Reflexer (RAI)

Basics

• Started in: early 2020
• Testnet release: Kovan (20-7-2020).
• Mainnet release: 17-2-2021
• RAI is collateralized by ETH and non-pegged with low volatility compared to its own collateral. From it's FAQ (22-2-2021):

"Reflexer is a platform where anyone can use their crypto collateral to issue reflex indexes. Reflex indexes are stable assets that are not pegged to anything, very similar to how the US Dollar is not pegged and it is still considered stable."

• According to the announcement (13-4-2020):

"A reflex-bond is a collateralized asset that is not meant to be pegged to a fixed value. Rather, its price floats in a dampened way compared to the collateral supporting it.

This attribute makes the bond an ideal collateral type. It can shield other protocols from large and sudden movements in the crypto markets. You can think of the reflex-bond system as (almost) trustless infrastructure for the entire DeFi ecosystem. It's like stability middleware between a cryptoasset and the final protocol that ingests the bond.

Governance will have limited (or possibly no) power over the system. Multiple bond flavors will be deployed, each with its own collateral types and governance levels, in order to give the market as many options as possible."

Audits

• Bug bounty program can be found here (22-2-2021). Reflexer's Bug bounty is 70,000$.(25-5-2021)
• Says (22-2-2021) it has had 3 audits (OpenZeppelin, Quantstamp and Solidified).
• Score of 76% on DeFi Safety (25-5-2021): "OpenZeppelin did an audit on November 24th, 2020. Reflexer was released February 13th, 2021. Pause control not documented or explained." With the comment: "Reflexer, minter of RAI, is up with a solid 76% Pretty good all round except Access Controls and testing."

Governance

• From Ameen's blog (17-2-2021):

"To achieve credible neutrality, we have designed RAI as an open source Money God, recognizing control as liability and optimizing for social scalability. To automate as much of the system as possible, we removed humans from the critical responsibility of deciding interest rates, instead delegating the role to an algorithmic controller. While the system will be relatively governance-minimized at launch, as we gain confidence in RAI and the controller parameters over the next 18 months we will follow our ungovernance roadmap and progressively eliminate RAI’s few remaining points of human influence."

• From its Governance Minimisation Guide (22-2-2021):

"There are three levels (or stages) of governance minimization that a GEB (like the one for RAI) will go through:

In this stage, governance will remove control from:

1. LiquidationEngine
2. DebtAuctionHouse
3. SurplusAuctionHouse
4. Collateral Auction Houses
5. OracleRelayer
6. Coin (ERC20)
7. CollateralJoin contracts
8. ProtocolTokenAuthority (and as a result give up on the possibility to authorize/deauthorize new or old DebtAuctionHouses to print tokens)
9. ProtocolTokenPrintingPermissions
10. TaxCollector
11. ESM

In this stage, governance will remove control from:

1. SAFEEngine
2. AccountingEngine
3. StabilityFeeTreasury
4. GlobalSettlement

Any auxiliary contracts that automate parameter settings should also by themselves be governance minimized.

At this point, all remaining governance must be in the hands of the community. The community will judge the feasibility of fully removing control from more contracts (e.g the PID)."

Admin Keys

• From Llama Risk (1-2022):

"There is a 3/5 multisig involved, which has 2 people outside the team and a 24 hours Governance Delay. The multisig address is 0x427A277eA53e25143B3b509C684aA4D0EB8bA01b. The goal of the platform is to minimize governance: the deadline for removing the vast majority of RAI governance is mid-August, 2022. The requirements for Governance minimization are:

1. The protocol’s governance must not add or plan to add any more collateral types.
2. All the infrastructure for governance minimization must have been audited and evaluated in production.
3. The system must accrue enough surplus in its main treasury so that it can afford to pay for oracle, PID, state management, etc for at least six months.

There are lots of discussions ongoing in the Reflexer Governance forums. One such discussion is the discussion of keeping protocol and treasury governance separated, to ensure malicious governance is deterred.

