Reserve Allocation Rate (Weighted Model)

The Treasury Reserve Allocation Rate ($\rho$) determines what percentage of platform revenue is allocated to reserves versus operational spending. This rate helps maintain treasury sustainability by ensuring sufficient reserves are maintained while allowing for necessary operational expenditures. A higher rate (e.g. 70-80%) during early phases helps build reserves for long-term stability, while a lower rate (e.g. 40-50%) may be appropriate in mature phases when operational needs are more predictable and reserves are well-established. The rate is dynamically adjusted based on multiple weighted factors to optimize for both sustainability and operational effectiveness.

The reserve allocation rate $\rho$ is determined by weighting several factors that reflect operational stability, market conditions, and growth phase. This makes the reserve policy transparent, measurable, and adaptable through governance.

Weighted Formula

$$\rho = w_{ops} \cdot B_{ops} + w_{mkt} \cdot B_{mkt} + w_{ts} \cdot B_{ts} + w_{growth} \cdot B_{growth}$$

Where:

• $\rho$ = reserve allocation rate
• $B_{ops}$ = operational buffer (3–6 months of expenses, normalized 0–1)
• $B_{mkt}$ = market volatility index (UTIL price & velocity, normalized 0–1)
• $B_{ts}$ = Treasury commitments (e.g., scheduled sales/buybacks, normalized 0–1)
• $B_{growth}$ = growth/adoption phase (bootstrap vs. maturity, normalized 0–1)
• $w_{x}$ = governance-defined weights, summing to 1

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Example Weights

Factor	Weight ($w$)	Description
$B_{ops}$ (Ops Buffer)	0.40	Highest weight to guarantee continuity of operations
$B_{mkt}$ (Market Volatility)	0.30	Captures UTIL price swings, velocity, circulation
$B_{ts}$ (Treasury Sales/Buybacks)	0.20	Ensures liquidity for token management
$B_{growth}$ (Growth Phase)	0.10	Adjusts reserves upward in early phases

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Example Calculation

• $B_{ops} = 0.8$ (need ~5 months of expenses buffered)
• $B_{mkt} = 0.6$ (moderate volatility)
• $B_{ts} = 0.7$ (large Treasury commitments upcoming)
• $B_{growth} = 1.0$ (bootstrap phase)

$$\rho = (0.40 \times 0.8) + (0.30 \times 0.6) + (0.20 \times 0.7) + (0.10 \times 1.0)$$ $$\rho = 0.32 + 0.18 + 0.14 + 0.10 = 0.74$$ $$\rho = 74\% \text{reserve allocation rate}$$

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Interpretation

• In this example, governance would set 74% of annual revenues aside into reserves.
• This is appropriate in bootstrap years when operations are sensitive to funding shocks.
• Over time, as growth stabilizes and Treasury commitments reduce, governance could adjust weights (e.g., lowering $B_{growth}$) to reduce the reserve rate to ~10–20%.

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