With all of the talks of regulation, specifically, stablecoin regulation, I believe it is time to start supporting stablecoins that are not pegged to the USD.
USD-backed stablecoins have great centralization risks. While they provide great utility in terms of liquidity and while they fuel the growth of the ecosystem, the US government has an awful lot of power over them. Additionally, they have larger attack surfaces with owner accounts being able to mint, freeze, transfer, or burn the stablecoins their contracts control (depending on the stablecoin).
While DAI is a great stablecoin without the centralization concerns of fiat-backed stablecoins, it has two primary drawbacks.
- It’s pegged to the USD and the US government may try to regulate it because of this.
- It’s unable to use negative interest rates as a tool to stabilize its price.
This is where Rai Reflex Index comes in. It is backed solely by ETH and it utilizes positive and negative interest rates to keep the price stable. Furthermore, it uses a PID controller to stabilize the price. For those of you who don’t know what that is, it’s the same integral-calculus-based mechanism cars use to ensure that all the tires provide the same velocity, ensuring the car always goes straight forward when the wheels are pointed straight. PID controllers are very effective at providing stabilization.
With a trading volume of only $5M and a TVL of only $96M, the PID controller is doing an excellent job of stabilizing the price of RAI - currently floating around $3.
Adding RAI to Compound will give it greater strength and legitimacy. The more people using RAI and the more liquidity of RAI within common DeFi protocols, the more stable its price will be.
Furthermore, adding RAI to Compound will help in reducing centralization risks of USD-backed stablecoins, giving users an alternative in addition to DAI.
While RAI’s controller is currently controlled by a multi-sig, there are plans in motion to drastically minimize governance.
Let’s get the discussion going!