Universal Reserve Asset

[PatrickLRiley]

Proposed Amendment for XRP Ledger: Universal Reserve Asset

Title: Universal Reserve Asset
Type: Draft
Author: Patrick L Riley, Quantum Financial Systems LLC
Affiliations: Quantum Financial Systems, Reaper Financial, Ascension Index, Ark Institute, PiLLARS, BOX Media

Abstract

This amendment proposes the establishment of a Universal Reserve Asset feature on the XRP Ledger. The amendment suggests that 1% of the volume of all XRP transactions paired with any other asset be automatically allocated to a reserve XRP wallet. This wallet would serve as a stability mechanism, maintaining a minimum floor value for paired assets and ensuring that no asset can go to zero against XRP. This reserve allocation and mechanism is to be managed automatically within the ledger to accomplish true decentralization.

Proposal Details

1. Reserve Allocation Mechanism:

   • A reserve of 1% from the volume of every transaction between XRP and any other asset will be allocated to an XRP reserve wallet in support of the paired asset.
   • For instance, in the case of a daily volume of $100 billion in BTC/XRP or XRP/BTC, $1 billion worth of XRP will be added to the reserve wallet.
   • This reserve wallet will automatically create a limit order in the reserve wallet to support a floor price for paired assets, which is calculated as the entire supply of BTC divided by the XRP balance reserve for the pairing.

2. Reserve Wallet Characteristics:

   • Access to the reserve wallet is not available to any party. XRP from the reserve can only be retrieved through limit order fulfillment in the specified pairing.
   • Any paired asset sold into the reserve wallet for XRP will be automatically burnt, thus preserving the floor value of the asset in XRP.

3. Floor Price Enforcement:

   • The reserve mechanism ensures that no asset paired with XRP can decline below a value determined by the reserve wallet, creating a minimum viable value for any asset traded against XRP.

Advantages

1. XRP as a Permissionless Reserve Asset:

   • This amendment will position XRP as a decentralized reserve asset for any pairings within the XRP Ledger, without requiring permissions or third-party involvement.

2. Inherent Floor Value for XRP-Paired Assets:

   • All assets paired with XRP gain a minimum floor price based on prior volume which continually grows with additional volume, ensuring even the most volatile assets retain a baseline value against XRP, mitigating the risk of any paired asset going to zero.

3. Increased XRP Demand and Price Elasticity:

   • By reserving a portion of XRP for each pairing, the amendment introduces supply pressure, potentially driving up the demand and price elasticity of XRP in the market. This means that everything added to the ledger has an immediate and measurable impact on the value of XRP.

4. Neutral Ownership and Minimum Liquidity:

   • The liquidity created through the reserve mechanism is not controlled by any single entity. The minimum liquidity pool for each pair is neutral and can only be tapped through asset burning, promoting decentralized financial stability.

5. XRP as a Decentralized Global Reserve:

   • With this mechanism, XRP can act as a universal reserve asset, decentralizing reserve power and potentially supporting any digital or fiat-backed stablecoin, CBDC, or other assets on the ledger without relying on government or Ripple Labs to position accordingly.

Conclusion

The Universal Reserve Asset amendment will empower XRP as a global reserve currency, leveraging automated on-ledger mechanisms to bolster asset value stability across all XRP pairings and foster a decentralized financial ecosystem. This amendment is a proactive approach towards XRP's potential to serve as a world reserve asset, unbound by traditional central banking systems.

[xVet]

How can an account where xrp is being sent on every transaction help with token price stability?

[PatrickLRiley]

The wallet would be tasked to setting limit buy orders of XRP for Asset B where the price is the balance of the wallet divided by the total supply of the opposing asset. This means that all assets traded against XRP would always have a minimum value in XRP which would grow relative to the adoption of Asset B. XRP adoption would grow as well by being the reserve currency of all pairings and by increasing scarcity and demand. I.e. the Bakkes pipeline flow model mixed with the https://xrpillars.com/ PiLLAR Fund, but automated to support any asset that interacts with XRP.

[Briandavidbrown1983]

This amendment is a bold move toward positioning XRP as a universal reserve asset with built-in decentralized mechanisms for stability. By embedding a 1% transaction-based reserve allocation, it could encourage long-term stability and wider adoption of XRP, both as a currency and as a foundation for other assets on the XRPL. The amendment’s decentralization and liquidity assurances might make XRP an appealing asset for both retail and institutional users, fostering a resilient ecosystem on the XRPL.

[mvadari]

Removing the XLS as this is a pre-standard proposal, and only standard proposals have XLS designation and numbers.

[PatrickLRiley]

Thanks

[Island-Ghost]

Great start. Would love to see a demo on test net💗. I will share this and hopefully get some constructive input. And some helpful devs that have been aski g me how or when something like this will be available. Thank you.

[dangell7]

It would need to continuously set limit orders much like a algorithmic stable coin with the price of the asset to stay consistent with the market. While this is possible this is exactly why AMM's were created. I would use that instead.

The asset can still go to zero if the market price is 0 and I'm not sure requiring everyone who transacts to pay a 1% fee would go over well.

