Following the Q3 community call and the discussion around eUSD revenue sharing, I’d like to gather views on what a revised model should achieve.
There are several connected questions here:
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How much RSR backing eUSD needs,
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What kind of yield attracts further backing,
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What kind of yield maintains the current level of backing,
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How much revenue fintechs need to grow distribution.
This post is an invitation to discuss and should help to make the objectives and trade-offs explicit.
Introducing the stakeholders
eUSD’s backing and overcollateralization involve several stakeholder groups. Their interests overlap, but do not always call for the same revenue allocation.
Using the approximate balances outlined here, we can distinguish four groups:
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eUSD holders outside participating fintechs (~$8M).
These holders primarily want eUSD to remain stable, liquid, and redeemable. They benefit from reliable collateral and sufficient RSR backing to absorb losses. Holding eUSD does not itself entitle them to the revenue allocated to RSR stakers, so their main interest in that allocation is whether it attracts enough backing to protect their holdings. -
Users holding eUSD through UGLYCASH and Sentz (~$16M), and the fintechs serving them.
Users want safe dollar balances, useful financial services, and competitive rewards. They may care more about the overall product than the mechanics of its underlying backing.
The fintech operators have a related but distinct interest: predictable revenue that supports their products, user incentives, and growth. More revenue retained by fintechs can support distribution, but insufficient backing could undermine the safety and trust on which that distribution depends. We’ve heard Gabo say that many UglyCash users are not primarily here for the yield. How sensitive they are is currently still unconfirmed. -
RSR stakers backing eUSD (~2.8B RSR staked).
Stakers want sufficient compensation for making their RSR available to absorb collateral losses. Their assessment includes staking income, potential losses, RSR price exposure, and the opportunity cost of staking elsewhere.
They benefit when eUSD growth increases their revenue. However, maintaining the same OC ratio along eUSD growth requires more backing in dollar terms.(So either more stRSR or higher RSR price) Revenue must be attractive enough to retain existing stakers and attract additional capital. More staked RSR improves backing but also spreads the available revenue across more stake. In a perfect world high enough yield from eUSD collateral would always ensure enough overcollateralization at a stable equilibrium. -
RSR holders who are not staking on eUSD.
These holders do not directly receive eUSD staking revenue. Their interests include broader Reserve adoption, more demand for RSR, and the token’s long-term value.
They may support an allocation that accelerates eUSD adoption, even if it offers eUSD stakers a smaller share today. Equally, they have an interest in avoiding failures that could damage confidence across the ecosystem. How to align RSR holders with the UC mission is material for another discussion and will be excluded here.
These groups are not mutually exclusive. Someone can hold eUSD, use UGLYCASH, stake RSR, and hold additional unstaked RSR in any combination of these four.
Where interests align
All groups benefit from eUSD remaining trustworthy and attracting sustainable demand. Fintech distribution can expand the revenue available to support the system. Adequately compensated stakers provide backing that strengthens the product fintechs distribute.
A predictable, understandable revenue rule also helps everyone.
Where interests compete
Revenue allocation creates an immediate trade-off. At a given level of distributable revenue, allocating more to stakers leaves less for fintechs, and vice versa.
Security and capital efficiency can pull in different directions. More backing provides a larger potential loss buffer, but attracting that capital requires compensation. A justified security objective is needed.
Growth creates a timing question. Stakers may be asked to accept less revenue today in anticipation of a larger revenue pool later. This is what stakers have accepted in the past by sharing revenue with fintechs.
Predictability can compete with responsiveness. A stable allocation helps fintechs budget. An OC-responsive allocation could strengthen staking incentives when backing falls, but would make fintech revenue less predictable.
The question common to all four is: what revenue arrangement can support distribution while attracting sufficient, durable backing? What should happen when those objectives come into tension?
The balance mix and its consequences
Under the 90/10 arrangement discussed in the revenue-share programme update, stakers receive the revenue attributable to eUSD held outside participating fintech wallets, plus 10% of the revenue attributable to fintech-held balances.
Hence, fintech growth can reduce stakers’ percentage of total revenue while increasing their revenue in dollar terms, because every dollar the fintechs add while yield and outside balances remain stable, adds 10% of that marginal dollar’s yield.
An important assumption here is that outside-fintech balances and distributable yields remain constant.
At the same time, maintaining a given overcollateralization ratio requires the dollar value of staked RSR to grow alongside eUSD supply. Whether the revenue allocated to stakers attracts enough backing is therefore a separate question.
What should we aim for?
I’d particularly welcome thoughts on the following:
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What is an appropriate OC target or range for eUSD, and why?
A 15% ratio has been discussed. What risk assessment should support that figure? We have heard of USDC’s depeg during SVB’s troubles, what else can we infer a threshold from? Should we focus on a preferred operating range or a minimum level that triggers intervention? -
What makes staking sufficiently attractive?
What return compensates stakers for the risks they bear? How should we assess the 6% return used in the call’s illustration, particularly when both RSR’s price and the value of the collateral backstop can change? -
How much predictability do fintechs need?
How important is a stable revenue allocation for planning user rewards and product growth? What flexibility could fintechs accommodate if backing falls below an agreed range? Tagging @josh here or someone else from UglyCash or Sentz. -
Which allocation approach best balances those needs?
We could retain the current balance-based arrangement, move to a fixed take rate across all eUSD revenue, or explore an allocation that responds to the overcollateralization level. Each has different consequences for existing stakers and fintech revenue. -
If the allocation is responsive to OC, what safeguards would be needed?
For example: averaging periods, limits on adjustments, and different rules for intervention and recovery. How would we avoid reacting excessively to short-term price movements while responding adequately to a sustained deterioration in backing?
Increased yield incentivises additional stake, but it cannot guarantee that sufficient backing appears. Similarly, a fixed take rate can make revenue allocation easier to understand without guaranteeing both a particular OC ratio or a particular staking return.
A tool to support the discussion
We’ve put together an eUSD Economics Lab to explore these relationships. It compares the current 90/10 formula, a fixed take rate, and a simplistic OC-responsive mechanism, with historical balance snapshots and editable inputs.
Please see the responsive example as a discussion aid, nothing more. It assumes perfect tracking where stake instantly appears when yield is raised, which is of course not the world we live in.
What objectives should we agree on first? What evidence or data would help us evaluate?
Comments from stakers, delegates, fintech contributors, and others are welcome. The aim is to identify the points of agreement, the unresolved trade-offs, and the work needed before developing a proposal.
