Add Market: RAI Reflex Index

New Markets
1

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.

  1. It’s pegged to the USD and the US government may try to regulate it because of this.
  2. 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!

Links:

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2

Thanks Tyler for posting this!

I wanted to mention that Reflexer is aware RAI is still in its infancy and adding it to any new market means it will need to have a 0% collateral factor.

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I think this could be a great inclusion and not too much risk with a zero CF.

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I am totally for this! Reflexer is great asset to reduce the risk of stabelcoin regulation. The PID theory is a proven one.

DAI is these day backed by 60% USDC. What if regulators demanded that Circle blacklisting USDC inside collateral DAI.

So we must adopt to very quickly changing environment.

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Supportive of adding RAI as a decentralized non-pegged stable asset! More decentralized stablecoins on Compound will help reduce regulatory risk throughout the DeFi ecosystem and provide more liquidity and optionality for users

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Don’t think RAI has the maturity to be considered at the moment. Just my thought

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Don’t think RAI has the maturity to be considered

What kind of risk does immaturity bring?

Is there high liquidation risk for users?

And, what risks would not be solved by a 0% collateral factor?
Is there a brand risk?
Does it add any regulatory risk?

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It looks like the price oracle provider Chainlink doesn’t have an oracle set up for Rai.

So there may need to be some work with Chainlink to set one up.

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Here it is: https://data.chain.link/ethereum/mainnet/crypto-eth/rai-eth

Note: That website is using the wrong logo but the price feed is for RAI Reflex Index.

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Hi all, I wanted to restart the discussion about having RAI on Compound.

Recently Idle Finance added incentives for RAI depositors and we think it would be great to combine the Idle and the Compound integration in order to bootstrap the Compound market.

RAI also started to get traction as a reserve asset and there’s currently more than $45M worth of RAI on other lending markets (counting recursive lend and borrow).

What are next steps to see if the community is interested?

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Looks good. But additional local auditing by compound team would be helpful.

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I’m not sure I agree with Ripple’s relevance re: RAI. RAI is an ETH backed, real stablecoin and has no 1:1 peg with fiat. What people call “stablecoins” are simply pegged assets.

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This is why adding RAI to Compound is very important, because of its plans of “ungovernance” - governance minimization.

Through ungovernance and having Rai use a non-upgradeable contract with no centralized controls, it would be very hard to regulate directly.

It’s important to remember that the SEC does not rule over the whole of crypto and neither does any centralized body. Compound is becoming more and more decentralized along with many other projects, suggesting that Compound protocol is not exactly American. I say this as a Canadian with no ties to the US.

The more Compound and its users adopt censorship-resistant stablecoins, the less control the US government has over it.

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Hi Compound Community!

My name is Salomé, I am a Swiss digital nomad and a member of Idle.finance DAO’s Treasury League. This proposal just got caught up in the radar of our community and I decided to jump on board to provide some info and help here.

Lets build money Legos Sers! :sunglasses::jigsaw:

I would like to highlight that Idle.Finance is available to give support to the Compound community for moving forward with this proposal, either on the development or communications side. Since RAI is already integrated within the Idle strategies, the implementation process here should be fairly quick. If you have any queries, just let us know!

To the Stablecoin discussion I would like to add that the stablecoins market continues to innovate, so one-size-fits-all regulation is a poor choice if we want to take advantage of the technology and curtail its risks. We are still very early in this game.
For example, we have to separate Fiat pegged stablecoins from flat stablecoins that are not pegged to any fiat but use another reference instead (inflation, basket, electricity price, ETH etc).
Stablecoin issuers generally use one of two mechanisms to keep stablecoin value pegged to that of a reference asset:

  • Asset-backed stablecoins maintain asset reserves in fiat or crypto as collateral
  • Algorithmic stablecoins use the automated execution of smart contracts to maintain price stability

Asset-backed stablecoins have raised concerns about security and whether they create direct contact points with the traditional financial system that might cause systemic risk.
Algorithmic stablecoins face primarily technological and operational risks, such as whether their smart contracts function as expected – It is possible to mitigate the unintended consequences of the protocol’s economics, incentives, and vulnerability by identifying and mitigating possible disruptions from malicious actors.

Feel free to have a look at a research paper I wrote a while ago (PDF) Applications of CBDCs and private stablecoins: Comparative analysis

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RAI offers an alternative to centralized stablecoins that DeFi needs and it would see significant use on Compound.

The ungovernance process aims to remove the ability to change key parameters and have a fully automated system. This means that RAI holders and minters won’t have to take into account governance risks when using the system. It should also prevent governments from directly interfering with RAI/Reflexer.

Ungovernance is a huge divergence from almost every other project in the DeFi space and a necessary hedge given the current regulatory climate in the United States and elsewhere.

Furthermore, I think RAI would see significant use on Compound on both the borrow and supply sides. I won’t get too in-depth into RAI’s PID mechanism but basically, if the RAI market price is above the “redemption price” (e.g. the target price that the system wants to achieve) then it begins to decrease the amount of collateral needed to mint RAI, which creates more sell pressure. Conversely, if the market price is below the redemption price, the system increases collateral requirements.

This means that during times of volatility there can be significant demand for borrowing and lending of RAI, which would generate significant revenue for Compound.

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19

Quite supportive of this one! RAI would be a great inclusion and the exposure that Compound would bring would really be a bump to its visibility.

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22

@FoxRon please stay on-topic.

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No problem. I understand you, I am not an american either, but now, at this moment, literally next year, the White House will show us a vector of direction.