Reflexer Labs is excited to introduce RAI to the Badger community as well as introduce the possibility of BAI, a asset-back credit facility powered by the Badger community!
RAI is a self-stabilizing asset-backed credit facility (more on self-stabilizing assets here). After its launch in February, over $100m worth of RAI has been minted and more than $300M worth of ETH has been deposited in the protocol. RAI has managed to stabilize using its on-chain PID controller and is now undergoing a governance minimization process meant to harden the protocol.
More stats on RAI are available here
Reflexer Labs is now introducing the Money God League, an initiative meant to bring non-pegged stable assets into the mainstream and make control theory a common framework used in a wide variety of DeFi related projects.
The Money God League is specifically targeting strong, established communities that can benefit from running their own autonomous credit facilities. This post is meant to introduce the idea of a stable credit asset called BAI which can be backed by a variety of tokenized BTC flavours as well as derivatives such as tokenized Setts which can unlock liquidity for the Badger community.
Badger as a community have already earned the status of being leading coordinators across the Ethereum space, coordinating one of the most successful airdrop campaigns ever, and incubating a thriving Discord & Discourse community. This is why we think Badger is incredibly well positioned to summon and manage a stable credit facility focused on BTC.
_ (Fire Eyes DAO) is working alongside the Reflexer team to communicate and coordinate this partnership. _ is a DAO navigating token economic and governance systems across the DeFi ecosystem.
- Introduce RAI & the ‘BAI’ structure
- Kickstart discussion between the Reflexer & Badger communities
- Allocating resources in BAI
- How governance could look for BAI
- Map out the longer term possibilities of collaboration
- Fork of MakerDAO’s Multi-Collateral DAI (MCD)
- Governance-Minimized in the Long Run
- Algorithmic (PID) interest rates
Self-stabilizing asset-backed credit facility
- Like MakerDAO, users can unlock credit from their ETH
- Unlike MakerDAO, debt/credit is not fixed at $1. Rather, it fluctuates based on supply and demand.
- RAI’s PI controller updates the system’s moving peg to balance demand for debt vs. credit
- More capital efficient than money markets as capital cost is 0 (RAI is minted)
Reserve asset for DeFi, alternative to “stablecoins”
- More decentralized than dollar coins like USDC & USDT
- Independent of USD inflationary monetary policy
- Avoids being targeted by dollar coin regulation like the “Stable Act”
- Backed by pure ETH, no centralized collateral
- Badger’s focus on bringing BTC to DeFi as well as boasting an active community are the key ingredients to build a ‘stable BTC-backed credit’, a system similar to RAI where BADGER governs a credit facility backed by wBTC, renBTC and potentially other BTC derivatives in the future.
- Introducing a ‘BTC stable credit’ to the Badger community has two core benefits:
- The Badger community has a unique credit facility used to leverage wBTC, tokenized Setts and even assets created with other partners such as ibBTC from DeFi Dollar.
- The Badger community has full discretion over funnelling BTC derivatives inside the protocol and unlocking their liquidity using BAI.
Questions to the BADGER community
- Would you like to see a volatility-minimized asset backed by multiple BTC flavours?
- Do you think BAI is a good/appropriate name for this stable asset?
- What other assets apart from wBTC, renBTC and tokenized Setts would you think would make sense to add to this system?
- What use-cases do you see for a BTC-backed stable credit?*
If the collaboration were to go ahead, the following steps would be needed to deploy and support BAI:
- A proposal would be made to BADGER governance, explaining the system, its requirements, benefits, risks and path to adoption. This proposal would also include one collateral type as a starting point to bootstrap BAI.
In the event of a passing proposal:
- The Reflexer team would deploy the new system, recommend controller parameters, carry out ongoing maintenance and share the necessary smart contract infrastructure with Badger.
- BADGER community would govern the protocol, build and operate the UI, manage communications, and take over the keeper/bot roles.
Further discussion and proposals (to both FLX & BADGER communities) would be created around:
- Liquidity incentive collaboration around the adoption of BAI.
- Further social and economic alignment between the two communities.
- In the event of a passing proposal:
- Work to develop a Collateral Roadmap and a timeline to add new collateral assets in BAI.
- renBTC or wBTC first?
- Liquidity, protocol robustness, centralization all things to consider.
- renBTC or wBTC first?
