RFC - Introducing hyUSD

Hi Tom, I am a fan of the baskets chosen for your RToken but I have one question: is the APY generated the actual total from the total MC given to RSR stakers or would that number be lower because it is actually based off of the 16% of total going to RSR stakers (I.e. 9% of the 16% RSR stakers)? May be more appealing to me if the number was 20% allocated to rsr stakers. Thank you for your time


Thanks for the feedback. The RSR stakers on hyUSD earn 16% of the total revenue generated from the underlying basket of assets. The “Est. stRSR Yield” in the register app is dependent on two things. 1) How many RSR stakers there are on hyUSD. 2) How big the hyUSD market cap is.

So if there are a lot of stakers, there are more people to share the revenue with and hence a lower apy. If there are fewer stakers, there are fewer people to share the revenue with and so the apy will be greater. The apy for a staker will fluctuate as the market cap continues to grow and as people decide to stake or unstake their RSR on hyUSD.

1 Like

My initial reaction seeing the basket was feeling irked by the multiple layers of abstractions of the USD, with each layer multiplying the risks of the preceding layers. For example, with the Convex/Curve eUSD+FRAXBP pool, you have the US dollar as the first layer, abstracted to USDT and USDC, each with their own risks, then again abstracted to eUSD, with its own risks, then combined with the layers of abstractions in FRAX, each with their own risks, then again abstracted into hyUSD, with its own risks. It intuitively feels like there are too many moving parts, and if any one of them depegs or faces some kind of black swan event, then the whole thing crumbles.

On some level I am intrigued by this project, but I would need more assurance that the design is sound. Are you able to explain more completely how each element of the collateral basket put together creates, as you put it, “low to moderate risk?”

1 Like

The same governance flow or the RToken (i.e. the 8 day process + RFC time) being applied to the treasury would not be appropriate in my opinion. The treasury will have a narrow mandate focused on operating expenses, and it should be free to operate within those bounds. For example, Tom will maintain a list of incurred expenses and it will be evident whether withdrawals from the treasury are in line with that. Ideally, this looks like a 1/x multisig such that Tom or others trusted community members can help with these disbursements. That’s why I think it’s important to delineate what belongs to Tom, and what belongs to the hyUSD community treasury, to avoid the possibility that something turns into a slush fund making oversight impossible.

1 Like

+1 to this. It’s not appropriate to require a proposal to pass quorum or wait 8 days for every marketing expense / operating expense. But it might still be right to separate funds that have oversight from funds that do not.

I see there was some confusion around whether hyUSD is a DAO already or would need a DAO to be created for it. Every Governor Alexios deployment is already a DAO: hyUSDRSR holders have the ability to execute proposals from the Timelock Controller, so any funds held there could be moved via a governance proposal. It’s a bit cumbersome, and I think there’s a question of whether the execution delay + Guardian’s ability to cancel are desirable in this case, but it is functional. (I’m going to start a conversation over in the governance discord channel around whether this should be further sophisticated to bypass the TimelockController)

Regarding the 3%: I tend to think the thing that makes most sense is to give some portion directly to Tom without any oversight and another portion to a multisig with 2+ signers. One of the signers should be Tom, and the other members could be people with reputation in the community. The idea is that Tom should be able to move quickly when handling most expenses, but he should have access to an additional source of funds with some oversight in a way that does not require hyUSDRSR holders to weigh-in.



Are you able to explain more completely how each element of the collateral basket put together creates, as you put it, “low to moderate risk?”

“Low to moderate” risk assets have the two following characteristics: 1) Assets that are not a security. 2) Assets that are decentralized. Over time governance will have to continue to find the right balance between risk and reward to keep the yield attractive enough for hyUSD holders but also safe enough for RSR stakers to provide overcollaterlization. As long as the governors are within the bounds of the mandate, they are free to operate as they please.

fUSDC and fDAI I believe fall under the “low risk” category. Both of these assets are lending against tokenized US Treasuries on the flux finance protocol. Three ideas here: 1) Flux finance is decentralized 2) US treasuries are safe, so tokenized US Treasuries are also safe. 3) USDC and DAI are assets that are not likely to depeg.

eUSD I believe falls under the “low risk” category. eUSD is a fully collateralized US-dollar stablecoin that has the following traits: 1) It’s decentralized. 2) It is protected against a default due to the overcollaterlization provided by RSR stakers. I don’t believe that the Convex/Curve eUSD+FRAXBP pool add an additional risk that would deem this asset above “moderate”. Curve and Convex are “blue chip” decentralized protocols that have been proven safe enough over an extended period of time in defi.

