Reserve Twitter Spaces - Exploring $rgUSD

In Reserve Protocol’s Twitter Spaces which took place on April 19, 2024, Griffin from Reserve hosted Logarithimix Rex from Strange Water Podcast, Kmets from Aladdin DAO, Patb from Inverse Finance, and Meir from Reserve Protocol to discuss crypto product development, market strategies, stablecoin innovations, and more! Read our notes below to learn more.

Background

Griffin (Host) – Contributor at Reserve Protocol

Logarithimix Rex (Guest) – Host at Strange Water Podcast

Kmets (Guest) – Core Contributor at Aladdin DAO

Patb (Guest) – Head of Growth at Inverse Finance

Meir (Guest) – Researcher at Reserve Protocol

Perspectives on Product Development and Market Strategies

Rex introduces himself as an independent researcher and podcaster who has been in crypto for three years. He discusses his engagement with the Reserve team and his excitement about new product ideas, particularly Revenue Generating USD ($rgUSD).
Meyer introduces himself as the lead researcher at Reserve, expressing his passion for DeFi and excitement about the innovations happening with their partner set.
Patb introduces himself as leading growth at Inverse, mentioning his background with Index Coop and his crypto experience since 2018. He highlights Inverse’s projects like the Dola stablecoin and a fixed-rate lending market.
Kmets introduces himself from Aladdin DAO and mentions his involvement in the DeFi space, detailing protocols he’s worked on like Concentrator and CLever, and the development of stablecoin products including $fxUSD, $rUSD, and the upcoming $btcUSD.
Kmets explains that the development of their products stemmed from necessity, particularly following the $USDC stablecoin’s de-pegging in March 2023 due to the collapse of Silicon Valley Bank. He details the creation of the FX protocol, a stablecoin-like product that manages volatility through a novel mechanism involving two tokens. Kmets mentions the adaptability of this mechanism, which led to the launch of $fxUSD and integration with restaking tokens.
Patb shares that Inverse started as a Compound fork and learned from challenges such as managing user retention during rate manipulations and oracle hacks. He describes pivoting to a fixed-rate market catering to long-term borrowers, utilizing a tool called Dola Borrowing Rights, which allows speculation on future interest rates.
Meyer praises the evolution of the Inverse ecosystem and discusses Reserve’s approach as an index product that bundles existing structures to meet specific market demands. He explains that Reserve focuses on creating stablecoins and incentivizing partnerships to enhance yields in DeFi positions.

Crypto Product Development and Layer-2 Lending Strategies

Rex says that in his deeper involvement with crypto, he perceives two main groups: those focused on technology first, and those driven by enthusiasm and market trends. He prefers the technology-focused approach and encourages experimentation and iteration in product development.
Patb discusses the importance of safety mechanisms in lending, such as using a pessimistic price oracle that considers the lowest asset value from the past 48 hours to set loan-to-value ratios. He mentions the industry’s gradual acceptance of new technologies like Redstone, viewing it as a potential alternative to established standards like Chainlink.
Kmets mentions that $fxUSD also uses a similar strategy with their reserve assets and appreciates the movement towards robust risk parameters in the industry.
Rex asks for opinions on managing cross-chain protocols, querying whether cross-chain developments are alarming or exciting.
Patb reflects on the Multichain incident that reduced their trust in third-party bridges, preferring native bridges despite concerns. He highlights ongoing Layer-2 opportunities and the associated risks that concern their risk team.
Rex ties the conversation back to lending, pondering if the inherent risks of Layer-2 should reflect in higher lending rates, or if economic actors might offset these risks.
Meyer views Layer-2 protocols as collectively borrowing from Layer-1, considering Layer-1 as the fundamental source of truth and stability.
Patb contrasts by noting the low transaction costs on Layer-2 reduce certain risks, such as the failure of MEV bots to liquidate positions. He also suggests that short-term incentives could distort lending rates on Layer-2.
Meyer acknowledges the current incentives to build on Layer-2 and expresses concerns about sequencer downtime risks impacting lending reliability on Layer-2. He looks forward to decentralized sequencers enhancing trust in these layers.
Griffin inquires if there are any further comments on lending before moving on.
Meyer briefly highlights the potential of $rgUSD in lending protocols, where unutilized capital can earn additional yields through secondary lending protocols, underscoring the importance of composability in scaling.

