What are RTokens?
RToken is the generic name for a stablecoin that gets created on top of the Reserve Protocol. RTokens are fully asset-backed by any combination of ERC-20 tokens and can be protected against collateral default by Reserve Rights (RSR) staking. Each RToken is governed separately.
Anyone can create an RToken
In a similar way as how anyone can create a new trading pair on Uniswap, anyone can permissionlessly create a new Reserve stablecoin (RToken) by interacting with Reserve Protocol’s smart contracts. The protocol applies a system of factory smart contracts that allows anyone to deploy their own smart contract instance.
Creating an RToken can be done either by interacting directly with the Reserve Protocol’s smart contracts or any user interface that gets built on top of it. The first user interface for these smart contracts is app.reserve.org released by ABC Labs the company that's leading protocol development. Besides the creation of RTokens, this user interface will also support exploring usage and stats related to RTokens, RToken minting & redeeming, and RSR staking.
The Reserve Protocol applies a system of factory smart contracts that allows anyone to deploy their own
smart contract instance.
When someone decides to create an RToken, they will have to define exactly what the initial configuration of that RToken will look like. This includes choosing which ERC-20 assets & back-up assets the RToken will be backed by, what weight each of these assets will have in the basket, but also how and by whom the RToken will be governed. There are also many more nuanced parameters that the RToken creator will have to consider.
Non-compatible ERC-20 assets
The following types of ERC-20s are not supported to be used directly in an RToken system:
- Rebasing Tokens that return yields by increasing the balances of users
- Tokens that take a "fee" on transfer
- Tokens that do not expose the
decimals()in their interface. Decimals should always be between 1 and 18. - ERC777 tokens which could allow reentrancy attacks
- Tokens with multiple entry points (multiple addresses)
- Tokens that do not adhere to the ERC-20 standard in general
These tokens should be be wrapped into a compatible ERC-20 token to be used within the protocol. A concrete example is the use of Static ATokens for Aave V2.
Use cases of RTokens
The RToken platform is a tool to aggregate relatively stable assets together to create basket-backed stablecoins. Our intention in the long-term is to facilitate the creation of an asset-backed currency that is independent of fiat monetary systems. We envision this becoming possible once enough asset types are tokenized.
We are laying the groundwork early, as not many assets are tokenized yet. Today, the main use-cases we see are (1) a more decentralized USD-backed coin, which reduces dependence on any one fiatcoin issuer, and (2) a single simple USD-based coin that packages the yield of DeFi protocols.
The main purpose of allowing and encouraging many RTokens is so that open exploration and competition can lead to the discovery of the best type of basket and governance system. There's a lot to explore, and it's better not to keep that under the control of the initial founding team. That said, we still anticipate a single dominant RToken emerging over time through that evolutionary process, and we think consolidation into one or two dominant options is a good thing, since simplicity and ubiquity are important for an asset to really be a currency.
We also can imagine fintech companies using the protocol to launch their own branded basket-backed stablecoins, though this wasn't the central intent of opening up the platform.
We don’t expect lots of RToken to be created during the early stages. Rather, we think that if one or two RTokens become large and known, that will inspire the creation of more over time.
Advanced RToken parameters
When deploying an RToken, the deployer has the ability to configure many different advanced parameters. The following list goes into detail about what these parameters do and some of the factors the deployer should keep in mind to set them.
As many of these parameters concern the Protocol Operations, we advise reading through that section of the documentation first—as it will give the deployer the necessary context to fully understand all parameters.
Trading delay(s)
The trading delay defines how many seconds should pass after the basket has been changed before a trade can be opened.
A collateral asset can instantly default if one of the invariants of the underlying DeFi protocol breaks. If that would happen, and we would not apply a trading delay, the protocol would react instantly by opening an auction. This would give only auctionLength seconds for people to bid on the auction, making it very possible for the protocol to lose value due to slippage.
The trading delay parameter may only be needed in the early days - before we get to a point where there is a robust market of MEV searchers. We expect that this parameter can be set to zero later on (once a robust market of MEV searchers is established).
