Crypto Project Reviews

Altcoinist Review | Reserve Protocol: The Flatcoin Factory

July 1, 2024

Project Overview

  • Vision: The Asset-backed currency revolution
  • Creating money from a diverse basket of assets to beat inflation while having low volatility
  • Backing assets could be any ERC20 tokens via collateral plugins
  • The first permissionless infrastructure to create cryptocurrencies of tokenized Real-World-Assets ( #RWA-s)
  • Gateway to Flatcoins: Register.app (Reserve Protocol) is a Smart contract factory that enables experimenting with diversified backings to create Flatcoin
  • Rpay: Successfully provided stable cryptocurrency to countries with hyperinflation, resulting in over 500,000+ non-speculative crypto users
  • Amongst the backers: Peter Thiel, Sam Altman, Coinbase Ventures
  • Introduced Self-healing tokens: Currencies can get RSR de-peg insurance
Reserve Protocol White Paper / 2019

The Problem with FIAT money

Traditional money, backed by gold or silver, has been replaced by the full faith and credit of the US government since 1971. This shift has led to moderate inflation, with the US increasing the supply of dollars by 6-10% annually.
Emerging markets and developing countries encounter even more difficulties with inflation, political manipulation, and financial crises.

Reserve challenges this system, aiming to create low-volatile currencies that don't inflate over time.

The Rise of Bitcoin

Bitcoin emerged as a decentralized alternative to traditional fiat currencies, free from the control of governments or banks. It revolutionized the financial landscape by providing a decentralized, peer-to-peer payment system. However, Bitcoin's high price volatility makes it less suitable as a stable store of value or medium of exchange, impeding its mass adoption for daily transactions.

Stablecoins changing the game

Stablecoins emerged as a solution to the price volatility of cryptocurrencies like Bitcoin. They aim to combine the benefits of digital currencies - speed, security, and accessibility, with the stability of traditional fiat currencies. However, many existing stablecoins are tied to a single fiat currency, making them susceptible to the same issues plaguing traditional monetary systems.

The Next Step for Crypto: The Flatcoin

Flatcoin, as aimed to achieve by the Reserve Protocol, is a unique take on stablecoins. It doesn't just tie itself to a single fiat currency, but instead, it's backed by a diverse basket of real-world assets. This method aims to provide a new level of stability, untouched by the flaws of traditional fiat currencies.

In the words of Brian Armstrong, CEO of Coinbase, "Flatcoin is a step towards a truly decentralized economy where power is shared, not concentrated."

Coinbase wants devs to build inflation-pegged ‘flatcoins’ on its new ‘Base’ network.

“[We] are particularly interested in ‘flatcoins’ — stablecoins that track the rate of inflation, enabling users to have stability in purchasing power while also having resiliency from the economic uncertainty caused by the legacy financial system.”

Reserve x Base (Layer2) Testnet configuration

"Nice — hopefully it won’t be too long before testing on Base — then we get to create RTokens on Base — can’t wait — I really think this will be the catalyst for much more TVL because sending on chain will become financially viable. Plus you’ll be able to mint and LP for pennies — assuming our friends at Curve will be doing something." - RSR Mallo

https://mr-mallo.medium.com/reserve-unofficial-update-f9f0d0b5c954
Similarly, Ray Dalio, the billionaire hedge fund manager, stated,
"If you created a coin that says, 'OK, this is buying power that I know I can save in and put my money in over a period of time and transact in,' then I think that would be a good coin," he said. "So I think you're going to see the development of coins that you haven't seen that probably will end up being attractive, viable coins. I don't think Bitcoin is it."

Real-World Assets, as building blocks

/Real World Assets (RWAs) are off-chain assets that are tokenized and brought on-chain to serve as a yield source within DeFi, transforming its potential impact./

Tokenization of real-world assets involves the transformation of tangible assets, such as real estate, precious metals, art, and collectibles, into a virtual investment vehicle on the blockchain. This process replaces physical documents, like a house deed, with blockchain records. The ownership can be directly traded between two parties or divided into fractions and offered to multiple buyers.