Liquidity Strategies and Incentives in Crypto Markets

Griffin asks Kmets about f(x) protocol‘s liquidity strategy, specifically regarding stablecoin pairs and incentives for new products like the bitcoin product.
Kmets explains that f(x) initially launched without a governance token, allowing users to mint tokens and contribute to a stability pool that collected emissions from staked assets. This dynamic incentivized both the minting of tokens and participation in liquidity without the need for additional incentives. He says that f(x)’s stablecoin, $fxUSD, now partners with multiple pools and highlights the importance of long-term liquidity incentives and competitive positioning in a risk-on market.
Meyer adds that the philosophy behind $rgUSD is to negotiate the best risk-adjusted returns for their liquidity providers by leveraging market opportunities and risks, particularly those emerging from competitors like $USDe from Ethena.
Patb shares experiences with Curve and Convex, as well as various Solidly forks, discussing the successes and failures of these platforms and highlighting the importance of team evaluation and cooperative incentives in choosing liquidity strategies.
Kmets states that f(x) has recently launched incentive markets which have proven effective in enhancing liquidity for various tokens. He notes that the value of the f(x)’s tokens remains important for maintaining interest and capital efficiency.
Kmets says that bribing for $fxUSD is currently more effective than for Curve due to better returns per dollar spent on incentives. He mentions Aladin’s role in expanding the bribing market, though he acknowledges the system’s effectiveness is variable.
Rex questions the long-term viability of incentivized bribing, suggesting that it may just involve chasing the most appealing financial venues. He highlights a shift in activity towards newer platforms like the ones on Optimism and Base.
Kmets agrees with Rex, noting a general trend of chasing lucrative opportunities in the market. He mentions that even less popular strategies are proving to be effective, indicating a diverse and active market.
Rex expresses concern over the sustainability of such strategies, highlighting the importance of utility over mere speculation in asset investment.
Meyer discusses the necessity of competition among venues offering bribes, stressing that it prevents the dominance of any single source of yield and helps align stakeholders with the ecosystem.
Patb introduces the idea of using LP tokens as loan collateral, which could reinforce the effects of bribing and open up new economic possibilities, although this concept is still under review by their risk team.
Meyer supports the use of bribes that align stakeholders’ interests with their investments, noting that original gauge mechanisms required LP involvement for governance, which has since evolved with service boosts.

Exploring rgUSD: Innovations in Stablecoin Liquidity and DeFi Incentives

Rex explains that the Reserve Protocol allows for the creation of stablecoins by gathering a basket of assets and minting stablecoins against it. The concept was inspired by high yields in crypto compared to traditional finance. $rgUSD aims to allocate collateral in safe, high-yield DeFi venues, adjusting allocations as market conditions change.
Rex mentions starting with liquidity incentives on Curve, using yields from collateral to enhance the growth of $rgUSD in DeFi. He outlines plans to expand incentives to other venues and introduces stablecoin-denominated incentives that will directly benefit liquidity providers.
Rex also discusses the strategic value of $rgUSD for DAOs and projects needing liquidity, highlighting how pairing with $rgUSD provides significant yield benefits due to the distributed interest from collateral.
Meyer adds that $rgUSD is focused on supporting tokens and projects that align with its goals, highlighting partnerships and support for other tokens.

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Show Information

Medium: Twitter (Audio)
Show: Reserve Twitter Space
Show Title: Extending DeFi to Create More Interesting Products
Show Date: April 19, 2024