The question to settle is: How should the remaining ≈50% of RSR be allocated?
We recently announced that RSR would be following a deterministic emission curve which emulates Bitcoin. For more information on the emission curve, please read that post here.
I would also encourage you to watch a talk I gave at Monetarium which touches on the topic. For specific comments on allocation mechanisms, jump to 32:17:
As noted in the talk, the ecosystem has a lot of ongoing work that many different parties will need to contribute if we’re to reach our long-term goal:
- Core development!
- Evolution of the protocol
- Governance system development
- Collateral adapters
- New rebalancing approaches with futuristic DEXs
- Integrating compliance standards that security tokens will require
- etc.
- Front end development!
- Register
- RToken-specific front-ends
- Integrating compliance standards that security tokens will require
- etc.
- Protocol research and design!
- Figuring out the final final version, accounting for
- Gas costs in minting and redeeming
- Smoothing volatility in underlying collateral while maintaining scalability
- 2-5 other things we have not realized yet which come up along the way
- Figuring out the final final version, accounting for
- RToken governance research and design!
- Winning the Sybil war
- (hard to tell what this will require since it’s an open research problem)
- Reserve ecosystem design!
- How will all of this be coordinated? By companies? By a DAO? No coordination?
- Will it stay the same or evolve over time?
- Audits!
- These are expensive enough to warrant a category of their own
- Contracts
- Front ends
- Marketing and education!
- Marketing yield-bearing stables within DeFi
- Marketing yield-bearing stables beyond DeFi
- Finding the audience for DTFs and educating them about the product
- Platform integrations!
- Fintechs
- Exchange partnerships
- etc.
- DeFi integrations!
- Oracles
- Integration deal costs
- Risk analysis
- Regulatory analysis!
- RToken securities law analysis
- Adapting to new laws and regs in the US
- Adapting to other laws and regs as RTokens are used globally
- etc.
- Financial policy development and advocacy!
- The Digital Securities Initiative! – analyzing all major issues with tokenizing securities in the US and sorting out how regulations need to adapt
- etc.
- Planning and executing integration into real economies!
- Vetting and revision of plans by existing experts and established institutions
- Researching and analyzing all manner of monetary policy and economic impact questions that come up with ABCs at scale
- Legitimacy building!
- Gaining the approval and public support of existing experts and institutions
- Making it plausible for small states and eventually larger states to accept ABCs as a form of legal tender
- Crisis response?
- Hacks?
- Lawsuits?
- etc.
- And don’t forget all of the functions that go into these!!!
- Graphic design
- Project management
- Strategizing and directing
- Financial management
- Accounting and HR
- Legal compliance
- Operational security
- Operations and event production
- Dispute resolution
- Cultural maintenance
- Film production
- Website development and maintenance
- Other things I didn’t think of when rattling off the list from memory when making these slides
It’s unclear who will do all of this, but it’s unlikely that it will be primarily done by volunteers. Some may be done by RSR-holding people or companies who have an interest in this all working, but I would bet most will need to be paid for in some form or other.
In the long term, I think if a handful of RTokens get very big, those individual RToken DAOs may use a portion of their revenue to pay for a lot of what needs to happen for them to continue to grow and thrive.
But at least until then, RSR emissions are the main source of capital the ecosystem has available to allocate to the work that must be done.
While the emission curve dictates the topline rate at which RSR supply will grow, it does not address how that new supply will be used.
That diagram tries to capture the spectrum of possibilities, from most decentralized to most centralized. Each option has pros and cons, and we haven’t decided which direction we think will be best. That being said, here are some initial thoughts on the various options to jump-start the conversation.
Simple Rule
Bitcoin emissions are simple and straightforward: BTC emissions go to the miners. This simple system works well for a supply-capped, slowly moving system like Bitcoin.
But one challenge with this mechanism is that it struggles to systemically pay for public goods funding. Vitalk helped make this clear in a single chart in 2021:
If tokens are allocated by a simple rule, they can probably only reliably pay for programmatic work, like mining/validating.
Or is that wrong? Can other kinds of important work be paid via simple, deterministic rules? Or perhaps rules with just a tiny bit of governance from time to time?
For instance:
- Onchain liquidity incentives work by allocating some stream of tokens to liquidity pool position holders pro-rata. The LP token holders deposit their tokens in a “gauge” smart contract that then gauges who gets what % of the rewards per unit time.
- Compound “hired” an auditor to examine all governance proposals for safety, by allocating them a set value of emitted COMP tokens per year – this deal was passed as a governance vote that made the allocation.
- eUSD governors are experimenting with paying platforms to bring TVL to eUSD by sharing its revenue pro-rata with the platforms based on their collective user balances; perhaps this could be more fully automated.
What are the limits to automation?
- How far can we go towards eliminating centralization and governance, by dividing up what needs to be done and building some fixed or hard-to-change mechanism that rewards just that one activity onchain?
- Do the emissions always need to pay for work, or can they just enrich certain populations and then assume, due to the skin in the game, those populations will cooperate?