There are several compelling features maintaining the ownership of real-world assets on the blockchain (on-chain):

  1. Cost Reduction: Tokenization eliminates intermediaries like lawyers, brokers, and banks, thereby lowering transaction costs.
  2. Increased Trading Efficiency: Unlike traditional trading of real-world assets, which is limited to specific working hours, tokenization allows for 24/7 trading, making it faster and more efficient.
  3. Lower Barrier to Entry: Tokenization democratizes access to investment in real-world assets. Fractional ownership allows for smaller investments, thereby increasing market liquidity.
  4. Transparency: The transparent nature of blockchain technology ensures a trustworthy and accountable process for traders. This transparency increases trust among participants.
  5. Bridging TradFi and DeFi: #RWAs bridge the gap between decentralized and traditional financial systems, representing tangible assets like gold and real estate and intangible assets like government bonds or carbon credits.
  6. Real-Yield: RWAs provide DeFi with sustainable, reliable yields backed by traditional asset classes.
"Tokenized assets are estimated to be a US$16 trillion market by 2030, representing significant headroom for growth and a notable increase from US$310B in 2022." - Binance Research

#DYOR on the full Binance Research on #RWA-s: https://research.binance.com/en/analysis/real-world-assets

BlackRock CEO Says ‘Next Generation for Markets’ Is Tokenization


"The next generation for markets, the next generation for securities, will be tokenization of securities." - Larry Fink

In the world of blockchain, tokenization refers to a process where a digital representation of an asset is created on a blockchain, authenticating its transaction and ownership history.

As of the second quarter of 2022, the New York City-based asset management company BlackRock had total assets under management (AUM) of around 8.5 trillion U.S. dollars. - Statisa.com

Reserve Protocol, where all comes together

The Reserve Protocol is the first platform to allow for the permissionless creation of asset-backed, yield-bearing, and overcollateralized stablecoins on Ethereum.

Any individual can deploy a Reserve stablecoin (RToken) with their preferred collateral basket, governance system, and revenue distribution. The ultimate goal is to provide highly scalable, decentralized, stable money, a stark contrast to volatile cryptocurrencies like Bitcoin and Ether.

The Asset-Backed Currencies on Reserve: Rtokens

RTokens, in essence, are currencies created within the Reserve Protocol framework. They are fully backed by a mix of ERC-20 tokens and can be safeguarded from collateral default through staking Reserve Rights (RSR). Each RToken operates under its own governance.

Creating an RToken is a permissionless process akin to how anyone can establish a new trading pair on Uniswap. This is achieved by interacting with the Reserve Protocol’s smart contracts, which employ a factory system that enables individuals to deploy their unique smart contract instance.

Idea representation for Rtokens

Tokenized ETF and Indexes through Reserve Protocol?

The Reserve Protocol's smart contract factory is a transformative tool that enables the creation of tokenized indexes and ETFs, ushering in a new era of possibilities in the financial market, particularly within the DeFi sector. Tokenizing these financial instruments can revolutionize their trading and management, making them more efficient and accessible.

With the Reserve Protocol's smart contract factory, one can create a tokenized index or ETF that encapsulates diverse assets, from stocks and bonds to commodities and even cryptocurrencies. This tokenization process results in a unique token on the Ethereum blockchain, which can be bought, sold, or traded just like any other ERC20 token.

This approach brings the advantages of blockchain technology, such as transparency, security, and immutability, into the realm of indexes and ETFs. It also enables 24/7 trading, breaking free from the constraints of traditional financial markets' set trading hours. Furthermore, it democratizes these financial instruments, making them globally accessible to anyone with an internet connection and a digital wallet.

Paying with a share of the global wealth?

This innovative approach would enable individuals to use a portion of their investment portfolio for transactions, effectively allowing them to transact using a fraction of the world's wealth. This concept redefines the traditional understanding of currency and introduces a new level of financial flexibility and inclusivity. These factors solidify the Reserve Protocol's position as a pioneering force in the decentralized finance industry.

Paying with Asset-backed currency is already happening.


Rpay application's Transition to eUSD: Recent events have surfaced the inherent risk of centralized stablecoins losing their 1:1 peg to the US dollar under some circumstances. This was the kind of scenario that the Reserve team spent years preparing for, developing a protocol to help mitigate the risk of stablecoin default.

