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Reflexer: another underlying encryption is different from the stable currency stable assets RAI | project is introduced

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What you really want is not necessarily fiat money, you just want stability.

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Before introducing the RAI, it is necessary to introduce the Triffin Dilemma. In short, the Triffin Dilemma is the conflict that occurs when a national currency (the dollar) acts as an international public good, which leads to the opposition of national interests against global interests. As Tommaso Padoa-Schioppa, an Italian economist and one of the founding fathers of the euro zone, remarks,There is an irreversible contradiction between the domestic requirements within the issuing country and the external requirements for the use of this demand.

The classic example was the Bretton Woods system, which pegged the dollar to gold and ended in 1971. Further study of the Triffin Problem in the traditional economy can be found in Smarburg'sThe Triffin Problem: Dilemma or Fabulous Myth?".

In his 2009 report after the financial crisis, former central bank governor Zhou Xiaochuan called the Triffin dilemma a continuing cause of structural instability in the global monetary system.

Although there may be inaccuracies, the author tries to summarize his views simply:That is to say, in order to ensure the sufficiency of the main global settlement currency (US dollar), we shall not "print" US dollars that exceed the domestic demand. However, due to the excessive issuance of money, it is difficult to ensure the normal level of domestic inflation. In the case of ensuring adequate international funds, it actually hurts the interests of the country.

In order to solve this problem, IMF put forward the concept of supplementary international reserve asset, namely SDR (Special Drawing Right), whose value is determined by a basket of reserve currencies composed of US dollar, euro, RMB, yen and pound. The current SDR currency basket accounts for US dollar (41.73%), euro (30.93%), RMB (10.92%), Japanese yen (8.33%) and British pound (8.09%). But because it is only a unit of account, not real currency, must be converted into other currencies before use, can not be directly used for trade or non-trade payments.

Obviously, from the perspective of its currency component, the coercive power of the IMF issuer, political and economic conflicts of interest of various countries and payment scenarios, SDR can only play a role in maintaining the stability of the world monetary system at present, and cannot directly replace the US dollar to solve the Triffin Dilemma.

Since there is no universal "stablecoin" from the existing monetary system (the dollar and the SDR), are there other public goods "out of thin air" that can be used as a circulation intermediary to solve the Triffin conunguion?

Reflexer Labs' Rai has come up with a new, immature but imaginative solution that might be the answer to the Triffin puzzle.

How does RAI work

To put it simply, a RAI is a self-controlled stable asset token, specifically by anchoring 1 RAI = 1 RAI and controlling the stability of the RAI through the redemption rate. RAI has the characteristics of fixed anchoring benchmark, clear currency issuance rules, flexible supply and independent monetary policy.

The ternary paradox.

First, unlike MakerDAO or USDT, RAI has no real-world anchors. When Nikolai, MakerDAO's technical co-founder, designed the RAI, he set the RAI to 1 RAI = 1 RAI, which means that the RAI's anchor value is itself (but there is still an anchor value).

RAI set at the beginning of an arbitrary initial target price (currently $1 RAI = 3.14, also can saying is the redemption price) ーー whether how much ーー RAI automatically from start after the operation is considered to anchor the price, and adjustments according to the market change.When the RAI system notices that its market price has deviated from its target price, the RAI's algorithm controller automatically sets an interest rate, a proportional inverse price fluctuation, to motivate people to return the RAI to its designed target price. It acts a bit like a spring: the further the market price of the RAI moves from its target, the stronger the interest rate, and the greater the incentive to bring the RAI back to equilibrium.

That's how RAI works, so let's explore it in more detail.

"Why is the initial target price of RAI not important?"

When users deposit ETH and pledge RAI, they are in effect issuing units of fungible debt. The number of RAI units a user receives depends on the target price, but the value does not. For example, suppose the minimum mortgage rate for RAI is 145% and the user deposits 1 ETH, 1 ETH = $100 USD. Users can withdraw up to $69 worth of RAI. If RAI = a target price of $1, then a RAI worth $69 would be equivalent to 69 RAI. If the target price is $RAI = $3, then the $69 RAI would be only 23 RAI. Therefore, the target price of the RAI can be understood as the price of the debt within the system.

When the market price of the RAI is equal to its target price, it can be said that the RAI has reached equilibrium mode. When the RAI equilibrium is disturbed, the controller sets an inverted market interest rate, specifically based on the relative difference between the target price and the market price. For example, assuming the target price is $1, when the market price drops to $0.90 (down 10%), the controller will set the interest rate to x%/ day. The same controller, assuming a target price of $10 and a market price drop to $9 (also 10%), will respond with the same X %/ day rate as above. Since the controller responds only to relative changes between the market price and the target price, the initial target price (anchor price) of the RAI can be arbitrary.

Being geeks, the team initializes the target price to 1 RAI = $3.14.

"How are interest rates designed?"

