How Does Reservoir Protocol Work?
Reservoir Protocol issues rUSD, a stablecoin backed by a mix of USDC, DeFi yield positions, and Real World Assets. With $57M TVL, its B- grade reflects a reasonable architecture with standard CDP mechanics, moderated by governance-controlled reserve allocation risk and limited PSM redemption capacity.
TVL
$109M
Sector
CDP
Risk Grade
B-
Value Grade
C+
Core Mechanisms
6.1.1
Peg Stability Module (PSM) for rUSD — users deposit USDC, receive rUSD; redemptions limited to PSM balance
Standard PSM pattern similar to MakerDAO.
2.3.1
NovelGovernance-directed asset allocation from PSM to DeFi yield modules and RWA investments
Hybrid on-chain/off-chain backing with governance-controlled allocation is a novel combination.
2.2.1
srUSD variable-rate yield token and trUSD fixed-term yield token backed by protocol revenue
Standard yield-bearing wrapper pattern with variable and fixed-term variants.
5.1.1
Token governance controls reserve allocation parameters
Standard token-weighted governance for parameter management.
2.1.1
Micro-burn redemption fee on srUSD equal to one day's interest on principal
Small friction fee on srUSD redemption to discourage short-term arbitrage and protect long-term yield holders
How the Pieces Interact
If governance allocates too much USDC from PSM to illiquid yield modules or RWA positions, redemption capacity could be insufficient during bank-run scenarios.
RWA yield may be delayed or impaired due to off-chain settlement times, creating mismatch between expected and actual yield for srUSD/trUSD holders.
Composability risk from reliance on multiple external protocols for yield. An exploit in any external protocol could impair rUSD backing.
The micro-burn fee on srUSD redemption discourages short-term holders but could impair peg arbitrage efficiency during minor depeg events, as arbitrageurs factor the fee into their profit calculations.
What Could Go Wrong
- rUSD stablecoin backing includes Real World Assets (RWAs) alongside on-chain DeFi yield positions, introducing off-chain asset verification risk and potential illiquidity during stress events.
- Governance controls asset allocation from the PSM to various yield modules — governance capture could redirect USDC reserves into high-risk strategies, impairing peg stability.
- Redemption of rUSD back to USDC through the PSM is limited to available PSM balance (restricted to a percentage of total rUSD outstanding), creating potential redemption delays.
- Protocol relies on external DeFi yield sources (lending, AMM LP) for backing rUSD, creating dependency on multiple external protocol risk profiles.
PSM Liquidity Drain During Mass Redemption
ModerateTrigger: rUSD redemption requests exceed 50% of PSM USDC balance within 48 hours.
- 1.Market event triggers loss of confidence in rUSD — Holders rush to redeem rUSD for USDC via PSM
- 2.PSM USDC reserves depleted — Remaining rUSD holders cannot redeem, must sell on secondary markets
- 3.Governance attempts to unwind yield positions to refill PSM — DeFi positions take hours/days to unwind; RWA positions may take weeks
- 4.rUSD secondary market sells below $1 — rUSD depegs as remaining supply has no immediate USDC backing
Risk Profile at a Glance
Overall: B- (35/100)
Lower score = safer