Reserve Fund
Protocol Insurance Explained
The reserve fund is an onchain insurance mechanism that protects USX from potential losses. The protocol allocates 50% of all yield fees (5% of the 10% fee) to build this fund. It's seeded with $5 million worth of SCR tokens and designed to maintain a minimum 2% coverage ratio of all deployed principal with no maximum cap.
What Is the Reserve Fund?
The reserve fund is a dedicated smart contract (onchain) that accumulates capital dedicated exclusively to protocol protection. It covers potential losses from:
Smart contract vulnerabilities in partner protocols
Market disruptions or yield volatility
Emergency situations where user capital needs protection
Think of it as an insurance pool funded by protocol fees rather than users.
Reserve Fund Mechanics
Funding Source
The reserve fund is funded from the 10% protocol fee:
5% of collected fees → Reserve fund
5% of collected fees → Warchest (operations/governance)
Example: If the protocol generates $1M in yield:
$100k protocol fee collected
$50k → Reserve fund
$50k → Warchest
Over time, the reserve fund grows as strategies generate positive returns.
Initial Capitalization
$5 million worth of SCR tokens seed the fund at launch
Additional governance tokens will be allocated upon protocol launch
These provide immediate protection while fee revenue builds the fund
Coverage Target
Minimum coverage: 2% of all deployed principal
If $100M is deployed in strategies, minimum reserve = $2M
If $1B is deployed, minimum reserve = $20M
No maximum limit, i.e, the fund can grow indefinitely
The community will be notified in advance of any changes to coverage targets
How the Reserve Fund Protects You
Protection Mechanisms
Loss absorption: If a partner protocol fails and causes losses, the reserve fund covers them
Stability maintenance: Ensures USX peg stability by absorbing temporary market shocks
User capital preservation: Your principal is protected by having dedicated insurance capital available
Transparent deployment: All fund capital is visible onchain at all times
When the Reserve Fund Is Used
The reserve fund may be deployed if:
A partner protocol (Aave, Euler, Pendle) experiences a critical vulnerability
Yield strategy losses exceed acceptable risk thresholds
Market conditions trigger emergency conditions
The fund is NOT used for:
Covering unstaking fees or normal transaction losses
Funding operations (that's the warchest)
Personal user losses from market volatility
Reserve Fund Contract Details
Onchain address (Scroll): 0xD09e956353Fc641792a0F1a7d748773358848F65
You can view:
Current reserve balance
Capital allocation over time
Real-time fund growth from fee revenue
All reserve fund activities are transparent and auditable onchain.
Governance and Changes
Community Oversight
The community will be notified in advance of any changes to reserve fund allocation
Transparency is maintained through onchain visibility and regular reporting
Potential Future Changes
The reserve fund structure is designed to evolve:
Coverage targets may be adjusted (with community input)
Fund size caps may be implemented (currently unlimited)
Common Questions
Q: What's the minimum reserve fund amount?
A: 2% of deployed principal. If $1B is in yield strategies, the minimum is $20M.
Q: Is there a maximum reserve fund size?
A: No. The fund can grow indefinitely. There is currently no upper limit.
Q: Where exactly is the reserve fund stored?
A: Onchain in a dedicated smart contract at address 0xD09e956353Fc641792a0F1a7d748773358848F65 on Scroll.
Q: Can the protocol use the reserve fund for other purposes?
A: No. The reserve fund is dedicated exclusively to protocol stability and user protection. Operations funding comes from the warchest (the other 5% of fees).
Q: How fast will the reserve fund grow?
A: Growth depends on yield generation. Example: If $100M is deployed generating 10% yield, $50k per month goes to reserves. With larger deployments or higher yields, growth accelerates.
Q: Can I withdraw from the reserve fund?
A: No. The reserve fund is a protocol-level mechanism, not a user account. It only deploys to protect the protocol if needed.
Q: Will the reserve fund coverage target ever increase?
A: The community will be notified before any changes. Currently targeting 2% minimum coverage.
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