MIM I believe falls under the “moderate risk” category. Abracadabra’s MIM token is a non-algorithmic, collateral-backed stablecoin. The lending mechanism includes volatile assets but abracadabra uses liquidations to ensure that MIM remains overcollateralized. I don’t believe that the Convex/Curve MIM+3Crv pool add an additional risk that would deem this asset above “moderate”. Curve and Convex are “blue chip” decentralized protocols that have been proven safe enough over an extended period of time in defi.


My initial reaction seeing the basket was feeling irked by the multiple layers of abstractions of the USD, with each layer multiplying the risks of the preceding layers.

I don’t believe that the “multiple layers of abstractions” add additional risk or multiplies the risk. I see this as diversification across each layer.


It intuitively feels like there are too many moving parts, and if any one of them depegs or faces some kind of black swan event, then the whole thing crumbles.

There are a lot of moving parts. In case of a default or depeg by any of the underlying assets, the staked RSR(on hyUSD) is sold off to make sure that hyUSD holders remain whole. All Rtokens have this built in insurance mechanism to allow RSR holders the option to stake, which provides the overcollaterlization. The incentive to stake their RSR on hyUSD is that they receive 16% of the total revenue generated from the underlying assets.

Hey sukitrebek. The USDC black swan depeg on March 10, and its impact on eUSD (the first RToken), provides a pretty good illustration of how assets (or protocols) can fail in an RToken basket yet the RToken holders carry on with capital fully intact, no disruption. Here is a summary of what happened: eUSD Emerges Strong: The Resilience of Reserve Protocol During USDC Depegging | by Sinatra | Reserve | Mar, 2023 | Medium


Hey @Tom_hyUSD I wanted to discuss some suggestions you made in the RFC and provide a more critical perspective on them. My goal is to enhance the clarity and direction of the RFC and establish a mental model for approaching ideas in the future. We appreciate your dedication and enthusiasm, but we also want to ensure that our messaging is accurate and responsible.

1. Revenue Distribution

You’ve suggested that a portion of revenue could be shared with hyUSD holders staking in a specific wallet.

It’s important to consider the implications of the revenue distribution plan you propose. While it may seem attractive at first, it could lead to unintended consequences that may not align with our objectives of promoting genuine product-market fit and user engagement. In more concrete terms, your suggestion equates to paying hyUSD holders to simply take their coins off the market and to not sell. On the other hand, more productive uses (contributing to adoption) might be to increase secondary liquidity, increase overcollateralization, etc. Cobie has written an excellent critique of the naked-staking mechanism here.

I encourage you to think more about whether the incentives we create for hyUSD holders align with our ecosystem’s goals.

2. Discussion of Asset Risk

The characterization of “low to moderate” risk assets, based on whether they are not a security and are decentralized, may not provide a complete understanding of the risks involved.

I think it’s important to be more comprehensive whenever we discuss risk, as it’s a multifacted topic including liquidity, volatility, counterparty, regulatory, issuer risks, which all factor into the risk profile of an asset. It’s important that hyUSD’s mandate shows an appreciation for these factors and suggest that governers rely on a framework using certain principals or heuristics relating to these factors to arrive at a aggregate risk profile. This approach would enable our community to understand that hyUSD has come to an informed decision in its basket composition.

The point you make about not including securites is a good one, but I think it should be framed as a diligent attempt to exclude securities, as we cannot be arbiters of that topic in most cases.

3. Smart Contract Risk

The common understanding about building on top of existing DeFi legos is that it results in adding to the cumulative risk thanks to the risk of the added smart contract layer, or “stacking smart contract risk”.

