Discussion: RSR emissions approach for the second half of the token supply

Ideas & suggestions
38

Thanks everyone for your thoughts and questions so far.

Timing

Here and on X I’ve seen some ask: what’s the timeline for getting to an answer on how the remaining 50% of RSR should be released and utilized? Here’s how I’m currently thinking about timing:

  • We’ll continue discussing this and thinking it through as a community for as long as it takes to get to a solid plan. Confusion Capital has the responsibility to approve the final plan, and I take responsibility for facilitating the discussion that will go into forming the plan.
  • I want to give the topic time for in-person discussion at Monetarium (July 19-21) and at the ABC Labs coworking week (July 22-26).
  • As discussed starting in January, ABC Labs is developing a new system for allowing RSR holders to collectively vote on RSR emissions allocations. The current idea is that 20 billion RSR would be placed in an immutable emissions contract that would slowly emit the RSR over many (e.g. 20) years, and RSR holders would vote on where the emissions are directed – to uses like incentivizing liquidity providers in DeFi. They’ve asked Confusion Capital to finalize the decision on launching this system and settle on an amount of RSR and emissions curve as soon as possible, since they will need to write code based on what’s decided, and this decision will likely be the bottleneck on releasing this new system. I’ve let them know that the final decision to allocate any RSR here along with the details of how it would be emitted needs to be taken along with this broader planning for all ≈50 billion remaining RSR. So this is one source of urgency, but again, it’s crucial that we take as much time as needed to get this plan right, as it’s so consequential to how Reserve plays out over the coming decades.
  • In summary, I think it will take a few months for us to finalize this plan, but I will aim to help us narrow down the options significantly early on, so that we aren’t swimming in too much uncertainty in the meantime. ABC Labs needs to allocate dev time, and the community needs to have a good sense of where we are headed.

Questions raised

Many have asked very reasonable questions about how Confusion Capital and ABC Labs operate, their finances, their plans, etc. Historically we have intentionally not discussed these things in public for specific strategic reasons that have been carefully thought through. This discussion is forcing a re-think of those strategic reasons since (a) as many have noted, it’s impossible for community members to form meaningful opinions on some of the questions I’ve posed without access to a bunch of info that hasn’t been shared so far, and (b) there would be a lot of additional value to transparency beyond this discussion (though that’s nothing new). I don’t yet know if we are going to decide to publish this kind of info or not – we’re started evaluating and will come to a decision soon.

Digesting proposals made so far

I’ve read all of the comments above twice and have been distilling the various positions I see represented here. I’ll list each position as simply as possible, steelman it, and then share my take on it.

  • Position: It’s about the narrative not the math. Releases scare people away, burns give people confidence, even when each is too small to mechanistically matter.

    • Steelman:
      • If tons of holders are scared by something and sell, it’s very plausible that their fear and ensuing selling is much more powerful than whatever the thing itself was. The market is self-aware about this fact, so if sophisticated holders see unsophisticated holders panicking, everyone can end up selling.
      • This can go in reverse as well – if many are excited for something that is not actually a big deal and all buy at once, price can go up more than would be reasonable. Again, sophisticated buyers may observe this happening and trade the event of unsophisticated buyers buying, even if the underlying event is not that impactful.
      • Relatedly: when we updated the protocol design prior to implementation, taking away the burning mechanism and replacing it with income to stakers, the reaction was irrationally strong in my opinion. Even though they were economically very similar, holders were broadly disappointed and angry there would not be burns, despite the fact that the new mechanism would bring pretty much the same income to RSR participants (and allow each holder to customize their own risk and rewards per their own risk appetite).
    • My take:
      • We do indeed need to consider the second- and third-order effects of how narratives will play out when planning what will happen with remaining RSR.

  • Position: The 50b is a storm cloud over the project. It scares people away.

    • Steelman:
      • The bottom half of my recent blog post clearly illustrates that most modern crypto projects release their supply too quickly and thus underperform BTC, so it is clearly rational to worry about what will happen with such a large chunk of unreleased supply.
    • My take:
      • It’s reasonable for people to see this as a big risk if they are thinking about buying RSR to participate in staking. As I said in my post, the Slower Wallet is a step in the right direction by limiting the amount that can be released at any one time, but I think even more certainty is needed, and I am inclined toward a hard-coded release mechanism that cannot be changed by anyone.
      • As some have pointed out, the ≈50b RSR that’s yet to be emitted is a great asset not a problem if released and used wisely. With proper guardrails and mechanisms in place (like Bitcoin has), we can handle the fears about over-inflation and turn a storm cloud into rays of sunshine.

