Apr 29, 2021
unFederalReserve Reserve Lending APY guidance and The Second Key: Courtesy / Efficiency
A fundamental part of Reserve Lending® product development
How we are meeting the moment:
- Our leadership and commitment to transparent communication
- Provide early access to annual percentage yield (“APY”) calculation and rewards information across all of our products for our users to plan their strategies well before launch date.
- Provide general guidance on how we are moving to set the final release date and letting the community know days in advance to pre-schedule and plan their actions accordingly.
- Provide clear explanations of difficult topics around the platform to better inform users on how to find additional information in which to perform their analysis.
There are many ways to live Courtesy and Efficiency as a company. As Ryan covers below, we want all our community members to be working from the same information, if possible. Further, you have a right to have your questions addressed in a concise, accurate and professional manner. We hope this blogpost rises to the level of courtesy you are entitled to and that its explanation of how APY will work meets your needs. Please note that the term APY as used in this blogpost is limited to how it’s defined here, and does not relate or is based on any legal definition of the term. Understand the risks before doing anything.
Efficiency is highlighted here because markets exist to make transactions more efficient. Our software’s APY is a way to encourage an efficient marketplace. Also note that because the platform itself may be sponsored by a separate legal entity than unFederalReserve, you might find mention of tasks that such hypothetical sponsors would perform, but for which we would provide analytics and advice.
For this blogpost, we explore how unFederalReserve is rising to the challenge of meeting two of our core principles, Courtesy and Efficiency.
Intro 2 — Why Courtesy is important to Ryan as CTO
Our community having as much information as possible to plan their strategies accordingly provides a sense of trust and comfort that may seem new to folks in the DeFi space. Historically, projects code and ship in production, hiding obscure locking rules or other misinformation tactics to gain higher total value locked (“TVL”). We do not do that. We want our community to have ALL the information that they need from the start to make good financial decisions. Always be aware of the many risks involved in this space, and consult with your financial advisors before making any decisions regarding your assets.
The topic of APY calculations and estimates that may affect users is a very complicated topic. We do expect some folks to prefer other methods, but feel we are using the best approach to launch the platform. We provided various example scenarios below which users can use to tailor to their individual needs and goals.
Sincerely,
~ Ryan Medlin & Howard Krieger
Key Things to Consider in this document.
Reserve Lending® is a fork of Compound®. Please note the original announcement regarding its articulation of the distribution mechanism being followed: https://medium.com/Compound-finance/expanding-Compound-governance-ce13fcd4fe36
Additional content:
https://Compound.comradery.io/post/1762
Please find a simple, but useful graphic of the mechanism below:
Diagram I: The Distribution Mechanism
Here are some details surrounding the APY calculation:
- These are forward looking statements based on some various scenarios of user behavior during launch. Platform sponsors can only estimate user behavior for negative, neutral, and positive scenarios together. We want to be objective in this document, state facts, and let our community decide for themselves what they should do accordingly based on their own hypothesis.
- As noted below, the rewards APY will be adjusted based on TVL and current eRSDL price on Uniswap.
- The platform sponsor reserves the right to adjust rewards at any time based on actual user behavior that is occurring during launch using data on the Ethereum blockchain. “Don’t just trust, verify,” is always our posture on information being provided to us in real time.
- Our initial budget will be fixed and can be tracked on-Chain.
- We are super excited for the launch and the exposure that will come from it! We have included sections below describing some of the strategies for pre and post-launch.
Full documentation on the platform will be published shortly on the main Reserve Lending DApp page. We have also received permission from Compound to reference their documentation here if needed. Please note: Residual Token, Inc., its agents and affiliates are not affiliated or partners with Compound, its agents or affiliates. Please be aware of this.
10 Ways Reserve Lending® is Addressing Courtesy
1. unTokens and Initial Tokens for Launch List
See: https://Compound.finance/docs/ctokens
We are a fork of Compound and have created unTokens that reflect the same behavior of Compound’s cTokens.
During Launch these token addresses as well as the smart contract addresses will be posted so they can be viewed and verified on Etherscan.
