The Reserve aims to establish a stable, decentralized stablecoin and digital payment system, with its stablecoin featuring a supply that self-regulates in response to demand and is backed by 100% or more of on-chain collateral. The ultimate goal of Reserve is to create a universal store of value, particularly in regions where financial infrastructure is unreliable and/or inflation is high. The Reserve project has the support of influential investors such as Peter Thiel, co-founder of PayPal, Sam Altman, president of Y Combinator, and many others from Silicon Valley and the digital asset space.
The Reserve Rights Token (RSR) is primarily used to maintain the price stability of the Reserve token. The Reserve token, a stablecoin issued by the Reserve system, can be held and used similarly to how we use fiat currencies and other tokens.

Vision

The Reserve stablecoin is a token based on the Reserve Protocol, an ERC20 token supported by a redeemable value through a pool of assets known as the Vault. To understand the Reserve stablecoin, its essential to first understand that the Reserve Protocol network comprises three types of tokens: the Reserve stablecoin, the Reserve Rights token (RSR), and the Collateral tokens.
The Reserve token acts as a stablecoin, similar to real-life US dollars or USDT pegged to the dollar. The other two tokens, the Reserve Rights token (RSR) and the Collateral tokens, serve primarily to ensure the stability of the Reserve. The RSR token is the value-capture token for the Reserve Protocol and serves as the support token for the Vault’s asset value when it falls. This will be described later.
The Collateral tokens are the reserve pool assets of the Reserve Protocol network. They are not native tokens of the Reserve Protocol but are composed of multiple tokenized assets. The Collateral tokens act as the assets backing the Reserve stablecoin and are stored in smart contracts. If we look at the relationship between the US dollar and gold before they were decoupled, the Reserve stablecoin is akin to the US dollar, while the Collateral tokens are like gold.
In the design of the Reserve Protocol, it requires that the value of the Reserve stablecoin is backed by at least 100% of the value of the Collateral tokens. The types of Collateral tokens are not limited to cryptocurrencies but will also include tokenized commodities or equities. The composition of Collateral tokens starts relatively simple and becomes diversified over time.
Initially, the stability of the Reserve stablecoin is defined as being pegged to the US dollar. At a later stage, it will become unpegged from the US dollar, achieving stability as a unit of account within the crypto world.

Key Features

The Reserve is a global stable currency (stablecoin) and a digital payment system suitable for individuals and businesses in countries with high inflation.
Asset Protection
Reserve enables individuals and businesses in high-inflation countries to protect their assets by converting their devalued currency into electronic money.
Cross-Border Remittances
Reserve makes cross-border remittances more efficient. Individuals can send money directly across borders, and businesses have a stable currency to pay suppliers.
Easy Payments
Reserve enables businesses to adopt a stable electronic currency instead of using highly inflated local currencies, making payments to international suppliers easier.

Use Cases

The initial version of the Reserve protocol will contain a generally centralized cryptocurrency tethered to fiat currency, with each component of the protocol gradually moving on-chain and out of the founding teams control over time, ultimately becoming fully decentralized. The Reserve network includes three stages:
1. Centralized Stage - Reserve tokens are backed by US dollars held by a trust company.
2. Decentralized Stage - Reserve tokens exist in a decentralized manner, backed by a changing basket of assets, but their value remains stable relative to the US dollar.
3. Independent Stage - Reserve tokens are no longer pegged to the US dollar and stabilize their actual purchasing power, regardless of fluctuations in the value of the US dollar.
In this overview, we describe the second stage, the Decentralized Stage, where Reserve tokens are decentralized and backed by a changing basket of assets, but their value remains stable relative to the US dollar.
The Reserve protocol can be deployed on any smart contract platform or on its own blockchain. Initially, development is on the Ethereum network, but ultimately, we expect to achieve interoperability between Reserve tokens and other major smart contract platforms.
The initial target value of the Reserve token is $1.00, but the long-term design goal is to become unpegged from the US dollar.
Tokens
The Reserve protocol involves three tokens:
1. Reserve Token - A stable digital currency that can be held and spent like US dollars and other stable fiat currencies.
2. Reserve Rights Token - A digital currency used to facilitate the stability of the Reserve token.
3. Collateral Tokens - Other assets held by the Reserve smart contracts to stabilize the value of the Reserve token, similar to how the US government used gold to stabilize the dollar. The protocol aims to hold at least 100% of the value of all Reserve tokens in Collateral tokens. Many Collateral tokens will be tokenizations of real-world bonds, properties, and commodities. As more categories of assets are tokenized, the portfolio will start relatively simple and become diversified over time.
How the Reserve Token Maintains Stability
If demand for the Reserve token decreases, the corresponding price on secondary markets will drop. What happens then?
Assuming the redemption price of the Reserve token is $1.00, if the public market price for the Reserve token is $0.98, arbitrageurs will be incentivized to buy them all up and redeem them with the Reserve smart contract for $1.00 worth of Collateral tokens. They will continue to purchase Reserve tokens on the open market until it is no longer profitable, which is when the market price equals the $1.00 redemption price.
When demand rises, the same scenario plays out in reverse. If the Reserve token trades at $1.02 on the public market, speculators will be motivated to buy either the underlying $1.00 worth of Collateral tokens or Reserve Rights tokens (RSR) – only possible when there is an excess pool – and immediately sell them on the public market until it is no longer profitable, which is when the market price equals the $1.00 purchase price.
How the Reserve Protocol is Capitalized
The Reserve protocol holds Collateral tokens that back the Reserve tokens. When new Reserve tokens are sold on the market, the assets used by market participants to purchase these new Reserve tokens are held as Collateral assets. This process ensures that the Reserve tokens maintain a 1:1 collateral ratio even as the supply increases.
Sometimes the Reserve protocol may set the collateral ratio greater than 1:1. In such cases, additional capital is required to increase the supply of Reserve tokens and maintain the target collateral ratio. For this purpose, the Reserve protocol creates and sells Reserve Rights tokens in exchange for additional Collateral tokens. Ultimately, this over-collateralization is not wasted – when the target collateral ratio reaches 1:1, the excess collateral is directly returned to the holders of Reserve Rights tokens.

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