  • Position: The companies involved in the Reserve project should fund themselves through means other than selling RSR. They can sell equity or generate revenue.

    • Steelman:
      • Confusion Capital:
        • Confusion Capital could take risk to invest its current (non-RSR) capital and generate returns. It could limit its spending to the returns that can be generated from those investments. (This return may not be high enough to permit significant spending - as noted above, I’ll get back to you on whether we are going to disclose this kind of info or not once we’ve re-considered our info-sharing principles.)
        • Confusion Capital could unlock and stake RSR without selling it.
        • While staking rewards may not be enough to fund current operations, Confusion Capital could do an equity fundraise where investors expect to get a share of the money made from future staking if RTokens grow.
      • ABC Labs:
        • ABC Labs generates some revenue from its defi operations (CRV voting, etc.). It could limit its spending to the revenue that can be generated from those operations. (This revenue may not be high enough to permit significant spending - as noted above, I’ll get back to you on whether we are going to disclose this kind of info or not once we’ve re-considered our info-sharing principles.)
        • If Confusion Capital had enough investment or staking income or did an equity fundraise as stated above, it could pay ABC Labs in cash to carry out various operations so ABC didn’t have to also fundraise.
      • Best Friend Finance:
        • Best Friend Finance is a more traditional fintech business. It can generate revenue with services it provides its customers, and can do equity fundraising to operate in startup mode.
    • My take:
      • I think it’s worth considering these routes.
      • Obviously once revenue is significant that solves a lot of problems. It’s not there yet for these companies, so startup capital is still needed.
      • We’d discussed the possibility of an equity fundraise for BFF already, though had not discussed it for CC. I appreciate the idea being pointed out.
      • However, it’s important to consider whether any given fundraising method would create misaligned incentives. If we added a class of equity investors to any of these companies, they may want something different from what RSR holders want, or what the founding team members are trying to accomplish in the world. This may not be a deal-breaker, but it’s a real issue that must be considered and might persuade me to advocate against some types of plans in this space.
      • One clear example of potential misaligned incentives: If Confusion Capital were to have a cap table of purely profit-seeking investors, they may not allow it to do things like handing over all of the remaining RSR to a DAO, as they may prefer it to be distributed to them or staked for income they would benefit from or sold for cash that they would have a right to.

  • Position: Releasing tokens is necessary to fund incentives and development, so we just need to make sure to do it at the right speed. Too slow = not enough gas for the project, too fast = crash in RSR price.

    • Steelman:
      • Many of the most successful (so far) DeFi projects have achieved success through incentivizing early usage. At this point, this practice is so ubiquitous it may be impossible to compete in DeFi without early incentives.
      • As my blog post illustrated, the tokens from these same projects have often not performed well, presumably due to increases in supply happening too quickly relative to other assets like BTC.
    • My take:
      • I agree with this position – we must strike the right balance.
      • A hard-coded release schedule is a big plus in my opinion since it gives clarity and predictability in advance. It does of course also reduce flexibility and commit us to a decision that may not seem optimal later on as the project unfolds, but that may be a cost worth taking on.

  • Position: Burn all remaining RSR. If partners are to invest, they can buy off the open market. If Confusion Capital or other entities need RSR for operations, they can buy it off the open market.

    • Steelman:
      • Burning the remaining supply would instantly increase the decentralization of the project.
      • Burning the remaining supply would eliminate all fears about inflation.
      • Burning the remaining supply would increase the long-term expected value of currently-circulating RSR by ≈2x, assuming future expectations of project success are unchanged.
      • Perhaps incentivizing RToken usage early on is not necessary for some reason.
      • Perhaps compensating current contributors with RSR is not necessary for some reason, or perhaps current contribution could be downsized to only what’s coverable with existing cash reserves. (As noted above, I’ll get back to you on whether we are going to disclose this info on cash reserves or not once we’ve re-considered our info-sharing principles.)
    • My take:
      • I would be very surprised if the best move for the project overall and current RSR holders was to burn all (or most) of the remaining unreleased supply.
      • I think fears about inflation can be allayed with a pre-determined, slow release schedule like BTC.
      • I think such a hard-coded, immutable release mechanism can also quickly increase the decentralization of the project (though the devil is in the details: who is entitled to the released RSR?).
      • While cutting the supply in half may 2X each RSR’s share of the future pie from each RToken, I would bet that it would decrease the size of RTokens in the future by a factor of more than 2X to deprive the project of this capital allocation opportunity over the coming decades.