Your response to @sukitrebek that hyUSD represents “diversification” of this risk doesn’t address the above presumption. There are certainly ways in which hyUSD does diversify risk, such as by diversifying the counterparty risk by going down different vertical silos of smart contracts. This is probably what you meant with your statement, but at the end of the day, it does advance the vertical “depth”, which is necessary to address. We can also use this as an opportunity to emphasize the value of the RSR overcollateralization, and with the diverisification of the breadth of smart contract silos, represents an overall improvement.

As you continue to grow as an RToken governor, we encourage open communication and collaboration with the community. If you’re uncertain about any particular topic, always feel free to seek guidance - none of us know everything! We are here to help and ensure the success of hyUSD and the Reserve ecosystem.


I want to add some more context to my response in regards to risk.

@Larry 's interpretation is exactly spot on. In my response to you @sukitrebek I didn’t address the presumption of stacking smart contract risk, which does exist.

When I mentioned diversification in hyUSD, I was referring to spreading risk across different smart contract silos. This doesn’t completely offset the stacking smart contract risk. RSR stakers provide a layer of overcollateralization which mitigates against the added smart contracts.

Below is a visual representation of both the stacked smart contracts, and the different smart contract silos within hyUSD.


Tom, I really admire the beautiful and well-organized diagram you’ve created showcasing the various branches of Smart Contracts and highlighting the origin of profits for hyUSD. It can be quite challenging for most people in the crypto space to understand where their profits or interest from investments come from. Many individuals have now come to realize that their crypto gains, for example, from staking or liquidity mining, solely stem from the inflation of the respective tokens.

In other words, their rewards gradually lose value over time due to the increasing liquidity and token supply. Consequently, most crypto investors tend to immediately sell their staking rewards or LM rewards and convert them into dollars, which is understandable. However, this also results in a vicious cycle. If the utility of a token does not increase over time, its value diminishes and eventually becomes more likely to become worthless if other parameters do not shift in its favor.

As always, the formula applies in general:

**Value of a cryptocurrency (in dollars/euros) = **

Utility of the cryptocurrency × Number of individuals needing and utilizing this utility (demand) × Rarity of the underlying cryptocurrency and its distribution among the population (supply, inflation, and the structure of the distribution)

It is important to emphasize that the rewards or interest earned from holding hyUSD do not come from a block reward or a token with infinite inflation, which is typically sold immediately to secure profits. This fact makes hyUSD safer and more attractive compared to direct liquidity mining on a DEX with an exotic coin reward.

The same applies to RSR stakers who receive their staking rewards by selling the accumulated interest in the basket. This process transfers the value of the sold tokens in the basket to RSR, thereby enhancing its value and stability. This level of security and stability, which benefits all RTokens, including hyUSD, is rarely found in the crypto space and represents the quality of the Reserve Protocol. Therefore, it is crucial to highlight these aspects in various advertising campaigns and informational posts, such as on Twitter.

:heart: this sheet but i would add 8% APY in form of stable money !!! here for example :wink: :muscle: :+1:



(Spoiler: I’m playing Devil’s Advocate, for I don’t like this type of tokens)

My first concern with this type of tokens is about the future. How do you plan to keep this running in the long term? Will there always be a high return? Wouldn’t that mean that we are relying in endless inflation to keep it up? If not, it would add to the robustness of the token to state that returns are expected to slow down at some moment. But in that case, how would the model survive? What will happen if we reach a stage of 0% return in the case inflation cant be sustained any more?

In short, there is no guarantee of success. But I think there will always be yield in the DeFi market, due to the demand from people who want to borrow against their digital assets. The idea being that High Yield USD will always have an APY greater than 0. Overtime the High Yield USD APY will fluctuate, but will it always beat inflation? We don’t know. I think given a long enough time horizon it can potentially mitigate the harmful effects of hyperinflation, but its too early to have clear data supporting this argument.

I appreciate comments like these because it stimulates conversation on what High Yield USD wants to achieve vs what it can actually achieve.

Hodl stable money and earn passive income, powered by DeFi

-Tom Sawyer

1 Like