This is a pretty sensitive topic but I'll say what I can. In the long run, this variable is decided by governance, so in the steady-state, it's really up to the market to decide, not us. But for the period before this, Reserve will have to set an initial value. I want to say something useful here without commiting us to something we'll regret later, so I think I'll say this: It's likely that the minimum RSR auction price will be set in relation to the RSR market price at the time of launch. I can't specify exactly in what relation, but you can think through a few scenarios on your own and evaluate the pros and cons of each. The goal is to simultaneously assure RSR holders that they will not be needlessly inflated, while still maintaining resilience at the protocol level. Wish I could say more here, but it's a delicate question and we're still working on the answer internally ourselves based on our models.
One interesting question I've asked myself a few times: Is it possible to set up a market mechanism for discovery of the proper minimum auction price? If so, that would be promising.
- Check out section 4.6 in our whitepaper: The short-answer is that as a line of last defense, we would rather have RSV devalued pro-rata rather than incentivize a bank run, or even worse, a speculative attack by a soros agent. This short-term devaluation is definitely a really bad outcome, but it's better than the system collapsing entirely. If it does have to happen, we think transaction fees and collateral apprecation will restore RSV to the tight $1 peg over time.
- This is another delicate question. What I can say is that we're trying to avoid significant overcollateralization if we can. At the time we wrote the whitepaper we thought it was likely we would put pretty volatile collateral in the vault, and the only solution to this was significant overcollateralization. I think we're a lot more bearish on this approach now. There are alternatives: you could imagine overcollateralizing only the volatile portions of the portfolio. For example, maybe initially 90% of the backing is other stablecoins, and 20% is volatile collateral like ETH, resulting in only requiring 10% overcollateralization to insure against a halving of the ETH price. Note this would also make collateral appreciation less profitable in the short-term, so it's a tradeoff about how much RSR dilution is acceptable at the start vs how much revenue the system earns initially.