To protect our customers, Rpay is transitioning from RSV to eUSD, an RToken deployed on the Reserve protocol.

#DYOR on Rpay here: https://rpay.app/

Rpay (Reserve fintech app) in IMF paper

A few more available Rtokens

ETH+ is a community-governed, diversified, yield-bearing staked Ethereum index with over-collateralization protection.

The LSD ecosystem can be daunting for casual crypto users and will only get more challenging to navigate as more LSD protocols come online. ETH+ aims to be the easiest way to get passive yield exposure to a diversified basket of ETH LSDs.

hyUSD is a tokenized high-yield savings product that provides convenient access to DeFi yields, helping holders grow and preserve their wealth over time.

With an estimated yield of 8%, hyUSD outpaces the inflation rate in over 100 countries worldwide, providing a refuge for purchasing power. As with all asset-backed currencies issued on the Reserve protocol, hyUSD provides auditable proof of reserves on-chain 24/7.

Self-healing Tokens ($RSR token use case)

Reserve Rights (RSR) acts as a protective layer for RToken holders, providing an over-collateralization buffer in the rare event of a collateral token default. RSR holders have the option to stake on a single RToken or distribute their RSR stakes across various RTokens. They also have the choice to refrain from staking their RSR entirely.
In exchange for offering this over-collateralization, RSR stakers are eligible to receive a portion of the revenue generated from the specific RToken they stake on.

Reserve Protocol (de-peg insurance) in action

This year when Circle’s USD coin (USDC) lost its peg to the dollar on March 10, the day U.S. banking authorities stepped in to take over Silicon Valley Bank (SVB). The fiat-backed stablecoin fell below 90 cents following the announcement that Circle had up to $3.3 billion in exposure to SVB, which had suffered a deposit run.

Rtokens market cap

Reserve Total Value Locked is over $25M. For more data check out the ecosystem dashboards for Reserve Protocol: https://flipsidecrypto.xyz/Meir/r-tokens-overall-dashboard-Wx7xtA

Total Market Cap of eUSD, ETH+, hyUSD

Reserve investing $20M into Curve, Convex, and StakeDAO


For RTokens (Asset-Backed currencies) to thrive, they must exhibit stability, be easily convertible, gain wide acceptance, and foster user trust.

Above all, liquidity is crucial. To cultivate a liquid, sustainable RToken ecosystem, Reserve strategically invests $20M in CRV, CVX, and SDT governance tokens.

Liquidity providers are already capturing ~10–25% for current RTokens on Curve and Convex. Reserve’s aim is to support unique, secure, and well-considered RTokens, aiding the most high-quality participants with deep liquidity.

Reserve Rights ($RSR) token supply

Reserve Rights (RSR) has a fixed total supply of 100 billion tokens, out of which there are currently 50.6b in circulation. The remaining 49.4b tokens belong to the Slow Wallet.

The Slow Wallet is a locked wallet controlled by the Reserve project, used to fund RToken adoption initiatives.

Market Opportunity for Reserve

If Reserve succeeds in creating flatcoins, the market opportunity is immense. - Altcoinist.com

Flatcoins could serve as the foundation for a new decentralized economy that blends the efficiency of digital currencies with the stability of traditional assets.
It has the potential to become the preferred medium of exchange for daily transactions, especially in countries with unstable currencies. As such, Reserve could be at the forefront of the next wave of financial innovation, driving mass adoption of cryptocurrencies.

https://comparemarketcap.com/compare/reserve-rights-token/uniswap/

Summary

Asset-backed currencies, including flatcoins, are promising endeavors in the blockchain space. By leveraging real-world assets and blockchain technology, they could potentially resolve the inherent issues in both fiat currencies and existing cryptocurrencies.

While the road ahead is still challenging, with its novel approach to stability in the crypto ecosystem, Reserve Protocol seems well-positioned to foster a new era of financial inclusivity and stability. That kind of stability could be a game-changer in the volatile world of cryptocurrencies.

The success of Reserve also hinges on the proliferation of tokenized real-world assets and the development of additional collateral plugins. This will enable the creation of more diverse asset baskets, thereby enhancing the stability and utility of the protocol.

The next few years will determine whether this ambitious project can deliver its promise.