Default value: 21600 = 6 hours
Auction length(s)
The dutch auction length is how many seconds long falling-price dutch auctions should be. A longer period will generally result in less slippage due to better price granularity, and a shorter period will result in more slippage.
In general, the dutch auction length should be a multiple of the block time, although this is not enforced at a smart-contract level.
Default value: 1800 = 30 minutes
Batch auction length(s)
The batch auction length determines how long batch auctions stay open for. The situations to keep in mind when determining this value are:
- If it is set too low, back-to-back auctions may not give arbitrageurs enough time to complete arbitrage loops that involve centralized exchanges. We don’t want capital-constrained traders to have to sit out every other auction.
- If it is set too high, fewer auctions will fill and the protocol will take more time holding the asset being sold. This is because the price can swing more than maximum trade slippage in the unfavorable direction.
Default value: 900 = 15 minutes
Warmup period
The warmup period defines how many seconds should pass after a collateral asset resumes being SOUND before issuance or trading can resume.
This parameter is useful to defend against short-term oracle manipulation attacks and in cases where asset prices may be experiencing larger fluctuations.
Default value: 900 = 15 minutes
Withdrawal leak (%)
Most RSR withdrawals will not trigger a refresh of asset prices (which can determine whether collateral has defaulted), allowing for cheaper withdrawals. The tradeoff of not refreshing prices with every withdrawal is that the system runs the risk of prices becoming stale, and the system not being able to react sufficiently swiftly to market conditions.
This parameter attemps to balance these tradeoffs, by setting a fraction of RSR stake that should be permitted to withdraw without a refresh of asset prices. When cumulative withdrawals (or a single large withdrawal) exceed this fraction, gas must be spent to refresh all assets. Setting this number larger allows unstakers to save more on gas at the cost of allowing more RSR to exit improperly in the event of a default.
Default value: 5e16 = 5%
Backing buffer (%)
As collateral tokens appreciate, RTokens can be minted by the protocol whenever it gathers the correct ratios of all collateral tokens. This is the most efficient form of revenue capture, because it requires minimal trading of the excess collateral (and thus, a minimal spend on gas fees and trading slippage).
When the protocol is able to gather all the required parts of an RToken, these parts (collateral tokens) get sent to the RevenueTrader contract, where it performs an internal mint to create more RTokens. These new RTokens are then used as yield for both RToken holders and RSR stakers.
The backing buffer parameter is a percentage value that describes how much additional collateral tokens the protocol should hold on to before sending collateral tokens to the RevenueTraders. If this were set to “0”, then it’s possible (though unlikely) that collateral could “take turns” appreciating, causing the protocol to forward individual collateral tokens to the RevenueTraders and never assemble it into new RTokens.
Default value: 1e14 = 0.01%
Max trade slippage (%)
The maximum trade slippage is a percentage value that describes the maximum deviation from oracle prices that any trade that the protocol performs can clear at. Oracle prices have ranges of their own; the maximum trade slippage permits additional price movement beyond the worst-case oracle price.
Setting this percentage too high could cause the protocol to take high losses if auctions are illiquid.
Default value: 0.01e18 or 0.02e18 = 1/2%
Minimum trade volume
The minimum trade volume represents the smallest amount of value that is worth executing a trade for.
Setting this too high will result in auctions happening infrequently or the RToken taking a haircut when it cannot be sure it has enough staked RSR to succeed in rebalancing at par.
Setting this too low may allow griefers to delay important auctions. The variable should be set such that donations of size minTradeVolume would be worth delaying trading auctionLength seconds.
We expect auction bidders to pass-through any gas fees they pay during trading to the protocol. They are under competition, so those that do not will find themselves with less capital over time relative to those that do.
In order for the protocol not to take losses it’s important it knows that bidders will bid in the auction near market prices, which requires that gas prices are not significant relative to the volume of the auction.
Note: Every collateral in the basket should be a large enough portion of the basket that is worth trading at the configured minTradeVolume, even when we are only looking at 5% or 10% of its balance.