  • Position: Create an DAO and let existing RSR holders directly allocate all 50b locked RSR. Let any companies and individuals involved in the Reserve ecosystem request funding from the DAO and leave it to the DAO to decide whether to allocate it.

    • Notes:
      • The ≈30b RSR in the Slower Wallet cannot be emitted any faster than the hardcoded rate limit. However, it can be updated to only be able to withdraw to a single address forever after the update, which does give Confusion Capitl the option to hand over control of allocating all withdrawals to a DAO contract.
      • The remaining 20b in the Slow Wallet is already currently slated to be moved to an emissions contract that would be controlled by RSR holders, though that has not been fully and irrevocably finalized (see the beginning of this comment).
      • The upshot is: it would be possible to move all ≈50b locked RSR into the control of a DAO, and an emissions schedule could be determined as part of that plan, but the ≈30b already in the Slower Wallet could not be emitted faster than 1b / 4 weeks. If we did this I’d probably advocate for a slower release schedule anyway, so that limit would be unlikely to come into play.
    • Steelman:
      • This would immediately hand control from CC over to RSR holders, importantly decentralizing one aspect of the ecosystem.
      • If coupled with a hard-coded release schedule, fears about inflation could be allayed.
      • Individuals and companies that receive any RSR funding for contributions would need to publicly disclose the work they do and their compensation would be publicly known and subject to RSR holder control. Perhaps this would increase the efficiency or efficacy of capital allocation relative to leaving it up to Confusion Capital.
      • Since Confusion Capital, ABC Labs, and Best Friend Finance do not hold a large portion of the currently-circulating RSR, their voting ability in such a DAO would be very limited. Some early team members and investors would have significant voting power, but likely still a minority relative to the broadly distributed RSR.
    • My take:
      • I’m interested in this direction.
      • My main worry is that simple DAO structures end up mired in politics, move slowly, and can’t deal with nuance or details. I’m not sure how to overcome these issues without compromising on decentralization. Rune Christensen’s “end game” plan for Maker is conceived in response to these issues and meant to handle them, as one example of some thinking that’s further along than ours on this topic.

  • Position: Leave a big pool of RSR with Confusion Capital to allocate at its discretion, sometimes in large chunks at a time, to capitalize on big opportunities. Don’t always require immediate transparency, in case deals need to happen privately.

    • Steelman:
      • One way to overcome the bureaucracy of DAOs is to delegate some portion of decisions to a more nimble party. Confusion Capital would be that party in this scenario, managing some pool of RSR and allocating it accordingly.
      • If the RSR were released on a hard-coded schedule, there could still be certainty about how much this pool would contribute to inflation. If it were truly discretionary (like the Slow Wallet is today), it would preserve some uncertainty. But perhaps if it were a small enough pool, the community would trust CC with this responsibility.
    • My take:
      • I’m interested in this direction. It has clear pros, but I don’t like the reduction in decentralization relative to a full DAO approach. It still may be the right thing to do, but as of now I am a bit uneasy about it.

I haven’t had time this week to finish steemanning and thinking about every proposal made, but I’ll get to all of them. The other positions I’ve seen mentioned here and plan to consider are:

  • Hard-code a release schedule, and direct some fixed portion to Confusion Capital, leaving the rest to DAO control.
  • Create a foundation.
  • Make RSR available for use until some milestone is reached, and then burn the rest at that point if there is any left.
  • Release RSR based on reaching milestones rather than robotically over time.
  • Do an airdrop.
  • Use RSR only for building costs. Do not offer any growth or liquidity incentives.
  • Combine approaches – do some combo of the approaches above, since there’s no hard requirement to do everything just one way.
  • Go slowly in deciding how this all should work, consulting our advisor network and other crypto projects, to make sure we get to the best answer.
  • Charge fees on RSR traded on exchanges, and use that income to fund things. (Two people suggested this; is that even possible? If two people suggested it maybe this is something that memecoins have negotiated with exchanges these days or something?)

Some other ideas that have emerged elsewhere are:

  • Require both CC and RSR vote to make withdrawals from some pool of RSR.
  • Create an RToken that contains both RSR and stables and can be rebalanced throughout the market cycle, using that for the RSR DAO to manage a treasury, so that it can increase or decrease its RSR vs cash position as appropriate.

I’m looking forward to thinking through all of the above, and if you have any other idea you want to add to that list to consider, feel free to post below!

7 Likes