A rating system by definition is a system of classifying according to quality. There is a need for a rating system that is specific to RToken collateral plugins.
RToken is the generic name for any token that gets created on top of the Reserve Protocol.
RToken collateral plugins convert ERC20 tokens into assets that can back RTokens.
There are several factors that need to be considered in order to determine if an asset will make a “good” collateral plugin.
Yield:
When building RTokens, one of the main characteristics to look at is the yield. What is the APY of the asset?
Other points of questions:
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Where does the yield come from?
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How sustainable is the yield?
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How safe is the yield?
Can the answers of the questions above be derived into a classification. Can this classification be used to determine if an asset will make a “good” collateral plugin.
Liquidity:
This classification for an asset might be dynamic. As a general rule of thumb a plugin does not want to exceed 10% of the liquidity of any asset or position. Comparing eUSD and USDC+(two different RTokens) can demonstrate the need for a dynamic classification for this metric.
If the governors of eUSD want to swap one of its collateral assets, with 4 collateral assets in the eUSD basket that is about $5.75m that needs a new home. That new home needs to have at least $50m of TVL to not violate the 10% rule.
If the governors of USDC+ want to swap one of its collateral assets, with 3 collateral assets in the USDC+ basket that is about $40k that needs a new home. That new home needs to have at least $400K of TVL to not violate the 10% rule.
This is where the Liquidity classification can be dynamic and be different for each RToken depending on the size of the market cap for that RToken. What might be a good option in terms of liquidity for USDC+ might not be a good option in terms of liquidity for eUSD.
Minting cost:
Minting costs are a specific metric to consider for all RTokens on Ethereum. The more smart contracts in the collateral asset, generally, the higher the cost to mint. For example if we look at a Convex pool and compare it to sDAI. The Convex pool will have a much higher minting cost compared to sDAI.
Convex has a higher minting cost because of more layers of smart contracts compared to sDAI. The complexity of stacking smart contracts creates a higher minting cost if it’s in the collateral basket of a RToken.
Collateral Plugin Examples
| Collateral Plugin Examples | Cost of Minting: |
|---|---|
| sDAI | Low |
| Morpho Vault | Medium |
| Convex Pool | High |
There exists a rating system for the underlying assets and for the protocols that the underlying assets are derived in. Those two factors are classified according to quality via bluechip.org and DeFisafety.com respectively.
Bluechip is an independent stablecoin rating agency that created the SMIDGE framework in order to score stablecoins on a letter grade from A to F with A being the highest and F being the lowest. DeFi Safety looks at protocols and gives a percentage score to indicate how closely projects follow best-practice in terms of process quality, this score ranges from 0-100 with 100 being the highest.
Bluechip and DeFisafety will not be sufficient to determine if an asset can be an effective or “good” collateral plugin for a RToken.
I believe there should be a rating system that derives the work of Bluechip and DeFi safety but will also weight the following into a rating system for RToken Plugins:
Yield
Liquidity
Minting cost
In a world where there are thousands of RTokens, this rating system can help provide guidance and clarity to the Reserve Ecosystem.