At Makerdao, the stability fee is charged to DAI's lenders. If the stability fee is 3% and you borrow 100DAI, then after a year you'll owe 103DAI. One of the ways MakerDAO promotes stability is by having MKR holders vote to increase stability fees when DAI's price drops.The borrower needs to repay more DAI when it matures, which means that the borrower needs to buy more DAI in the market to repay the loan (the total loan is the same in dollars), which pushes the price of DAI back to a fixed exchange rate of $1.

The interest rate on RAI is more interesting. For example, if the market price of the RAI falls by 10% from the equilibrium point, and the RAI adjustment mechanism responds by setting an interest rate of x%/ day, the RAI is actually increasing the target price by x%/ day. For RAI borrowers, this has the same effect as charging them interest rates directly, due to the higher cost of repricing debt, which will also motivate themBuy more RAI to repay the RAI loan (but the actual dollar anchoring cost remains the same). This mechanism in the RAI encourages borrowers to repay their debt (to do so they need to buy the RAI), which helps the RAI rebalance.

In RAI, interest rates are applied symmetrically to RAI borrowers and RAI holders. In the above example, when the market price fell 10%, and the controller starts to target price will increase every day when x %, transfer value from RAI borrowers to RAI holders ー RAI holders every day get effective rate of x %. This creates an additional incentive to buy and hold RAI, further pushing the RAI back into equilibrium.

One of the limitations of MakerDAO is that it is difficult to implement negative interest rates due to the 1 DAI = 1 dollar peg. When DAI's price rose above $1, Makerdao had no way to set the stability fee negative to reverse the incentives and pay the borrower to buy more DAI debt, which would help restore the anchor. Instead, Maker relied on arbitrage opportunities between different forms of collateral to meet DAI's excess demand.

On the other hand, the interest rate on the RAI could be negative because it's not really the interest rate at all. Assuming the same controller is used as in the previous example, if the market price of the RAI increases by 10% from the equilibrium price, the RAI responds with an interest rate of -x%/ day, which in effect means that the target price has decreased by x%/ day. This will have the same and opposite effect as before, transferring value from RAI holders to RAI borrowers. RAI holders pay X % per day to hold the RAI, which gives them an incentive to sell, and RAI borrowers pay X % per day to borrow the RAI, which gives them an incentive to create more interest and borrow more, both of which help restore the balance of the system.

Note: The RAI retained the stability fee, which was set at 2% and played only a passive role in maintaining the stability of the system (accumulating surplus funds to cushion the system), renamed the borrowing rate.

How to anchor RAI's target price

After the RAI is introduced, the initial target price is set, and the controller parameters are selected, the target price of the RAI is completely determined by the dynamic balance between the controller and the market.

Generally speaking, there are two main factors affecting the market price of RAI:

ETH leverage demand increases → pledge and sell RAI → RAI price drops; Pledge RAI and use RAI to buy ETH

RAI demand rises → purchase RAI → RAI price rises.

Recall the spring analogy, when you pull the spring in one direction, it's as if Rai starts slowly pulling the other side of the spring away from you. When the RAI reaches its new equilibrium, the next time you try to pull the spring that far, it becomes a little more difficult.

Small and transient market fluctuations are largely ignored, but the controllers respond adequately to approximately 1 month of continuous market fluctuations. For example, after a month of continuous + 10% market price fluctuations, the controller will set the target price to -10% of the initial value. This is true for market movements of any size.

Preventing RAI liquidation is an important consideration when determining controller sensitivity parameters. A more sensitive controller might raise interest rates to act more forcefully against short-term fluctuations in the market, but this in turn would make the target price (the RAI's floating anchor exchange rate mechanism) more volatile, reducing long-term stability. This is the basic trade-off of RAI: no short-term volatility, no long-term stability.

Rai's solution to Triffin's dilemma is,Uupload a full third party currency program to the Ethereum chain, feed it some ETH, and let it automatically manage a stable supply of reserve assets and constantly adjust itself, many of which make it really hard for an individual to break.

data

Prior to this mainnet release, a test version of RAI, Proto RAI, ran smoothly for nearly three months and was shut down on January 25th. More than $61,200 worth of ETH was invested in the beta version, and nearly 52,000 Prai were produced.

As of press time, the mainnet version of RAI has been online for less than a month, with more than 100,000 ETH stored in the system and 26 million RAI produced.

team

Reflexer Labs, which launched RAI, was founded by DEFI developer Stefan Ionescu and Ameen Soleimani, founder of Moloch Ventures and a member of Metacartel Ventures, a well-known DAO group.

Reflexer Labs closed a $1.69 million seed round in August 2020, led by Paradigm and Variant Fund, a new Crypto venture founded by Robert Leshner, founder of Standard Crypto and Compound, and Jesse Walden, former partner of A16Z. On February 12, 2021, The A round of financing of US $4.14 million was completed, led by Pantera Capital and Lemniscap, and supported by Metacartel Ventures, The LAO, Divergence Ventures, Synthetix founder Kain, Aave founder Stani and other investors.

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