Introducing Reservoir: The Next Gen Stablecoin Protocol

By 2029, it's estimated that the stablecoin market will scale from $170B to nearly $3T, a +1,760% increase in 5 years. While the market has seen tremendous growth already, current stablecoin offerings are highly centralized, do not pass on yield to their users, are single-asset backed, and/or inefficient.

When we look at those projected stablecoin market figures, the rise and innovation in real world asset (RWA) tokenization and DeFi, and the fact that five years in crypto equates to 25 years in normie land - we need a new stablecoin to unlock the next stage of growth.

A highly scalable, decentralized financial network that disrupts legacy rails requires a stable, non-bank-reliant asset for transactions and high-quality collateral. Without a permissionless stablecoin, the growth opportunities for both centralized and decentralized financial platforms are limited.

To solve these problems, we're introducing a next gen stablecoin rUSD, backed by digital and RWA. Now is the time to provide a stablecoin to scale an internet financial ecosystem that’s built to last.

Introducing Reservoir

Reservoir offers market participants a variety of yield-bearing products backed by high-quality assets, making it the first of its kind. As a permissionless protocol on Ethereum with native integration across all chains, users have access to a liquid savings primitive, high-yield term-based primitive, and native repo market. Reservoir's rUSD stablecoin is censorship resistant, transferable, constructed to integrate with multi-collateral asset adapters, and can be used across DeFi native applications. Reservoir's design enables an overcollateralized, transparent onchain balance sheet that is verifiable by all users.

Reservoir’s Inception

Current stablecoins weren't designed to scale RWA or operate efficiently across DeFi. However, when Fortunafi launched in 2020, we identified several challenges with scaling RWA - most of which centered around stablecoin design. We highlighted several in our initial Stablecoin Trilemma report, most notably:

• Current centralized stablecoins such as USDC and USDT serve as a medium of exchange backed by treasuries, but their regulatory framework only allows them to distribute yield to exchanges.

  • No yield on your stablecoin holdings? You are quite literally the yield.

• Most yield-bearing stablecoins today are single-asset collateral-backed, increasing risk, caping supply, and lowering yield opportunities.

  • Does your stablecoin yield only go up in bull markets? Are you paying to hold a stable in a bear market? Remember Bitmex on Black Thursday? Sounds risky.

• Inefficient DAO governance introduces political type inefficiencies which limit decision making and hinder growth.

  • A DAO takes 6 months to allocate into an asset class? Sounds like you missed the boat. 

• Previously collapsed “algorithmic” stablecoins hid de-peg risk and promoted “risk-free return”.

  • Are those bankruptcy emails getting annoying yet? Doesn’t sound fun.

It's no coincidence that the stablecoin trilemma has evolved into a pentlemma, with rUSD at the forefront. The days of stablecoins merely being decentralized, stable, and capital efficient are numbered and the stablecoins of tomorrow will also have superior utility and be sufficiently decentralized. We fundamentally believe that the stablecoins of tomorrow should offer its holders access to yield that's backed by multiple high-quality assets, provide greater utility, and operate cross-chain.

Reservoir is built as the institutional onchain network that provides all the necessary tools to bridge and fund RWA and DeFi applications for the long term. During bull and bear markets, Reservoir can offer better and consistent yields than other stablecoin protocols - the underlying assets are less volatile, high-quality, and diversified.

Unlike legacy stablecoins, Reservoir's protocol architecture enables rUSD to deploy into multiple assets across the onchain banking system, creating a robust balance sheet and widely used asset. By encoding banking industry standards via an onchain asset-liability management smart contract, Reservoir can achieve its mission to offer users a high-quality, safer yield through multiple asset classes and exposure. This design makes Reservoir the most trusted and scalable decentralized stablecoin protocol.

