Confusion Capital recently proposed the Milestone Plan for RSR unlocking as a replacement to the currently-paused BTC-shaped unlocking curve.
In response, community members proposed an alternate system that links RSR unlocking and burning. We put the voting on hold to give that option a week to develop.
In the meantime, Confusion Capital published its Constitutional Governance Pledge which states that any change to RSR unlocking systems would go through a baseline “CC-proposes, tokenholders vote” process. This is the governance baseline that all system changes will hence forth be required to clear, not an unlocking system in itself.
In this post, we will lay out both systems that have been developed. Confusion Capital is hereby formally proposing both of these options and is on board for adopting whichever one RSR holders vote for.
Later this week, we will proceed to a vote on both options at once.
- If neither option receives a majority vote in favor, we will continue working to reach an agreement on the right way forward
- If one of the proposals passes and the other doesn’t, we will adopt the one that passed
- If both proposals pass, we will adopt whichever one received more total “Yes” votes
RSR holders will vote on this proposal starting Thursday September 10th, so you must withdraw RSR from exchange accounts into your own custody by September 9th to participate. Staked and vote-locked RSR across Ethereum, Base and BNB Chain is all eligible to vote with no action needed. The vote will last until September 17th.
All voting will be carried out on Snapshot, which accounts for your RSR token balances by letting you digitally sign with your wallet, but does not cost any gas fees.
Option 1: The Burn Gauge
Summary
This system creates a simple gauge that RSR holders have ongoing control of, in order to adjust across a spectrum from burning lots of RSR to releasing and spending lots of RSR based on market conditions and what the project will benefit most from as time goes by.
RSR holders would vote once per quarter on where to set the gauge. Voting details further down in this post.
You can think of it visually like the fire danger gauge we use in the US:
The system is designed to link burning of RSR and releasing of RSR in a principled way.
On the burn side of the spectrum, it’s all about burning. No RSR is unlocked, and the more RSR that is burned by the protocol, the more RSR from the locked treasury also gets burned.
On the growth side of the spectrum, when RSR is burned by the protocol (indicating value the protocol is capturing), RSR is also unlocked and available for Confusion Capital to allocate for growth. If Confusion Capital wants to unlock more than that, it can, but a portion of treasury RSR gets burned in exchange for any additional unlock.
In the middle (sustain), RSR is unlocked much more slowly in response to burning, and any additional unlocks come with a much larger burn component than in growth mode.
Specifics
- High burn: 1:4 burn:burn
- For every 1 RSR burned by protocol, 4 treasury RSR are burned
- No RSR unlocking
- Low burn: 1:2 burn:burn
- For every 1 RSR burned by protocol, 2 treasury RSR are burned
- No RSR unlocking
- Sustain: 2:1 burn:unlock
- For every 2 RSR burned by protocol, 1 treasury RSR are unlocked for use
- Additional treasury unlocking is at 2:1 ratio of burned:unlocked
- Low growth: 1:2 burn:unlock
- For every 1 RSR burned by protocol, 2 treasury RSR are unlocked for use
- Additional treasury unlocking is at 1:2 ratio of burned:unlocked
- High growth: 1:4 burn:unlock
- For every 1 RSR burned by protocol, 4 treasury RSR are unlocked for use
- Additional treasury unlocking is at 1:4 ratio of burned:unlocked
We would put a gauge like this on reserve.org so it’s easy to check where we are at any given time:
Voting
- Voting would happen quarterly after the update call and report so that Confusion capital can share what’s going on and, if we have an opinion, make a suggestion for the direction we think makes the most sense for the next quarter
- Nevin Freeman, Confusion Capital, ABC Labs, Best Friend Finance, and any future companies incubated by Confusion Capital would not participate in the vote with any RSR they hold
- Voting would happen via a ranked choice vote on Snapshot (see demo here), in order to best reflect the preferences of tokenholders
Examples of how it could be used by RSR holders
- Right now, we could vote the gauge to be Sustain, Low burn or High burn since we are feeling the price is depressed and there is no good reason to unlock any RSR right now. I would tolerate High burn right now since revenue is low so we would not be burning tons of the treasury, but we would still be contributing to supply reduction at a 4x ratio to revenue burns.
- If the market picks up and we’re feeling good about RSR price and momentum, and revenue starts to pick up, but we still don’t have a need to unlock for project funding, we could stay in one of these Sustain or Burn positions.
- If we reach the end of RSR runway (3.5 years at current team contracts and size) and things are not going well – no PMF, no significant revenue burns, etc – we could stay in a Low burn or High burn position, effectively signaling that we don’t want to incentivize team members from CC/ABC/BFF because that’s not producing value for the ecosystem. It would be up to any company/team/individual to pitch the RSR holders on a new plan/team/direction worth funding before RSR holders voted to move the gauge to a position that would permit any further unlocking.
