RSR Burning Mechanism with RSR Burn RToken

[ottokili]

Hello everyone, I’m Mattias and to recap my idea presented in today’s RToken Lab i will be illustrating here how the RSR Burn RToken could look like and how a Burning mechanism could be integrated in RTokens.

First of all i’d like to state that anything shown here is not final and will change based upon the decisions taken with the community.

I haven’t come up with a name for the RToken yet since it’s still just a raw idea, so at the moment i will be referring to it as “RSR Burn RToken”, such concept’s goals can be divided between two categories:

Main Goal: Burn RSR and demonstrate that a succesful burning mechanism can be implemented in RTokens.

Secondary Goal: Generate revenue to RToken holders and RSR Stakers.

This can be achieved with the subsequent subdivision of yield between RSR stakers, RToken holders and RSR burned:

The 33% yield to RToken holders was initially there to give an additional incentive to hold the RToken but on today’s RToken lab @0xJMG suggested that a more decisive route could be taken on what the purpose of the RToken will be, taking in account his opinion, maybe rather than giving 33% of the yield revenue to RToken holders, the better decision would be something like 69% yield to burn RSR, 30% to stakers and 1% to a treasury to finance advertising and overall costs for the RToken.

The part of the yield generated by the stablecoin that is assigned to be used to burn RSR will be automatically sent to a burn address by the protocol in the form of RSR and no human action is required to do so.

I haven’t thought yet about the specific backing assets for the RToken but instead differentiated in three categories that could represent them. A basket with higher safety and lower yield could be something similar to eUSD while a “Higher Yield - Lower Safety” basket could be something looking like hyUSD, my personal opinion is leaning towards the “Mid Yield - Mid Safety” option between the three; while the main goal of this RToken is to burn RSR, big part of the goal is also to set an example that a burning mechanism can be implemented and i’d rather see that happen in a more secure way.

And at the moment this is pretty much everything, my ultimate call to action would be that anyone interested in this RToken is welcome to lend their knowledge and take part in this community project, whether it is by offering their skills or simply sharing an opinion.

Any messages in the Discord RToken Brainstorm channel are welcome, i also created a Telegram Group that anyone can join but i’d also like to keep the conversation alive under this forum post so that everyone in the future can see all the opinions here! I will be updating the conversation here when more final decisions are taken.

Thanks for reading and looking forward to knowing your opinion

Also my Twitter account if anyone is interested about sending me a DM: @ottokili

[ham]

Thanks Mattias for keeping the discussion alive around novel Rtoken designs and giving us the opportunity to discuss them in this public forum.

Unfortunately I’m not keen on the underlying buyback and burn mechanism this Rtoken proposes as I don’t think it’s beneficial for active participants. This discussion was had recently with NewOrder DAO RE the token utility of NEWO and was shot down pretty quickly as it didn’t align with those most committed to the success of the DAO, benefiting stakeholders with unproductive capital just as much as those with productive capital via protocol participation, vesting tokens. This article by Placeholder VC summarises better than I do.

Stop Burning Tokens – Buyback and Make Instead — Placeholder

I feel participants that would think about holding this Rtoken are already actively involved in the protocol and have productive RSR elsewhere, should they support a burn that would also increase the price of the unproductive RSR (that can be dumped at any time compared to the productive locked assets within the protocol), they are already increasing their holdings relative to these holders though active participation via buyback and redistribute. A burn allocation of 69% would only further exacerbate this as an allocation to the Rtoken provides no yield to the holder while giving the smart contract the ability to burn more RSR benefiting all holders. Why not hold hyUSD instead for better yield or buy more RSR and stake on their preferred Rtoken, both increasing TVL.

Rtoken stakers would be worse off given they shoulder all the risk in the event of a depeg while holders of unproductive capital keep their entire stack, which they have seen appreciate though the life of the rToken.

[ottokili]

Thanks for posting your opinion here as it provides a really good opposite point of view.

I completely agree on the fact that active participants would benefit more on holding another asset such as hyUSD directly increasing their holdings and that anyone holding RSR and not participating in holding capital on this RToken would benefit as much as who’s invested in it.

But this is why this RToken was denominated a “niche community RToken” as it targets people who mostly believe in the Reserve project and would like to see it succeed both economically (Increasing value of their investment) and in its humanitarian mission. The main entity that would benefit from burning RSR is Reserve itself as the slow wallet holds around 50%≃ of the total supply to be used to finance operations for the protocol and entities connected to it.
In a way you could say that you are generating yield for yourself, increasing the value of your RSR investment while also indirectly financing the battle against hyper-inflation increasing the value of Reserve’s RSR slow wallet.

So yeah, active participants could have a higher and direct economical benefit on holding other RTokens but it’s not about maximizing the value your money could create, more about how you choose to use it. The fact that “unproductive capital” benefits from this RToken is somehow intended.

