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

[nevin.freeman]

Ok, getting to the other ideas that have been shared.

• Position: Hard-code a release schedule, and direct some fixed portion to Confusion Capital, leaving the rest to DAO control.

  • Steelman:
    • This could be a good way to strike a balance between the issues with full-DAO and full-CC control of emissions. If either portion of the tokens were misallocated, at least the other portion has a chance of still being allocated well.
    • Some opportunities are easier for a DAO to take advantage of, and other opportunities are easier for a company to take advantage of, so perhaps with this mix the ecosystem could capture both types.
  • My take:
    • I currently find this the most promising direction.
    • There’s a tension between the costs and benefits of CC having a very significant portion – if it has too little, it may not be able to coordinate significant efforts in the ecosystem in the longer term, but if it has too much, it could be too much of a centralizing force. I’m still thinking through how this balance could be struck.

• Position: Create a foundation.

  • Steelman:
    • Foundations are corporate entities that have to use their funds for a purpose, rather than making money for shareholders. (There are no shares in a foundation.) So perhaps a foundation would be more trustworthy than a standard corporation in administering emitted tokens.
  • My take:
    • When setting it up, we considered whether CC should be a foundation or a normal corporation. Foundations’ profits are typically tax-exempt, and it always seemed wrong to claim a tax exemption for what we are doing, since the individuals involved are making money along the way. I’d prefer to go the route of a DAO than a foundation for the purpose of reducing centralized control, but I remain open to the idea if it serves an important purpose in the larger plan.

• Position: Make RSR available for use until some milestone is reached, and then burn the rest at that point if there is any left.

  • Steelman:
    • If the project has already achieved escape velocity and needs no more capital to continue to grow and thrive, further emissions will only be a negative, not a positive.
  • My take:
    • It’s an interesting idea. I can imagine giving RSR holders the ability to vote to either pause emissions or burn the remaining non-emitted supply at any point. (I assume a vote would be needed, probably couldn’t hard-code any milestone logic.) I’ll consider this as we think about plans.
    • But this assumes there will come a point where no further capital is useful for initiatives that tend to the commons of the Reserve ecosystem, or that some other funding mechanism for those things will arise. I’m not so sure that is true – consider the need to develop collateral adapters, get them audited, adapt to new oracle options, and so on.
    • You can get a similar outcome from emissions just going down a lot over time. If you have a small long tail of emissions, those can be really meaningful if the project is doing really well and the token price is high, even while being a super low inflation rate in % terms.

• Position: Release RSR based on reaching milestones rather than robotically over time.

  • Steelman:
    • Milestones could include metrics of success (for incentive purposes) or metrics of revenue (for emissions offset purposes from RSR being purchased by the protocol for stakers).
    • Or perhaps emissions could occur in response to metrics that weren’t directly related to the protocol, like RSR price.
    • One could imagine a perfectly benevolent and wise emissions genie who only added to circulating supply at the optimal moments. One would expect this genie not to robotically allocate emissions across time, but to release them in strategic moments somehow. So if the optimal release pattern is strategic, not simple and robotic, perhaps we should try to emulate that.
  • My take:
    • I think this is an idea worth exploring, though I don’t expect anyone to be able to state a concrete plan that would actually be robust enough.
    • My two biggest concerns with the idea are:
      • Who would decide when the milestones or conditions are satisfied? Oracle data feeds? A DAO? What if that mechanism malfunctioned?
      • Doing it this way makes it harder to judge when emissions will occur, so we may still get the “cloud over the project” effect, as well as getting FUD responses any time milestones or release conditions are approaching or activated.
    • If solid proposals for how to handle both of these issues are made, that would be quite interesting.

• Position: Do an airdrop.

  • Steelman:
    • Airdrops help jumpstart usage of DeFi things when done well.
    • Reserve needs to acquire organic RToken users, so maybe with an airdrop to RToken users it could get people to try RTokens, and a good portion would keep using them after the airdrop since they’d learned about them and like them.
  • My take:
    • RSR is fair game to be used as incentives to help early RToken growth as far as I’m concerned. Whether it’s offered as an airdrop, LP position reward, direct juicing of RTokens, incentive to platforms that feature RTokens, or otherwise is just a question of which will bring the most lasting organic usage after the incentive runs out. I’m not sure how an airdrop stacks up against these other options, but am open to the idea. I probably would not be the one to directly evaluate this – it could be ABC Labs if it happened soon, or RSR holders voting on how to direct RSR in the future through some design that comes from this conversation we are having.
    • An airdrop to incentivize RSR staking has also been proposed. I am less keen on this idea since it seems like the built-in economics are incentivizing plenty of RSR staking already. I predict that if RTokens grow, staking will grow as revenues go up.