NOTE: As part of eRSDL’s promised utility, holders have the opportunity to suggest, and then vote on additional tokens to be added for supplying and borrowing in the future!
Voting platform is here: https://snapshot.org/#/unfederalreserve.eth
2. eRSDL Rewards Budget During the User Onboarding Period for the Reserve Lending Platform launch
The following will be the initial rewards distributed during the user onboarding and launch period. This period could be anywhere up to 6 weeks.
We are pleased to announce 20 million eRSDL in total will be available to community members participating in the new Lending Ecosystem. This is approximately 30% of unFederalReserve’s current company tokens and we are super excited to give back to our solid community of Hodl-ers. We, and our platform sponsors, will always attempt to focus on giving rewards to positive and honest participants in the network who have the true use case for being here..
Please note that we will be closely monitoring “whale” and potential straight yield farming behavior and reserve the right to make adjustments accordingly. We will always be as timely and transparent as possible and on a best effort’s basis. See our security documentation for more details.
https://unfederalreserve.medium.com/unfederalreserve-and-the-first-key-safety-c6503ee0cda7
We have included a few charts and details below around the rewards algorithm to better explain why only ranges can be given.
On first look someone may exclaim: “You’re going to run out of budget in 10 to 15 days!!!”. Our assumption is this platform launch will bring a lot more project exposure. As more project adoption happens, we envision that we can reduce the rewards accordingly; effectively extending the timeline of those rewards based on the 20 million eRSDL budget to maintain a healthy 500% to 1000% APY to our users for eRSDL staking/borrowing.
Table I: Various Tokens and Rewards
Note the Compound® definition of CompSpeeds:
https://Compound.finance/docs/comptroller#refresh-comp-speeds
CompSpeeds is defined as the amount of eRSDL per block per Token for supply and borrowing. This is a configurable setting.
We will monitor the budget and APY accordingly. We will determine if an additional budget is needed based on Platform User Engagement metrics near the end of the launch period.
Note that:
- SUSHI, AAVE, and YFI will not be getting rewards during this onboarding period.
- Tokens were added to our platform based on company strategy, market research of various other lending platforms and direct community feedback loops.
Some of you may be thinking: “You are distributing a lot of the company’s tokens. Is that prudent? “ We believe that we have sufficient means to achieve the Roadmap even when considering this large distribution.
3. Algorithm for Rewards Distribution
We are a fork of Compound. Please see this page for detailed information on the rewards mechanism as stated and implemented in our fork.:
https://Compound.finance/docs/comptroller#refresh-comp-speeds
We are providing simple examples that show the relationship between TVL and eRSDL market price as it affects APY in a section below.
We will run detailed calculations and adjust the eRSDL rewards to balance the APYs accordingly over time. Expect that the APY will drop until a baseline rewards APY has been reached. We have a 24 hour timelock in effect. A timelock means that if we change any configuration methods in our smart contract, this intention is published on chain, and only executed after 24 hours. This ensures that our users have enough time to respond.
We reserve the right to change these APYs at any time to better foster the honest behavior of folks using the platform to facilitate a healthy ecosystem of Lending and borrowing.
4. Example Reserve Launch Scenarios based on Various User Behaviors
We want to show various ways below how TVL and current market price on Uniswap® of eRSDL will affect the APY based on various user scenarios and overall platform/project goodwill.
Supplying eRSDL TVL and APY Scenarios
TVL: Total Value Locked
APY: Annual Percentage Yield
Scenario 1:
Scenario 2:
Scenario 3:
5. Liquidations for Borrowing
Note that liquidations are needed for a healthy Borrow platform. An eight percent (8%) discount incentive for buying out liquidated collateral is provided.
See: https://Compound.finance/docs/comptroller#liquidation-incentive
Older but lots of interesting information on how to perform liquidations: https://blog.baowebdev.com/2019/11/how-to-build-a-Compound-liquidation-bot/
6. Steps left for Launch
We are almost done! Today we will test liquidations on the platform. That will be the completion of our testing and will freeze the code and there will be no more changes.
We do not expect any additional issues, but we want to make sure we are equipped to properly support users on any liquidation events once we are live. This exercise is an important task for us and our alpha testers to understand fully.