That being said, i wonder if there could be internal interest from Reserve on deploying capital on a stablecoin created on their protocol, secured by it, that generates a percentage of yield to the holder (perhaps this has to be the case) and burns RSR increasing the value of the slow wallet.

Nevin (Reserve’s co-founder) considered burning tokens (here his words about it) in the slow wallet and ultimately concluded that the capital could be used in a better way, reinvested to finance operations for Reserve, which i completely agree with. The “Burn RSR RToken” is in line with this thought because, as i said before, it grows the value of the slow-wallet over time rather than diminishing it.

Another argument could be that the goal of this RToken, other than obviously burning RSR, is setting an example that a burning mechanism can be implemented really easily. In the future other RTokens could implement a 1% directed to RSR burning and it would overall make a difference without impacting heavily the participants holding the RToken.

This specific RToken design could also be used within the community as a payment token, for merch store or tipping in the communities’ circles, as it was suggested in the latest RToken Lab. It could instill the desire to create such similar stablecoin for other dedicated crypto communities that want a payment token within their circle that also does good for the price of the coin they invested in; much of its purpose can also be seen on a “morale” level, i think that this is what appeals the community the most, knowing that something is being done passively to increase the price of the token they hold, and also brings attention to it, there are many benefits to a burning RToken that are not directly related to “money”, while that may sound minor, i think it’s not.

Another way the RToken could work is that instead of burning RSR, it could lock it, staking it on itself, this would influence the TVL but ultimately in the event of underlying assets failure the RSR would just be released in the market again. It wouldn’t be automated and it invalidates the concept of burning but definitely worth considering for a potential design.

[ham]

Thanks for the reply, excellent twitter sleuthing by the way, big ups.

The protocols slow wallet holding the majority of of the unproductive capital is an interesting point and not one I gave much thought to in my initial comment. However i’m still not sure if this would ultimately benefit the slow wallet.

While price would be driven up by significant burning, a unlock from the slow would have to telegraphed prior to the event giving the holders of unproductive capital plenty of time to sell in advance, dropping the price by the unlocked capital is used. I also agree the interest from the protocol and active promotion of a rToken thats main aim is to increase the value of their own holdings may be a bad look, which is maybe similar to why they haven’t created their own rToken.

I’m struggling to see the advantage of any protocol burning their own token, given the benefit to unproductive capital that the protocol doesn’t hold. I think this is especially true for Reserve, given the stakers of this rToken but stakers in general that are willing to interact with the protocol and take on the risk benefit just the same as those who don’t and ultimately I don’t think the the slow wallet would benefit that much.

Maybe a option instead of burning would just be to send RSR directly to the slow wallet instead of a burn address or the the auto-stake example you used above, unsure if it’s possible but would then maybe provide a buffer in the event of a de-peg protecting, just like our lord and saviour, Nevin did during the previous de-peg. While this would increase TVL, I think I would just prefer all the yield myself and use the yield earned to protect my initial capital, that way I can move rTokens a take the yield earned with me. Ultimately I think 50% of total supply will be more than enough to fund productive activity and increasing TVL will generate more of upward price pressure then burning will.

The community payment token is an interesting one, my argument would be given the token would be transferred in relatively small volumes ETH gas would be too high, the mobilecoin blockchain would be perfect for this and already has eUSD which could be used instead. I feel long term community members would be happy to substitute eUSD as a quasi community token given it would give another use case to eUSD and increase the TVL of the protocol, given they have likely have a stRSR allocation in eUSD, this would also benefit them financially. However this wouldn’t in still any desire in other communities to create a similar stablecoin for themselves, which would be a great use-case of an rToken.

Maybe a community token hub could be built on top of the mobilecoin block chain that could support multiple community tokens? Again I don’t think a burn mechanism is needed in all cases, but could be provided if wanted, but instead could be back by the protocols assets? For example a basket of yield bearing derivatives of Dai for a MKR fan token which if used in the MKR shop would give 10% off?

[Jackofswords]

Posting from private discussion on deploying something like the following -:

USD Reserve Burn
Ticker: USDrb

Mandate: A USD stable coin which directly supports the reserve protocol by creating deflationary pressure to the RSR token via token burns.

Secondary goal - to become the stable coin of choice to pair with RSR on decentralized exchange liquidity pools.

A treasury could be formed to purchase CRV to drive this along with other marketing/liquidity growth /expansion efforts.
10% treasury -
20% rsr stakers
70% rsr burn

Backed with high yield pools/pref other Rtokens when/where possible.

[ottokili]

A lot has evolved since this first discussion, much more utility has been given by design to RSR Dollar $RSD (The RSR Burn RToken) to aid the Reserve ecosystem. A detailed explanation on why $RSD would be beneficial to the ecosystem is written in its RFC here. I truly believe that the initiatives around the treasury can have a meaningful impact on $RSR in the future and, if successful, $RSD could be integrated as backing asset to potential future RTokens as a tool to burn even more $RSR.