Fortunafi’s incubation of Reservoir enables both protocols to realize the synergies of an RWA-centric dApp and a stablecoin-focused protocol working together. Because rUSD is ultimately a key path to power RWA and unlocks additional utility (blockchain interoperability, integrated across various dApps, yield-bearing) and reach scalability, initial integrations across both protocols will create a flywheel effect for both protocols resulting in greater adoption, use cases, and demand. Reservoir will integrate high-quality RWA issuers leading to increased asset mixes and distribution.

The Reservoir Solution

Reservoir exists to offer highly attractive yields such that users reap the benefits of DeFi across various decentralized protocols where only a wallet and an internet connection are needed.

We believe Reservoir is positioned to capitalize on current market demands and will be an all-in-one protocol for users seeking exposure to any asset class or investment primitive, while maximizing returns.

Reservoir offers four core primitives to drive demand for rUSD and generate sources of capital for the protocol.

Reservoir provides solutions for all users looking to gain yield on their stablecoins. We expect rUSD and the protocol infrastructure to be a liquidity layer for all market participants to build upon new and existing use cases.

1. Borrowers: The repo market offers a lower cost of capital (cheaper to borrow) and a diversified capital base (options that are not correlated to TradFi, alternative to existing providers).
   

2. Institutions: Higher yield on the same assets they already have exposure to. Accessible/scalable way to deploy into the crypto markets via trUSD.
   

3. Stablecoin Issuers & Holders: rUSD is backed by high-quality collateral, low depeg risk, permissionless, native stablecoin yield, cross chain composability, and deep liquidity. Users can earn an attractive yield on their stablecoin holdings in both DeFi and CeFi.
   

4. Crypto Holders: Borrow and lend collateral across fixed and variable rates. Leverage assets cross chain and in a variety of DeFi applications.

The protocol has constructed key differentiators to mitigate risk, such as the following:

1. Peg Stability Module: A peg stability smart contract module that allows anyone to convert rUSD to USDC at parity and no cost. rUSD issuance will be calibrated to avoid any liquidity crunch scenario.
   

2. Multi-Asset Collateral Backing: An important aspect to the rUSD peg is the assets that collateralize the stablecoin protocol. With a healthy mix of liquid DeFi assets and RWA collateral, the protocol provides a significant differentiating factor not only in the form of higher yields, but also in how uncorrelated and more stable it is to the digital asset market.
   

3. Credit Enforcer: A credit enforcer smart contract module that has abilities to enforce the protocol’s financial covenants in terms of liquidity and solvency. This means that sufficient liquidity for 1:1 conversion of rUSD to other supported stable assets is automatically enforced while also deploying the remainder of protocol-controlled assets into automated strategies for yield to be passed on to srUSD and trUSD holders. The contract also caps the rUSD and trUSD based on the limits governance sets to maintain protocol health.
   

4. Proof of Reserves: The protocol will have a live view into the health of the protocol in terms of solvency and liquidity. The balance sheet is updated every time a transaction occurs and real world assets tokens reflect a daily price update as well. The proof of reserves is a way for the protocol to provide users assurance of the current balance and requirements to fulfill any future withdrawals.

What’s on the Horizon

• More research and longer form analysis on the various aspects of rUSD and protocol primitives. 

• The launch of an exclusive, private Discord channel.

• Launch details and exciting incentives.

Want to learn more and/or stay up-to-date with the latest Reservoir developments? Follow their Twitter, visit at https://www.reservoir.xyz, and check out their recently launched Gitbook!

For more information about Fortunafi and our upcoming releases, please feel free to reach us at [email protected], visit us at https://fortunafi.com/, and/or follow us on Twitter.

All The Best,
Fortunafi

Disclaimer: The information contained herein is general information, intended for educational purposes only, and is not intended to constitute legal, tax, accounting, or investment advice. Information, opinions and views are solely of Fortunafi and none of the information contained should be used as the basis for an investment decisions. To ensure suitability, contact a licensed investment professional when making any investment decisions and do your own research.