience. Note: not all team members are shown on this page, some wish to remain anonymous whereas some still have to be added to the page.

I’m mainly interested in their partners and investors. The Reserve Project has gotten huge awareness from people after announcing various investors in the past. Their page gives a complete overview of who currently invested in the project and is basically helping to fund the collateral of the protocol.

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This includes Coinbase Ventures, one of the top-tier exchanges located in the United States. As well as Peter Thiel, co-founder of PayPal. With recent news about PayPal starting to accept cryptocurrencies, the space was thrilled and various rumours of RSR being included in the supported list of cryptocurrencies on PayPal appeared. This resulted (partially) in RSR increasing in price and more speculators to jump on board. However, such news hasn’t been confirmed and at all and at the current PayPal phase I think this is still unlikely to happen anytime soon.

What do I think about Reserve?

I think it’s safe to say that The Reserve Project is a very ambitious one. There are over 30 stablecoins listed on CoinGecko, with Tether (USDT), USD Coin (USDC) and DAI (DAI) being used the most at the moment.

I’d see Maker (DAI) as Reserve’s biggest ‘competitor’ of becoming the most adopted decentralized stablecoin. Both have already proven part of their word and it’s all about scaling at this point. Reserve has very interesting backers which might enable them to really go for mass awareness, to eventually bypass DAI. That said, this shows huge upside potential for Reserve and therefore RSR. I strongly believe they could well play in the same league if they maintain and further increase their user-base at a high pace.

That said, in an actual bull run one may want to consider to add some RSR to their long-term portfolio. Full transparency, I held RSR a little while ago but sold it for ETH about a week ago. With the current market volatility I’m hoping to pick RSR up again for a partial short-term and a partial long-term play against BTC. That said, the poll on Twitter requested I share some graphs in my FA reports, so here is where I am looking to enter RSR again:

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This post is for informative purposes only, I’m not a financial advisor and I currently do not have a position in RSR. I do not plan on changing this within the next 48 hours, unless my buy order at 95 sats hits. I have not been paid for this post, this post is out of personal interest.

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TMod_Marco
TMod_Marco

@TMod_Marco on Twitter < Follow me. Dutch blockchain, marketing & strategy consultant. Head of Community at Presearch.org.


TMod_Marco
TMod_Marco

https://www.quora.com/profile/Marco-Van-den-Heuvel

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