Reserve – A Stablecoin to Bank the Unbanked
General - August 25, 2020
Reserve is another important implementation of stablecoins in the blockchain and DeFi space. In this video, we break down what the Reserve network is, and how it can bank the unbanked.
Reserve works in a similar manner to Celo, which we’ve talked about in a previous video.
Like Celo, Reserve has two cryptocurrencies. The first one is called RSR, it incentivizes node-operators to validate transactions. The second one is called RSV, which is a stablecoin. This stablecoin is pegged to the US dollar and is equal to $1.
A key advantage of Reserve is its build on Ethereum, the second-largest blockchain network. Because of this both its cryptocurrencies – RSR and RSV are ERC-20 tokens. Since Ethereum is the hub of DeFi applications or DApps, Reserve has multiple financial capabilities like lending, invoicing, liquidity, and more.
RSV being stable and RSR being valuable play with supply and demand. Since RSV is a stablecoin it has to always be equal to $1. If the value exceeds $1, the RSR holders can sell their tokens to buy RSVs. This will allow them to receive $1 and the amount by which it exceeded the dollars. The reason this is allowed is that the people who arbitrage, or buy and sell for the marginal difference will make the market more efficient. They do this by ensuring that the value of the RSV is equal to $1 and their incentive in holding the RSR is to profit when the price of RSV is more than $1.
Through this constant tug between supply and demand Reserve keeps stability of the stablecoin and value of the cryptocurrency.
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