Today I review “Reserve Stabilization Protocol” white paper co-authored by Taylor Brent, Daniel Colson and others.
With the rise of DeFi in 2019 those types of protocols become an essential part of the ecosystem (“Timeline”: a). Still most of them are lucking the important decentralization element, which makes them more like CeFi (Centralized Finance). (“Singularity”: b-)
Although authors of Reserve claim in their 23-pager their coin to be the decentralized one (“the Reserve Protocol, a decentralized stablecoin system that scales
supply with demand”) the validity of this claim is undermined by coin’s design, which requires for its stability at least two actors actively interfering with the Reserve’s market.
One is the so-called “Reserve Manager”, which “rules of engagement” is to keep the Reserve stable at $1. Second is the “Vault Manager”, which distributes assets from / to the “Vault” (centralized custody account).
Authors recognize this major flaw and promise higher level of decentralization in the future which seems to be believed by Reserves’ users (“Empathy”: c+).
Overall, however, the market size for those types of protocols is potentially very substantial as more and more users get frustrated with endless and mostly deliberate manipulations, which became an inherent characteristic of crypto-assets markets, and turn their attention to more predictable although less profitable instruments. (“Volume”: a)
RESULT: “Singularity”: “b-”; “Volume”: “a”; “Empathy”: “c+”; “Timeline”: “a”.
Link: https://reserve.org/whitepaper.pdf
ADDITIONAL COMMENTS
“Vision” part of the rating is aimed to measure exogenous (market) parameters. It consists from “Singularity” (uniqueness) — “Volume” (size of the tarted market) — “Empathy” (public perception) — “Timeline” (timeliness).
Sometimes projects like Reserve, which isn’t new or even particularly innovative, receive high “Vision” rating not because of their quality but because of being in the right place at the right time.
Stablecoins transactional volumes had risen dramatically during second half of 2019. Their growing importance for DeFi industry is unquestionable. Most importantly it looks like many private investors (notable those in China’s OTC market) on-ramp primary via stable coins (USDT mostly). I have to reflect that in ratings. Hence “a” on “Volume”.
At the same time, “Empathy” or “public perception” is most difficult to substantiate. As we all know there are a number of old (some might even say “stagnating”) protocols (like DigiBite), which value is mostly (arguably, of course) maintained without exaggerated marketing budgets by the enthusiasm of its core group of followers.
Another example is a “good cause”, which a coin might be associated with. In case of Reserve it’s a notion of “low volatility” and “decentralization” (opposite to Tether).
However despite all promises Reserve still remains highly centralized (as opposed to Maker). That calls for “c+” not “b”.
Another issue is Tether-Maker double-threat for the future of Reserve. I’ve already made “Singularity” (“uniqueness”, which is the measure of protocol’s competitive advantage) as low as “b-”. However, making it even lower (reducing it to “c” or “junk” level) would mean that DeFi leaders are already firmly established and this one-year-old market is already over-saturated with stablecoins tailored for multiple users’ niche groups.
That, obviously, not the case. Tether is a subject of multiple regulatory scrutinies and Maker has its share of problems with rates volatility. IMHO there are still plenty of space for new players in that market.
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