- Create an Incentives Roadmap to encourage BAI liquidity and integrations in other protocols.
- Collaborate on technical explainers for BAI/RAI and general community education as well as on potentially integrating BAI with protocols where RAI is already plugged in.
- Collaborate on building smart contract infrastructure that can help the Badger community to upgrade BAI: a contract that sets debt ceilings for multiple collateral types in one transaction, a staking pool for the BADGER/FLX LP wrapped token, a Uniswap v3 feed for BAI etc
In RAI, the interest accrued by the system is split equally between the protocol’s balance sheet (where it’s used as insurance for the protocol and as a buffer for surplus auctions/buyback & burn a la Maker/DAI) and the protocol’s treasury. The treasury will be used in the future to reward those who update oracles, the controller etc so no one in particular has to pay to maintain the system.
We recommend a similar setup for BAI in the beginning. Later on, governance can add a system staking pool where governance token holders can stake and receive a portion of the system’s surplus. This staking pool should be used as the first line of defence for the system: in case there is bad debt that couldn’t be covered by collateral auctions, the staking pool sells governance tokens in exchange for BAI that’s used to cover the bad debt. If there isn’t anything to sell from the pool, the protocol then uses debt auctions to recapitalize itself.
In the short term (1-2 months post launch), we recommend either of the following:
- The system is fully managed by a multisig
- Only the BAI governance token and contracts that reference the token are managed by a multisig while the rest of the protocol is managed by token holders from the start
This ensures that we can act quickly if there’s anything wrong with the protocol. After the initial period, we can pass full management responsibility to governance token holders.
In terms of long-term active governance, the following are params/contracts that may need to change more frequently:
- Stability fees (usually you can just set this once per collateral and leave it like that unless the risk profile of that collateral changes which shouldn’t happen too often).
- Contracts/adapters to allow people to add new collateral types in the system (we already have several adapters and can show the Badger community how to add new ones).
- Stability fee treasury parameters (for example, how much you pay an address to update the collateral oracles or the redemption rate); the treasury is in charge with paying others to frequently update the system in order to ensure it’s functioning correctly.
There are a couple of other parameters that need to be frequently changed (collateral debt ceilings, debt floors etc) but these changes can also be automated using contracts that Reflexer is currently building.
- In the spirit of using DeFi to align incentives, we propose to use a wrapped 50/50 FLX/BADGER LP share as the governance token / fee burn token / insurance mint backstop for the system.
- In MakerDAO the MKR token plays 2 roles: governance and the “lender of last resort”. If the system is undercapitalized, MKR is minted and sold until the system is recapitalized (as it did on March 12th).
- As an incentive for MKR holders taking on the risk of backstopping the system, the system earnings (stability fees) from all collateral types that accumulate beyond some threshold are used to buyback and burn the MKR tokens via public auction.
- In Reflexer, the FLX token plays the same role as MKR, and in the proposed jointly operated system we propose the wrapped FLX/BADGER LP share will play the same role.
- The reason we would “wrap” the the 50/50 FLX/BADGER LP share is to make it work with minting / burning; the system would mint & burn the wrapper token, meaning that holders of the wrapped token would get less of the underlying LP shares if wrapped tokens are minted (lose value), and when the wrapped tokens are burned the holders of the wrapped token get more of the underlying LP shares (gain value).
- Aside from governance and the lender of last resort use-case, the wrapped LP share can also act as a “lender of first resort”. This means that tokens can be staked in a pool where they get sold off in case the BAI system is underwater and in exchange for this, the pool receives a portion of the surplus accrued by the protocol.
We’re open to suggestions for better incentive alignment setups, this was just an initial idea!
Let’s talk! There’s a significant amount to digest above and we’re keen to get as much community input as possible.
- The BADGER community providing discussion & feedback on the above ideas.
- Drafting an initial proposal to Badger governance.
- Beyond/alongside the initial proposal:
- Decide on collateral roadmap
- Decide on governance roadmap
- Propose LP incentives budget
Github: GitHub - reflexer-labs/geb: Core smart contracts for GEB
Bankless - Trust Minimized Money (RAI Explainer)
Stefan - RAI is Live (RAI Launch Post)
Ameen - A Money God RAIses (RAI Launch Post)
Defiant - Ameen on RAI (Podcast)
ETHGlobal - Building a Money God (Presentation Recording)