Default value: 1e22 = $10k
RToken max trade volume
This represents the maximum sized trade for any trade involving RToken, in terms of value.
It is important to remark that in addition to the RToken, each collateral plugin will also have its own max trade volume defined.
Default value: 1e24 = $1M
RToken supply throttles
In order to restrict the system to organic patterns of behavior, we maintain two supply throttles, one for net issuance and one for net redemption.
When a supply change occurs, a check is performed to ensure this does not move the supply more than an acceptable range over a period; a period is fixed to be an hour.
The throttling mechanism works as a battery, where, after a large issuance/redemption, the limit recharges linearly to the defined maximum at a defined speed of recharge.
Limits can be defined (for issuance and redemption) in RToken amounts and/or as a percentage of the RToken supply.
Issuance throttle amount
A quantity of RToken that serves as a lower-bound for how much net issuance to allow per hour.
Defined in RToken amounts.
Must be at least 1 whole RToken. Can be set to a very high numer (e.g. 1e48) to effectively disable the issuance throttle.
Default value: 1e24 = 1,000,000 RToken
Issuance throttle rate (%)
A fraction of the RToken supply that indicates how much net issuance to allow per hour.
Can even be set to 0, to solely rely on throttle amount.
Default value: 5e16 = 5% per hour
Redemption throttle amount
A quantity of RToken that serves as a lower-bound for how much net redemption to allow per hour.
Defined in RToken amounts.
Must be at least 1 whole RToken. Can be set to a very high numer (e.g. 1e48) to effectively disable the redemption throttle.
Default value: 1e24 = 1,000,000 RToken
Redemption throttle rate (%)
A fraction of the RToken supply that indicates how much net redemption to allow per hour.
Can be 0 to solely rely on the throttle amount.
Default value: 2.5e16 = 2.5% per hour
Short freeze duration(s)
The number of seconds a short freeze lasts.
Governance can freeze forever.
Default value: 259200 = 3 days
Long freeze duration(s)
The number of seconds a long freeze lasts.
Long freezes can be disabled by removing all addresses associated to the role.
Default value: 2592000 = 30 days
Unstaking delay(s)
The unstaking delay is the number of seconds that all RSR unstakings must be delayed in order to account for stakers trying to frontrun defaults.
In the case of a collateral token default, RSR holders are not given a choice as to whether their RSR is used to cover the default, since selfish anonymous actors would often choose not to follow through. So, there must be a delay when withdrawing RSR from the staking contract.
In practice, whenever an RSR staker chooses to withdraw their RSR, they must submit a transaction, wait X amount of time, and then submit another transaction to complete the withdrawal. During the waiting period, their RSR continues to be subject to forfeiture in the case of a collateral token default, but stops earning its pro-rata share of the RToken’s revenue.
The goal of this delay is to make it so that at any point in time, staked RSR that has not had a withdrawal transaction initiated is at least X time away from being withdrawn.
Default value: 1209600 = 2 weeks
Reward ratio (decimals)
The reward ratio is the percentage of the current reward amount that should be handed out per block.
Default value: 3209014700000 = a half life of 30 days at a period of 12s.
Mainnet reasonable range: 1e11 to 1e13
What are RTokens?
RToken is the generic name for a stablecoin that gets created on top of the Reserve Protocol. RTokens are fully asset-backed by any combination of ERC-20 tokens and can be protected against collateral default by Reserve Rights (RSR) staking. Each RToken is governed separately.
Anyone can create an RToken
In a similar way as how anyone can create a new trading pair on Uniswap, anyone can permissionlessly create a new Reserve stablecoin (RToken) by interacting with Reserve Protocol’s smart contracts. The protocol applies a system of factory smart contracts that allows anyone to deploy their own smart contract instance.
Creating an RToken can be done either by interacting directly with the Reserve Protocol’s smart contracts or any user interface that gets built on top of it. The first user interface for these smart contracts will be released by ABC Labs the company that's leading protocol development. Besides the creation of RTokens, this user interface will also support exploring usage and stats related to RTokens, RToken minting & redeeming, and RSR staking.