- Or, if we get PMF, RTokens are growing nicely, revenue burning is growing nicely, and market conditions for RSR are looking good, RSR holders could vote to go into a Growth phase. If there is only a small opportunity to productively deploy treasury capital, the RSR holders might vote to move the gauge to Low growth. Maybe the team presents a plan to unlock 500M RSR and burn 250M RSR at the Low growth 1:2 burn:unlock ratio.
- If things start going really well – a few top RTokens are really getting traction, integrations with big exchanges are happening all over the place, RSR price is going very well in good market conditions, and the ecosystem determines it’s time to pour gasoline on the fire, RSR holders could vote to move into High growth. The team might unlock 800M RSR in a series of 100M chunks over the course of a year (burning 200M along the way at the 1:4 ratio), or perhaps propose an unlock of 1B all at once to do a big deal with an established company that the ecosystem wants to bring into the fold. Or perhaps the 1:4 burn:unlock ratio would mean that no special treasury unlockings would be needed, since the natural flow of unlocking would already fuel growth.
- But then suppose that the growth need comes to an end – the ecosystem has a flywheel and is continually growing without the need for massive spending, or it has reached a level beyond which there is no near-term path for further fast growth at all for a while. RSR holders could vote to move the gauge back to Sustain while that new phase plays out, continuing to burn revenue RSR and reduce supply, with a trickle of treasury RSR unlocking as revenue is burned.
- As things progress, you can see how we could steer back and forth as appropriate. It’s not a one-way street, we can react to market and project conditions, with the ultimate aim of getting very big, supporting RSR, and keeping supply under control. Only releasing RSR in conditions where we feel it’s net positive for RSR value due to the expected return on deploying new RSR.
- And if we reached a very mature state where no further invesment is expected to be needed, we could go back to High burn – as I’ve said before, if we reach a point where burning an RSR token increases value of other RSR tokens more than deploying it, I’m in favor. We would have massive revenue, so the revenue burn would already be strong, and the 1:4 revenue burn:treasury burn would mean we’d burn remaining treasury at a 4x speed to revenue, which may be very interesting to the market and would be a good move at a stage like this since we’d concluded there was not a need for much more investment in growth the future.
Thank you to @Ranger for proposing the idea of connecting burning to unlocking with this linkage and to everyone else who contributed to the ideating process that led us to this proposal!
Option 2: The Milestone Approach
This is the same as the earlier proposal, copied and pasted here for everyone to compare back to back.
Summary
This is based on the initial milestone-based unlocking approach (milestone 1: $2.5M in NARR, enabling the unlock of 3B RSR) with two modifications based on RSR holder discussion: (1) A minimum price of $0.005 to allow unlocking, and (2) a USD price cap of $0.015, after which the amount of RSR unlocked would be less than 3B.
Video version
If you would like to hear me explain this proposal live, you can watch the community call recording here – see minute 27:00 for the start of the RSR unlocking framework presentation: Roam Meeting · Reserve Q2 Community Call
Details
In May I proposed replacing the current Bitcoin-shaped RSR unlock curve with a milestone-based system tied to the Reserve ecosystem’s economic progress.
Since then, we have received substantial community feedback and continued discussing the framework. In particular, the discussion raised two important questions:
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How should the RSR price at the time of the milestone affect the unlock?
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How much discretion should Confusion Capital have to modify the framework after it is adopted?
Based on that discussion, we are proposing the following revised framework.
1. Milestone 1: $2.5M NARR
The first milestone would be reached when the Reserve ecosystem achieves $2.5M in Net Annualized Recurring Revenue (NARR).
NARR is intended to measure the sustainable economic output of the Reserve ecosystem after accounting for the costs required to generate that revenue.
In this context, “recurring” does not mean contractually recurring revenue in the SaaS sense. It means revenue that is recurring in nature and can reasonably be expected to continue if current economic conditions persist.
The metric is annualized using trailing data specifically to prevent temporary spikes or one-off events from triggering the milestone.
At a high level:
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Revenue = revenue generated across the Reserve ecosystem.
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Partner share = revenue distributed to external parties rather than retained within the RSR ecosystem.
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Ongoing incentive spend = spending required on an ongoing basis to incentivize users to hold or use Reserve products.
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Net revenue = revenue minus partner share minus ongoing incentive spend.
Short-term incentives used to launch or initially promote a product may be treated as customer acquisition costs rather than ongoing incentive spend when there is a reasonable expectation that the incremental revenue generated will repay those incentives within two years.
Current NARR methodology:
For the Reserve ecosystem as it exists today, the calculation is approximately:
Index DTFs:
Avg(6mo TVL Fees) × 12 + Median(6mo Mint Fees) × 12
– Avg(2Q Incentives) × 4 – Avg(6mo External Share) × 12
Yield DTFs:
Avg(6mo Gross Revenue) × 12 – Avg(2Q Incentives) × 4
Total NARR:
Sum of NARR across the Reserve ecosystem.
We use an average for relatively stable revenue streams such as TVL fees and a median for more episodic revenue streams such as mint fees in order to reduce the impact of temporary spikes.