• Position: Use RSR only for building costs. Do not offer any growth or liquidity incentives.

  • Steelman:
    • Perhaps incentivized growth all just goes away when the incentives dry up – DeFi farmers are mercenaries.
    • This could be true in our case if (a) farmers had no interest in RTokens without juiced yields, and (b) no organic usage was generated from the momentum of higher TVL deposited by farmers.
  • My take:
    • My current position on this question is: You have to incentivize some early usage to get things off the ground – getting noticed, proving the code isn’t going to be hacked. Once you have satisfied those needs, further incentivized growth (which will necessarily be unsustainable) is probably not the best use of resources. So I don’t think we should skip incentives entirely (much of current RToken usage is incentivized – see: Reserve Register - Reserve Protocol Interface), but I do think there’s a limit to how much should be spent this way.

• Position: Combine approaches – do some combo of the approaches above, since there’s no hard requirement to do everything just one way.

  • Steelman:
    • It’s unlikely that any one mechanism is best in all ways, so the optimal path is probably some intelligent combo.
  • My take:
    • While this may be true in principle, the complexity of combo options does come with a cost, in that it makes it harder for people to understand how things work and may add operational overhead.
    • Still, I’m open to combo plans and am considering them. They just come with these costs.

• Position: 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.

  • Steelman:
    • Tons of attempts at emitting tokens have been made, and we can avoid mistakes others have made if we talk to them.
    • Many mistakes will not be talked about publicly, so by talking to people directly we might learn more than just going off of what’s known in the public record.
  • My take:
    • This seems reasonable when I consider it, but I must admit I hadn’t really planned to take the time to get in touch with our advisors and other projects and ask them for their opinions. I think I was worried it would be too much of a hassle.
    • Now that it’s been pointed out it seems like a pretty obvious thing to do in case they have ideas, inspiration, or horror stories we should account for. I’m adding it to my plans to send around some info on what we are considering and ask for feedback and opinions from our advisors and other nearby projects.

• Position: Charge fees on RSR traded on exchanges, and use that income to fund things.

  • Steelman:
    • There’s a high volume of RSR trading on exchanges during bull markets. If we could capture some of those fees, that would be a meaningful amount of money to allocate.
  • My take:
    • Like I said above: 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? I have never heard of an exchange offering a revenue share with the coins they list.

• Position: Connect the emissions figure to the amount of staking rewards, which are paid by the protocol purchasing RSR off the market and directing it to stakers, so that additions to circulation are matched by RSR removed from circulation by the protocol.

  • Steelman:
    • If the emissions never exceed the staking rewards, then as long as (a) stakers always stay staked and (b) they keep their rewards instead of selling them, this would mean zero growth in circulating supply.
    • Perhaps the meme of “no supply growth” would lead to a higher RSR price, making the smaller amount that would be emitted be worth more in purchasing power terms than if this constraint were not in place.
  • My take:
    • If RToken usage were to go down, staking rewards would go down, reducing emissions. This could lead to a negative spiral if emissions were necessary for funding ecosystem functions that were needed to move things forward and generate more RToken usage again. This could perhaps be countered with a minimum emissions amount, so if usage goes too low, RSR holders take on some mild inflation in order to move things forward.
    • Still, even outside of a negative spiral scenario, there’s the risk that under-spending early on leads the project to progress too slowly and lose momentum.
    • So: I’m intellectually open to the option of keeping emissions quite low, but I’m always thinking about what that would do to project momentum. While I obviously am convinced we have to worry a lot about making sure emissions are not too high so that RSR markets are not overwhelmed by them, I’m not sure they need to be this low.

• Position: Offer emitted RSR as an incentive to platforms that bring usage of RTokens.

  • Note:
    • Goku, this is in response to your suggestion. Juicing RSR staker rewards in order to then have more revenue left over to send to platforms that feature the RToken seems like a more roundabout approach than just offering the RSR directly to the platforms, so that’s what I’m evaluating here.
  • Steelman:
    • Like eUSD is about to experiment with via sharing its revenue with platforms that bring users to eUSD, RSR could be offered to platforms that feature any RTokens.
    • Getting more integrations for RTokens makes them more accessible to people. If the platforms are simple fintech platforms that normal people use, we can go beyond DeFi users and reach a broader audience.
  • My take:
    • I think this is a good idea.
    • We could perhaps offer the RSR with a lockup, or pay it in liquid form. If locked up, we know it isn’t going to just be sold. The downside is that it will be perceived as less valuable without liquidity, so we’d need to offer larger RSR amounts to get the same degree of incentive.

Happy July 4th to anyone in the US!