Non-compatible ERC20 assets
The following types of ERC20s are not supported to be used directly in an RToken system. These tokens should be be wrapped into a compatible ERC20 token to be used within the protocol. A concrete example is the use of Static ATokens for Aave V2.
- Rebasing Tokens that return yields by increasing the balances of users
- Tokens that take a "fee" on transfer
- Tokens that do not expose the decimals() in their interface. Decimals should always be between 1 and 18.
- ERC777 tokens which could allow reentrancy attacks
- Tokens with multiple entry points (multiple addresses)
- Tokens with multiple entry points (multiple addresses)
- Tokens that do not adhere to the ERC20 standard in general
Advanced RToken parameters
When deploying an RToken, the deployer has the ability to configure many different advanced parameters. The following list goes into detail about what these parameters do and some of the factors the deployer should keep in mind to set them.
As many of these parameters concern the Protocol Operations, we advise reading through that section of the documentation first—as it will give the deployer the necessary context to fully understand all parameters.
Trading delay(s)
The trading delay defines how many seconds should pass after the basket has been changed before a trade can be opened.
A collateral asset can instantly default if one of the invariants of the underlying DeFi protocol breaks. If that would happen, and we would not apply a trading delay, the protocol would react instantly by opening an auction. This would give only auctionLength seconds for people to bid on the auction, making it very possible for the protocol to lose value due to slippage.
The trading delay parameter may only be needed in the early days - before we get to a point where there is a robust market of MEV searchers. We expect that this parameter can be set to zero later on (once a robust market of MEV searchers is established).
Auction length(s)
The Reserve Protocol includes a generic trading system which can be integrated with any type of trading mechanism, but will only have an implementation for Gnosis EasyAuctions at-launch.
The auction length determines how long auctions stay open for. The situations to keep in mind when determining this value are:
- If it is set too low, back-to-back auctions may not give arbitrageurs enough time to complete arbitrage loops that involve centralized exchanges. We don’t want capital-constrained traders to have to sit out every-other auction.
- If it is set too high, fewer auctions will fill and the protocol will take more time holding the asset being sold. This is because the price can swing more than maximum trade slippage in the unfavorable direction.
Backing buffer (%)
As collateral tokens appreciate, RTokens can be minted by the protocol whenever it gathers the correct ratios of all collateral tokens. This is the most efficient form of revenue capture, because it requires minimal trading of the excess collateral (and thus, a minimal spend on gas fees and trading slippage).
When the protocol is able to gather all the required parts of an RToken, these parts (collateral tokens) get sent to the RevenueTrader contract, where it performs an internal mint to create more RTokens. These new RTokens are then used as yield for both RToken holders and RSR stakers.
The backing buffer parameter is a percentage value that describes how much additional collateral tokens the protocol should hold on to before sending collateral tokens to the RevenueTraders. If this were set to “0”, then it’s possible (though unlikely) that collateral could “take turns” appreciating, causing the protocol to forward individual collateral tokens to the RevenueTraders and never assemble it into new RTokens.
Max trade slippage (%)
The maximum trade slippage is a percentage value that describes the maximum deviation from oracle prices that any trade that the protocol performs can clear at. Oracle prices have ranges of their own; the maximum trade slippage permits additional price movement beyond the worst-case oracle price.
Setting this percentage too high could cause the protocol to take high losses if auctions are illiquid.
Minimum trade volume
The minimum trade volume represents the smallest amount of value that is worth executing a trade for.
Setting this too high will result in auctions happening infrequently or the RToken taking a haircut when it cannot be sure it has enough staked RSR to succeed in rebalancing at par.
Setting this too low may allow griefers to delay important auctions. The variable should be set such that donations of size minTradeVolume would be worth delaying trading auctionLength seconds.
We expect auction bidders to pass-through any gas fees they pay during trading to the protocol. They are under competition, so those that do not will find themselves with less capital over time relative to those that do.
In order for the protocol not to take losses it’s important it knows that bidders will bid in the auction near market prices, which requires that gas prices are not significant relative to the volume of the auction.