- If they do always need to pay for work, should they pay for input, like salaries, or for outputs, like prizes or bounties?
Vote-based DAO
Rune Chistensen from Maker DAO told me their experience made it clear that any time you have a voting population distributing a stream of capital to which they themselves are the recipients, it becomes hard to cut costs and allocate in the best interest of the whole. When people have the ability to ‘vote themselves all the money,’ long-term planning can quickly fall out of favor. Not that we needed to see this in DAOs in order to predict it would happen, but it’s still worth noting that the utopian vision of collective action that some in the crypto world might start off with doesn’t usually last long.
I personally haven’t heard a lot of positive comments about what it’s like working within a DAO. I have heard some negative comments about how it’s unpleasant to have to continually campaign for your salary to be renewed.
Some governance systems that mainly direct incentive capital have been dominated by onchain vote incentive systems, turning most voters into bribable pawns willing to sell to the highest bidder. This is fine for some types of decisions, but dangerous for others.
However, like major world governments, despite all their flaws and inefficiencies, vote-based DAOs do seem to get the job done on a basic level.
- If you were configuring a DAO to fund all of the functions above, how would you do it?
- Would you have one DAO that voted on everything, or break it into 20 bodies with different jurisdictions?
- How would the smaller bodies work?
- Is entry permissionless? Elected? Dynastic?
Centralized Entity
RSR could just be unlocked in a predetermined schedule and released to Confusion Capital or another small group.
Such a system could have a ‘veto’ or ‘eject’ option if the ecosystem determines that the centralized actor is malicious or inept. While this option is an important check on bad actors, it would need to have built-in safeguards like an alternative or transitional governance structure between entities.
Let’s suppose we wanted to foster competitors to Confusion Capital to be alternate capital allocators in the ecosystem, so that it would be more realistic to remove Confusion Capital and replace it with someone else, or at least to cut down its portion of the emissions allocated.
- How would we do that?
- Who are the kind of people who would do a good job?
- How would we set up the system to be attractive to them?
- How would we find them and make them aware of the opportunity?
The Starting Point
As noted in the emissions curve blog post:
Each emissions period, this is what happens:
- Confusion Capital unlocks a chunk of tokens
- Most of these tokens are divvied up and sent to ABC Labs and Best Friend Finance
- These companies receive the tokens and pay them out directly in RSR, without selling any
- Some of these RSR are spent on compensating full-time project contributors for their work and incentivizing DeFi market participants for holding and providing liquidity on RTokens
- Some RSR are held by ABC Labs and staked on RTokens in order to generate revenue
- Confusion Capital holds onto the RSR that aren’t distributed to ABC Labs and Best Friend Finance
- In the course of a typical withdrawal, Confusion Capital doesn’t sell any RSR for cash
So this is our default starting point. Until we come up with something better, this is what will keep happening.
The veRSR Plan
In January we raised an idea for discussion:
Idea: 20b RSR for incentives? ABC Labs and Confusion Capital are exploring how to make the best use of the remaining supply of RSR, and are seeking your input on a potential direction that’s under consideration: allocating 20 billion RSR to an emissions contract that would release it smoothly over many years, directed by RSR holders to whichever incentive programs and bootstrapping costs they choose over time, similar to CRV emissions voted on by veCRV holders and directed to incentivize Curve LPs.
The analysis of this idea continues, in the community and within ABC Labs. The ABC team has already started writing code to enable this plan, but they’re also still investigating pros and cons of different ways RSR can be used to grow and establish the Reserve monetary system. It’s a huge commitment to make one way or the other. Input from all RSR holders is of course still welcome.
(To be clear, any RSR allocated this way would be subject to the exact same emissions curve. It would come out of an emissions contract and only then be allocated by RSR holders.)
Allocation Can Evolve
We don’t need to decide all at once how allocation will work forever if we don’t want to. Some approaches retain flexibility to make changes later, via legal or DAO-based governance. Currently, Confusion Capital holds the reins, and has the flexibility to hand them off, in part or in full, if appropriate.
But some mechanisms are best hardcoded and irrevocable, to minimize control by anyone and to provide certainty forever. As discussed in the recent blog post, this is the route we’re taking with the emissions curve, so the rate of emitted RSR will be known in advance for all time. Some allocation mechanisms could have this property as well. For instance, with ve-allocation systems like veCRV, one reason other project treasuries are willing to buy into the gov token is that there’s a reliable stream of incentives they can direct on into the future. If Governance could take those tokens away from a party who’d long-term locked in order to govern them, that would make long-term locking less attractive.
So we should think about the costs and benefits of flexibility as we consider various potential mechanisms.
Guidelines for This Thread
This is a thread to brainstorm, make arguments for or against any idea, link to examples worth studying, ask questions, etc. Please do share your opinion, and if you have time, your background reasoning. Like the last thread, at least those of us at Confusion Capital working on this will read and consider every viewpoint.
And if you shared an idea at Monetarium during the roundtable, I encourage you to share it again here for the wider audience to digest and consider!