When you first got into crypto, you likely had a light bulb moment that fiat currency is only backed by our belief and faith in its value. Oddly enough, for all the innovation in DeFi, we’ve mainly focused on stable assets that are pegged to fiat currencies like the US dollar. But if we return to our crypto cypherpunk roots, we’ll eventually arrive at the conclusion that we don’t need stable assets to always be pegged to the dollar or EURO or whatever fiat you live by.
Enter Reflexer building “the first non-pegged and governance-minimized stable assets that are completely detached from fiat.” Reflexer has been in planning for about a year and recently launched on Ethereum Mainnet to offer RAI. RAI is an ETH backed, non-pegged stable asset whose monetary policy is managed by an on-chain, autonomous controller. The RAI/USD exchange rate is determined by supply and demand while the protocol that issues RAI tries to stabilize its price by constantly devaluing or revaluing it.
Similar to the Maker protocol, you can mint RAI by depositing ETH collateral into a “Safe” as long as you maintain a 145% collateralization ratio, a little less than Maker’s 150% requirement. Reflexer launched RAI on Ethereum Mainnet on February 14, 2021 and has seen huge growth and traction since then.
Here’s a few ways how Reflexer distinguishes itself from Maker:
Non-Pegged: RAI is not pegged to the US dollar. It is a new, digitally native stable asset, hovering around $3 today. Because RAI is a new digital asset without any fiat benchmark to track, the goal is to incentivize the Reflexer community and DeFi market-makers to stabilize its value. I know it sounds a little confusing, but just remember how you answered when you discovered crypto or Forex and thought about why your local fiat currency is or is not stable. Now apply that thinking to yet another new digital currency. Given USD is one of the more stable fiat currencies, it is likely we’ll continue to compare RAI to USD prices as we measure how relatively stable it is in value.
Minimized Governance: Reflexer aims to minimize governance so the future FLX token emulates the utility of MKR as a collateral that can be minted and auctioned off if Reflexer ever accrues a network debt (i.e., like Maker faced due to oracle issues in March 2020).
Redemption Price vs Market Price: Reflexer has what’s called a redemption price–the price that the protocol wants RAI to have on the secondary market (ie. on Uniswap). The redemption price is used by Safe users to mint RAI against ETH and it is also used to allow both Safe and RAI users to redeem collateral from the system. The redemption price almost always floats and it does not target any specific peg like USD.
Market Price: This is the price that RAI is traded at on the secondary market on DEXs like Uniswap.
How Redemption and Market Prices Interact: When RAI’s market price is consistently above the redemption price, redemption would start to go down because those with RAI at a premium could sell the RAI at a profit, expecting RAI market price to go down following the redemption price. Similarly, if the market price was consistently below the redemption price, redemption would start to go up as safe owners buy up RAI to pay back their debt at a lower cost before the RAI market price starts rising. This is just one…
Hi! My name is Lark Davis!
I’m a cryptocurrency investor with years of experience and I’ve been making consistent profits in the crypto space.
I’m passionate about helping others do the same, so I run multiple educational channels on crypto investing.