As indicated in our Safety paper, we have a PEN test wrapping up now. We do not expect many issues from this testing, since the security mindset is ingrained in our Development Team.
A few bugs are being tested, but Alpha Testing has continued to run smoothly. All critical bugs have been fixed!
Expect another official statement tomorrow on the exact day AND time of the launch so that you can plan your schedule on the day of launch accordingly.
7. Steps for Post-Launch to Drive Project Awareness and Adoption
We are super excited about this launch, in particular how it may affect project adoption. We anticipate an increase in the number of wallets from those who want to participate in the token’s utility- specifically as it pertains to voting to help evolve the DeFi platform.
We are focused on:
Facilitating increased liquidity efficiency in CeFi lending by using DeFi based protocols/technology. Regulatory compliance, adequate controls and other key performance indicators meant to increase real world adoption are within our focus.
Some ways we are driving Reserve Lending and project adoption during and after launch:
- Effective marketing campaigns created to promote our launch and overall project traction as we move along.
- Contact with ecosystem players such as Yearn.finance once live for potential vault integration.
- Contact with C.R.E.A.M. Ironbank for integration and whitelisting of our smart contracts. Ironbank is very similar to the Safe Harbor in our Cefi-to-DeFi world, so we are keen to participate in that ecosystem. See: https://creamdotfinance.medium.com/introducing-the-iron-bank-bab9417c9a
- Campaign to reach out to ALL of the various listing sites and tools vendors for potential integration. The benefit of forking Compound is that the integration overhead will be a lot smaller than if we were to build our own protocol from scratch.
Some of these as examples are:
https://app.defisaver.com/Compound/manage
https://blog.openzeppelin.com/defender/
Surveys meant to discover even more ecosystem integrations shortly after launch will be held. Engineering resources dedicated to work on these in order of community driven priority will be assigned.
8. Wallet Support
Desktop: Supported wallets are: Metamask, WalletConnect, and Coinbase Wallet. Please note that Metamask and Walletconnect may support other wallets. Please DYOR and plan accordingly.
NOTE: We plan on supporting mobile wallets a few weeks after launch.
9. LP Staking Reward Reduction at app.unfederalreserve.com
We have announced hitting a maxcap of 475 million in June and this will be the first phase of that change:
We will be making the first step toward rewards reduction on our existing LP staking platform to begin to meet this maxcap goal. We wanted to get clarity around this first phase before making any change. We will announce in due time, and in concert with our platform sponsor, if applicable, since we know that folks are planning strategies around deciding to move from LP staking to supplying eRSDL and ETH for lending supply in our new platform.
This last action is comparable to Single Sided Staking in some other Defi applications.
We will be reducing the LP APY from 400% to around 200% a week or so after launch. We do this by setting the MasterUnchairman rewards configuration to a lower value (therefore the minting of the new tokens to that value as well) based on market condition of the LP staking pool. Our MasterUnchairman contract has a 24 hour timelock for any adjustments as well.
MasterUnchairman contract:
https://etherscan.io/address/0xF8377270af0c864d2b3BAB73BB16c65b05767549#code
NOTE: Our company has 900K of locked liquidity right now. We expect that at least 1 to 2 million of liquidity will remain in the LP pool to gain the high transaction fees available there per day and that previous history has shown to be more than enough for a healthy trading environment on uniswap. Our company can make adjustments to get to the 1 to 1.5 million locked, if needed. We will closely monitor during the launch of Reserve Lending. In addition, we will be adding Tier 1 exchange listings in the May/June time frame creating more options for the community based on their needs.
As we reduce rewards for LP staking we may not hit the maxcap of 475 million until after June. However our thinking is we go ahead and stop in June so the maxcap would be less than 475 million to reduce further dilution. We may do a vote and hear feedback on this thinking as we work towards setting the maxcap and present the official plan for June shortly after the Reserve Lending Platform launch.
10. Taxes
Please note that we are not tax experts or advisors. Individuals with questions about taxes and how they relate to the Reserve Lending platform should speak to their advisors before using the platform.
