4.6 Monetary Buffering

It is important to note that fee payments and staking requirements are both facilitated via SOURCE payments but denominated in RSD. For example, a member might be obligated to pay a 3% transaction fee. This fee is denominated in RSD but will be paid in SOURCE. In other words, a 100 RSD transaction will entail a 3 RSD fee, which will be paid in SOURCE.

As has been explained in previous chapters (4.4.1), in order to support RSDs soft peg to the US Dollar, the nominal amount of SOURCE required to pay fees and staking requirements is deduced from the official cUSD/SOURCE price. In other words, for the purpose of fee payments and staking requirements, the system regards 1 RSD as being equal to 1 cUSD.

If, for example, the current SOURCE price is 3 cUSD, 1 SOURCE will be consumed by a 100 RSD transaction under a 3% fee regime. If the price of SOURCE drops to 1 cUSD, 3 SOURCE will be consumed by the transaction, etc.

Likewise, staking requirements are denominated in RSD, while using cUSD as a proxy to calculate the required nominal amount of SOURCE. If an Underwriter is, for example, obligated to stake 20% of a credit line’s size, they would be required to stake 200 cUSD worth of SOURCE to underwrite a credit line of up to 1000 RSD. This would be 100 SOURCE if the price of 1 SOURCE equals to 2 cUSD at the time of underwriting.

However, SOURCE price is volatile which means that the staked amount may sink below or rise above the defined staking requirements of 20%. In such a case, the staking contract will either emit excess SOURCE as extra staking rewards or withhold staking rewards, until the staked amount equals to 20% again.

Following the example above, if the price of SOURCE sinks from 2 cUSD to 1 cUSD, staking rewards will be withheld until 100 additional SOURCE have been accumulated within the staking contract to render the staked amount equal to 200 cUSD. Vice versa, if the price of SOURCE rises from 2 cUSD to 4 cUSD, the staking contract will emit 50 SOURCE as rewards, so that the remaining 50 SOURCE equal to 200 cUSD again.

This way, the lower the price of SOURCE on the market the higher the nominal amount of SOURCE consumed by the network and vice versa. As a result, fee payments and staked SOURCE serve as monetary buffers that smooth the SOURCE supply and keep it primarily influenced by the size and transaction volume of the ReSource Network.

For more information about SOURCE allocation, distribution, and supply, please refer to chapter 5.4, “Initial SOURCE Allocation and Distribution.”