But its an interesting idea

[PatrickLRiley]

The market price could never be zero as the Reserve Wallet would always be making an offer for 100% of the supply.

[Briandavidbrown1983]

How will the Universal Reserve Asset amendment address potential challenges related to transaction costs, liquidity sustainability, and the complexity of floor price enforcement, especially under high-volume conditions or volatile market scenarios?

[PatrickLRiley]

Lean six sigma, by following strict and simple rules for incoming XRP from volume and placing the limit buy order on a scheduled interval.

[KBBK12]

decentralized reserve that would help keep the value of any asset traded with it more stable. I like this! It could play a bigger role in global finance without relying on traditional banks.

[trueIoV]

Refactored Proposal: Universal Reserve Asset for XRP Ledger

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Abstract

This amendment refines the concept of establishing XRP as a Universal Reserve Asset on the XRP Ledger. By addressing potential mathematical and economic issues in the original proposal, this version ensures scalability, neutrality, and sustainability. The core mechanism involves the dynamic allocation of reserve XRP based on transaction volumes, paired with an adaptive limit order system to maintain asset value stability. This refactored proposal emphasizes efficient decentralization, avoids economic distortions, and ensures long-term viability for XRP's role as a global reserve asset.

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Key Revisions

1. Dynamic Reserve Allocation Mechanism:

• The 1% reserve allocation is replaced with a scaled allocation based on transaction volume thresholds, ensuring proportional contributions while avoiding excessive XRP hoarding.

• Reserve percentage ((R)) is calculated dynamically as follows:

  R = min((Daily Volume in XRP Terms) / V_Max × P_Base, P_Cap)

  Where:

  • V_{Max}: Maximum daily volume threshold (e.g., $10T in XRP terms).

  • P_{Base}: Base percentage (e.g., 0.1%).

  • P_{Cap}: Maximum allocation cap (e.g., 1%).

  • This ensures smaller volumes contribute proportionally less, while preventing excessive allocation during high-volume periods.

2. Reserve Wallet Adaptation:

   • The reserve wallet is managed with adaptive limit orders based on real-time price movements, improving stability and liquidity.
   • Limit orders are set dynamically at levels to absorb volatility effectively without distorting market behavior.

3. Burn Mechanism Adjustments:

   • Paired assets sold into the reserve wallet will be partially burned (e.g., 50%) to ensure the reserve wallet remains sufficiently liquid while still enhancing floor value.

4. Economic Safeguards:

   • Transaction Fees and Network Impact: A portion of the reserve allocation (e.g., 10%) is set aside for operational sustainability of the ledger, covering validator incentives and network upgrades.
   • Floor Price Volatility Buffer: Introduce a buffer mechanism where the floor price is recalculated based on the trailing 30-day moving average of the paired asset's price against XRP, mitigating abrupt changes.

5. Scalability and Long-Term Viability:

   • Periodic rebalancing of the reserve wallet to prevent over-accumulation or underutilization of XRP reserves.
   • Cap on reserve wallet size (e.g., 5% of total XRP supply) to maintain ledger health and prevent liquidity black holes.

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Proposal Details

1. Dynamic Reserve Allocation

The reserve mechanism dynamically allocates XRP to a reserve wallet based on transaction volumes and thresholds:

• Base Reserve Percentage: 0.1% for volumes under $10B/day.
• Proportional Scaling: Increases linearly to a maximum of 1% for volumes exceeding $1T/day.
• Cap: No more than 1% of transaction volume is allocated in any scenario.

This ensures scalability and prevents disproportionate XRP allocation.

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2. Reserve Wallet Characteristics

• Neutral Ownership: The wallet remains decentralized, inaccessible to any party, and governed by on-ledger smart contracts.
• Liquidity Management: XRP in the reserve wallet can only be accessed through fulfilling limit orders set at calculated floor prices.
• Burn and Retention: 50% of assets sold into the reserve wallet are burned, while the remainder enhances liquidity for future stability operations.

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3. Adaptive Floor Price Enforcement

• Floor prices are recalculated dynamically using a 30-day moving average of paired asset prices against XRP to reduce sharp fluctuations.
• Limit orders are placed 1% below the current floor price, ensuring gradual stability without significant market distortion.

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4. Benefits of Refined Mechanism

• Enhanced Decentralization: Fully automated governance of reserve wallet operations ensures trustless management.
• Improved Stability: Adaptive mechanisms provide a robust safety net for assets paired with XRP.
• Increased Demand: Dynamic reserve allocations create sustained demand for XRP without overburdening network participants.
• Economic Resilience: Burn mechanisms and proportional reserve contributions ensure long-term sustainability.

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Advantages

1. XRP as a Scalable Reserve Asset:

   • The scaled allocation and adaptive floor price mechanisms position XRP as a reliable and decentralized reserve asset across the financial ecosystem.

2. Economic Balance:

   • Dynamic adjustments and caps prevent excessive accumulation of XRP while maintaining sufficient liquidity for paired assets.

3. Demand Growth and Ecosystem Support:

   • Proportional reserves create consistent demand for XRP, incentivizing broader adoption.

