Stablecoins are cryptocurrencies that are pegged to reserve assets – most commonly fiat currencies (USD) but also other cryptocurrencies and exchange-traded commodities (gold) – in order to bring stability to the cryptocurrency market. Stablecoins pegged to USD have so far played an important role in establishing the decentralized finance (DeFi) industry.
However, some believe that DeFi should not be attached to centrally-controlled fiat currencies and that cryptocurrency doesn’t have to be pegged to anything in order to be stable. This is the philosophy behind Reflexer Labs, a project focused on building non-pegged stable assets. The first asset of this kind, RAI, is engineered to follow the price – but not the volatility – of ETH.
Stefan Ionescu, Co-Founder at Reflexer Labs, is leading the effort to “ungovern” RAI, which means that, over time, the protocol will reduce human intervention in favor of automation, resulting in a governance-minimized, crypto-native stable asset that is ideally suited to DeFi. He believes that stability in the crypto space should be redefined as “the ability to recover from shocks” instead of relying on pegging.
“Pegged coins simply hide volatility under the hood and that’s why they seem stable,” Ionescu said. “RAI recognizes that you cannot have long-term stability without short-term volatility and its mechanism is built so that it embraces shocks.”
RAI is minted similarly to DAI stablecoin, by staking an underlying asset (ETH). However, instead of pegging to USD, RAI targets a “redemption rate,” which is considered to be the ideal price for RAI at any given time. The protocol utilizes proven elements from engineering control theory to build a trustless stable asset managed by algorithms. This self-correcting mechanism can devalue or revalue RAI according to changes in RAI’s market price, with the goal of gradually following ETH while dampening volatility and increasing reaction time to market shifts.
As part of the RAI mainnet launch, Reflexer integrated Chainlink’s ETH/USD Price Feed, which allows RAI smart contracts to update collateralization ratios and maintain the protocol’s stability, solvency and fairness. “Chainlink is the most popular and secure oracle service out there and we’re extremely happy that RAI can benefit from their battle-tested model,” Ionescu said. “Chainlink greatly accelerated our roadmap toward mainnet and we’re excited by the results and performance they offer.”
The intention of RAI is to promote the growth and success of the entire DeFi industry in a mutually beneficial relationship with other projects that leverage RAI’s redemption rate and strengthen its protocol. “Building something new is hard, so it pays to have partners that are focused on the long term,” Ionescu said. “Making friends with other teams and protocols is one of the most important areas a crypto founder should focus on. This is how the entire industry grows.”
Read more about Chainlink’s latest integrations here.