Note: Every collateral in the basket should be a large enough portion of the basket that is worth trading at the configured minTradeVolume, even when we are only looking at 5% or 10% of its balance.
RToken max trade volume
This represents the maximum sized trade for any trade involving RToken, in terms of value.
It is important to remark that in addition to the RToken, each collateral plugin will also have its own max trade volume defined.
RToken supply throttles
In order to restrict the system to organic patterns of behavior, we maintain two supply throttles, one for net issuance and one for net redemption.
When a supply change occurs, a check is performed to ensure this does not move the supply more than an acceptable range over a period; a period is fixed to be an hour.
The throttling mechanism works as a battery, where, after a large issuance/redemption, the limit recharges linearly to the defined maximum at a defined speed of recharge.
Limits can be defined (for issuance and redemption) in rToken amounts and/or as a percentage of the RToken supply.
Issuance throttle amount
A quantity of RToken that serves as a lower-bound for how much net issuance to allow per hour. This quantity is defined in RToken amounts.
Must be at least 1 whole RToken. Can be set to a very high numer (e.g. 1e48) to effectively disable the issuance throttle.
Issuance throttle rate (%)
A fraction of the RToken supply that indicates how much net issuance to allow per hour.
Can even be set to 0, to solely rely on throttle amount.
Redemption throttle amount
A quantity of RToken that serves as a lower-bound for how much net redemption to allow per hour.
Defined in RToken amounts.
Must be at least 1 whole RToken. Can be set to a very high numer (e.g. 1e48) to effectively disable the redemption throttle.
Redemption throttle rate (%)
A fraction of the RToken supply that indicates how much net redemption to allow per hour.
Can be 0 to solely rely on the throttle amount.
Long freeze duration(s)
The number of seconds a long freeze lasts.
Long freezes can be disabled by removing all addresses associated to the role.
Unstaking delay(s)
The unstaking delay is the number of seconds that all RSR unstakings must be delayed in order to account for stakers trying to frontrun defaults.
In the case of a collateral token default, RSR holders are not given a choice as to whether their RSR is used to cover the default, since selfish anonymous actors would often choose not to follow through. So, there must be a delay when withdrawing RSR from the staking contract.
In practice, whenever an RSR staker chooses to withdraw their RSR, they must submit a transaction, wait X amount of time, and then submit another transaction to complete the withdrawal. During the waiting period, their RSR continues to be subject to forfeiture in the case of a collateral token default, but stops earning its pro-rata share of the RToken’s revenue.
The goal of this delay is to make it so that at any point in time, staked RSR that has not had a withdrawal transaction initiated is at least X time away from being withdrawn.
Reward ratio (decimals)
The reward ratio is the percentage of the current reward amount that should be handed out per block.
Default value: 3209014700000 = a half life of 30 days at a period of 12s.
Mainnet reasonable range: 1e11 to 1e13
Use cases of RTokens
The RToken platform is a tool to aggregate relatively stable assets together to create basket-backed stablecoins. Our intention in the long-term is to facilitate the creation of an asset-backed currency that is independent of fiat monetary systems. We envision this becoming possible once enough asset types are tokenized.
We are laying the groundwork early, as not many assets are tokenized yet. Today, the main use-cases we see are (1) a more decentralized USD-backed coin, which reduces dependence on any one fiatcoin issuer, and (2) a single simple USD-based coin that packages the yield of DeFi protocols.
The main purpose of allowing and encouraging many RTokens is so that open exploration and competition can lead to the discovery of the best type of basket and governance system. There's a lot to explore, and it's better not to keep that under the control of the initial founding team. That said, we still anticipate a single dominant RToken emerging over time through that evolutionary process, and we think consolidation into one or two dominant options is a good thing, since simplicity and ubiquity are important for an asset to really be a currency.
We also can imagine fintech companies using the protocol to launch their own branded basket-backed stablecoins, though this wasn't the central intent of opening up the platform.
We don't expect lots of RTokens to be created right after protocol launch. Rather, we think that if one or two RTokens become large and known, that will inspire the creation of more over time.