4. Global Financial Role:

   • The mechanism enables XRP to support stablecoins, CBDCs, and other digital assets without reliance on centralized intermediaries.

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Conclusion

This refined Universal Reserve Asset amendment is designed to position XRP as the cornerstone of decentralized finance. By addressing mathematical inconsistencies, preventing economic distortions, and incorporating scalability, the proposal provides a robust framework for XRP to serve as a global reserve currency. The adaptive mechanisms ensure that XRP remains sustainable, reliable, and central to a decentralized financial ecosystem.

[trueIoV]

To further enhance the proposal while ensuring its mathematical and economic principles are robust, we can introduce additional mechanisms and refinements to address potential risks and improve scalability. Here are several suggestions:

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1. Reserve Depletion Safeguards

• Problem: If the reserve is significantly depleted due to large sell-offs or unexpected market shocks, the mechanism may fail to enforce floor prices.
• Solution: Introduce a Dynamic Refill Mechanism where a portion of transaction fees on the XRP Ledger (e.g., 0.01% of all transactions) is allocated to replenish the reserve wallet during low reserve periods.

Refined Equation:

Refill_Rate = max(0, Refill_Threshold - Reserve_Balance) × F_Percent

• Refill_Threshold: Minimum required reserve balance based on average transaction volume.
• F_Percent: Proportion of transaction fees directed to the reserve (e.g., 0.01%).

Benefits:

• Ensures the reserve remains sustainable, even in periods of high volatility.
• Creates a self-reinforcing loop, reducing the reliance on external interventions.

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2. Inflationary Pressures and Supply Control

• Problem: Burning assets could create deflationary pressure, which might disproportionately affect certain paired assets.
• Solution: Allow optional partial burns (e.g., burn only 50% of paired assets sold to the reserve wallet) to maintain liquidity while mitigating excessive deflationary pressure.

Mathematical Refinement:

Burn_Amount = Sold_Amount × B_Percent

• B_Percent: Burn percentage, dynamically adjustable based on the total circulating supply of the paired asset.

Economic Impacts:

• Balances supply and demand without overburdening market liquidity.
• Ensures the system remains adaptable to the economic environment of different assets.

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3. Fee Redistribution to Promote Ecosystem Growth

• Problem: The amendment focuses primarily on reserve mechanisms but does not directly incentivize participants (e.g., validators, traders).
• Solution: Redistribute a portion of the reserve allocation or burned XRP back into the ecosystem, such as funding developer grants or incentivizing network validators.

Proposed Mechanism:

• Redirect 5-10% of transaction-based reserves to community pools for infrastructure development or validator rewards.

Benefits:

• Encourages ecosystem participation and development.
• Strengthens the XRP Ledger's decentralized governance model.

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4. Introduction of Risk Mitigation Ratios

• Problem: The model assumes that floor prices are sustainable in all scenarios, but high volatility in paired assets could cause large reserve drain.
• Solution: Introduce a Risk Mitigation Ratio (RMR) that dynamically adjusts reserve contributions based on market conditions (e.g., volatility index, transaction volume trends).

New Formula for Reserve Percentage (R):

R = min((Daily Volume in XRP Terms / V_Max) × P_Base × RMR, P_Cap)

• RMR: Calculated using metrics such as asset volatility or liquidity depth of the paired market.
• Benefit: Protects against systemic risks caused by extreme market conditions.

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5. Enhanced Transparency Through Real-Time Metrics

• Problem: Participants lack a clear view of the reserve's performance and its impact on the ecosystem.
• Solution: Implement on-chain smart contracts or APIs to publish real-time metrics such as reserve balance, paired asset floor prices, and burn statistics.

Key Metrics to Display:

• Current Reserve Wallet Balance.
• Total XRP Burned and Reserved.
• Floor Prices for Each Paired Asset.
• Volatility and Risk Mitigation Ratios.

Economic Advantages:

• Builds trust among participants by demonstrating transparency.
• Encourages institutional adoption due to increased accountability.

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6. Incentives for Long-Term Holders

• Problem: Short-term traders benefit most from the proposed mechanisms, potentially neglecting long-term contributors.
• Solution: Introduce staking incentives where long-term XRP holders can lock their assets to receive a share of transaction fees or rewards from the reserve's growth.

Mathematical Addition:

Staking_Reward = Locked_Amount / Total_Staked × Reward_Pool

• Reward_Pool: A portion of fees or reserve growth allocated for staking rewards.

Impact:

• Stabilizes XRP demand by encouraging long-term holding.
• Reduces market volatility caused by speculative trading.

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Final Adjustments to Proposal

Incorporating the above improvements, the Universal Reserve Asset proposal now includes:

1. Dynamic Reserve Depletion Safeguards to sustain reserves during adverse conditions.
2. Balanced Asset Burns to prevent excessive deflation and maintain liquidity.
3. Fee Redistribution to incentivize ecosystem growth.
4. Risk Mitigation Ratios to adjust reserve contributions during volatile periods.
5. Real-Time Transparency via public metrics dashboards.
6. Staking Incentives to encourage long-term holding and ecosystem stability.