The Reserve Protocol allows anyone to create stablecoins backed by baskets of ERC-20 tokens on Ethereum. Reserve stablecoins are called RTokens. Once an RToken configuration has been deployed, RTokens can be minted by depositing the entire basket of collateral backing tokens, and redeemed for the entire basket as well. Thus, an RToken will tend to trade at the market value of the entire basket that backs it, as any lower or higher price could be arbitraged.
RTokens can be insured, which means that if any of their collateral tokens default, there's a pool of value available to make up for the loss. RToken insurance is provided by Reserve Rights ($RSR) holders, who may choose to stake their $RSR on any RToken. Staked $RSR can be seized in the case of a default, in a process that is entirely mechanistic based on on-chain price-feeds, and does not depend on any governance votes or human choices.
RTokens can generate revenue, and this revenue is the incentive for $RSR holders to stake. Revenue can come from transaction fees, revenue shares with collateral token issuers, or yield from lending collateral tokens on-chain. Governance can direct any portion of revenue to $RSR stakers, to incentivize $RSR holders to stake and provide insurance. If an RToken generates no revenue, or if none of it is directed to $RSR stakers, it probably won't have any RSR staked on it, and thus won't be insured in the case of a collateral token default.