Importantly, the definition of NARR is intended to be business-model agnostic. Index and Yield DTFs represent the ecosystem’s current revenue sources, but the unlocking framework should not depend on those being the only revenue-generating activities the Reserve ecosystem ever encompasses.
If new products or revenue streams emerge, revenue that satisfies the same underlying principles of being sustainable, recurring in nature, and net of the relevant partner shares and ongoing incentives should be incorporated into NARR. The methodology used to incorporate any material new revenue source would be disclosed transparently.
2. Milestone 1 RSR allocation: 3B RSR
Once the $2.5M NARR milestone is satisfied, up to 3 billion RSR would become eligible for unlocking, subject to the RSR price conditions described below.
As in the original proposal, an RSR unlock should not be interpreted as an immediate sale or distribution of those tokens.
Unlocked RSR would become available for strategic use by the project and could be deployed over time based on the needs of the ecosystem, with any treasury RSR sales and purchases continuing to be reported transparently on a quarterly basis.
3. Automatic unlock within the RSR price range
The RSR price condition would be based on the 30-day moving average RSR price, rather than the spot price on the date the milestone is reached.
If the $2.5M NARR milestone has been satisfied and the 30-day moving average RSR price is between $0.005 and $0.015, the 3B RSR unlock would occur automatically under this policy.
This establishes a predefined range in which both the revenue and price conditions for Milestone 1 have been satisfied.
4. RSR price floor: $0.005
If the 30-day moving average RSR price is below $0.005 when the $2.5M NARR milestone is satisfied, the 3B RSR would not automatically unlock.
In that situation, the project could:
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wait until the 30-day moving average RSR price returns to the $0.005–$0.015 range, at which point the 3B RSR unlock could proceed automatically under the existing framework; or
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propose a modification to the framework, which would require approval from the RSR community through a Snapshot vote before it could be implemented.
The purpose of the floor is to avoid automatically proceeding with a large token unlock when RSR is trading materially below the price range contemplated when this milestone was designed.
5. RSR price ceiling: $0.015
If the 30-day moving average RSR price is above $0.015 when the $2.5M NARR milestone is satisfied, automatically unlocking the full 3B RSR could represent a substantially larger USD allocation than originally contemplated.
For reference, 3B RSR at $0.015 is worth $45M.
Therefore, if the 30-day moving average RSR price is above $0.015, the project could:
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automatically unlock up to $45M worth of RSR, calculated using the actual 30-day moving average RSR price; or
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propose a different approach, which would require approval from the RSR community through a Snapshot vote.
This keeps the automatic economic value of the Milestone 1 unlock capped at the $45M represented by 3B RSR at the top of the predefined price range.
6. Community governance for changes to the framework
Any modification to the milestone, RSR price parameters, unlock amount, or other material elements of this policy outside the mechanisms explicitly described above would require RSR holder approval through a Snapshot vote based on RSR ownership and would follow our Constitutional RSR Unlocking Governance Pledge.
7. One milestone at a time
We still believe it is preferable to define one milestone at a time rather than establish a complete unlocking schedule for the remaining RSR today.
The ecosystem, its business model, its revenue sources, and the value of RSR may look very different by the time Milestone 1 is reached.
Once Milestone 1 is satisfied, we would return to the community with a proposed Milestone 2 and its corresponding RSR unlock parameters.
This gives RSR holders forward visibility into the next milestone while avoiding the need to make assumptions today about what the Reserve ecosystem will look like several years from now.
Summary
Under the proposed framework:
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Milestone 1: $2.5M NARR
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Maximum Milestone 1 allocation: 3B RSR
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RSR price measurement: 30-day moving average
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RSR price floor: $0.005
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RSR price ceiling: $0.015
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$0.005–$0.015: 3B RSR unlocks automatically once the NARR milestone is satisfied
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Below $0.005: wait for the price to return to range, or propose an alternative through Snapshot
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Above $0.015: automatically unlock up to $45M worth of RSR at the 30-day moving average price, or propose an alternative through Snapshot
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Changes outside these predefined rules: require a community Snapshot vote
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Treasury-owned RSR: Confusion Capital, ABC Labs, and Best Friend Finance would abstain from voting
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Future milestones: defined one at a time as the ecosystem develops
The overarching principle remains the same as in the original proposal: future RSR unlocks should be tied to demonstrated economic progress rather than the passage of time.
The additions above are intended to make the framework more predictable across different RSR price environments, reduce company discretion, and make the policy robust enough to accommodate Reserve revenue streams that may not exist today.
Action required: withdraw RSR from exchanges to vote!
RSR holders will vote on these two proposals concurrently starting September 10th, so you must withdraw RSR from exchange accounts into your own custody by September 9th to participate. Staked and vote-locked RSR across Ethereum, Base and BNB Chain is all eligible to vote with no action needed. The vote will last until September 17th.
All voting will be carried out on Snapshot, which accounts for your RSR token balances by letting you digitally sign with your wallet, but does not cost any gas fees.
Nevin
President, Confusion Capital
CEO, ABC Labs