Currently, the multisig has the capability to upgrade and manually set almost all components in the GEB (Generalised Ethereum Bond) framework. The process of governance minimization aims to reduce this drastically."

• Information can be found here (25-5-2021). Pause control not documented or explained.

Token

Token allocation

• From the FLX introduction (1-3-2021):

"The currently anticipated allocation of the genesis FLX is as follows:

1. 35% of the genesis FLX will be contributed to the GEB Foundation, a member-less Cayman Islands foundation company devoted to fostering research, development and support of the GEB Protocol on which RAI is based (the “Foundation Supply”).
2. Out of the Foundation Supply, we intend that 30 FLX will be given to every address that interacted with Proto RAI in any way. There are a total of 229 addresses that were pulled from the chain using this script. This sums up to 0.687% of the genesis FLX.
3. 34.313% of the genesis FLX, out of the Foundation Supply, will be used by the GEB Foundation for various purposes consistent with its mission, including: incentivizing RAI liquidity and security, rewarding developers who build on top of the protocol through a grant program and contributing to a DAO treasury.
4. 3.39% of the genesis FLX will be given to DAOs that helped Reflexer bootstrap. This allocation is subject to a 2 year unlock schedule that will start on 28th of February 2021; in the first year the whole portion is fully locked.
5. 21% of the genesis FLX to early supporters/backers that were essential in helping us pioneer PID control in smart contracts, perform our audits and build infrastructure for the protocol. This allocation is subject to a 2 year unlock schedule that will start on 28th of February 2021; in the first year the whole portion is fully locked.
6. 11.3% of the genesis FLX to miscellaneous investors of Reflexer Labs, Inc., a for-profit Delaware corporation that performed much of the initial development and testing of the GEB Protocol (“Reflexer Labs”), with a 2 year unlock schedule that will start on 28th of February 2021; in the first year the whole portion is fully locked.
7. 20% of the genesis FLX to Reflexer employees, advisors and service providers, as well as potentially other service providers to entities or organizations involved in developing the GEB Protocol or RAI. These awards are subject to various service-related terms and conditions, including, in most cases, a 3-year service-based vesting schedule starting around the commencement of each person’s service relationship. Overlapping with such vesting schedules will be the same lockup schedule as referred to above: a 2-year unlock schedule that will start on 28th of February 2021; in the first year the whole portion is fully locked.
8. 9.31% of the genesis FLX will be the corporate property of Reflexer Labs to be used in its sole discretion. Such FLX is not subject to vesting or any lockup period. Please see the disclaimer at the end of this announcement for important information regarding the role of Reflexer Labs."

Utility

• From this twitter thread (19-5-2020):

"How does Reflexer make money? Similar to how MKR holders make money: interest paid on DAI. Demand drivers for $RAI: trustless and stable collateral for synthetic asset protocols such as Maker, UMA, Synthetix, etc."

• Has the Reflexer ungovernance token called FLX. From the FLX introduction (1-3-2021):

"FLX will have two different core functions:

1. Lender of last resort: similar to other models such as the Maker protocol, the RAI system will have surplus and debt auctions. Debt auctions will autonomously mint and auction new FLX in case the system is underwater.
2. Ungoverning the RAI system: once the vast majority of governance capabilities are completely removed from the system, the community will be able to decide on how, when and if to securely governance minimize any remaining components. FLX will facilitate further ungovernance and allow the community to take decisions on how to remove themselves from discretion over the protocol.

We are currently discussing with the community about a potential third function for FLX: lender of first resort. This would mean that FLX could be added in a staking pool that gets slashed in case there is bad debt in the system."

• From the Discord (12-3-2021) when asked if it would follow MKR:

"The same plan is for FLX as well. The fees will buy FLX and the FLX gets burnt."

Tech

• Whitepaper can be found here.
• Code can be viewed here.
• Built on: Ethereum, is a fork of Maker’s Multi-Collateral DAI (19-2-2021).

How it works

• According to the announcement (13-4-2020):

1. "Redemption price: the price the system wants the reflex-bond to have; always stuck at 1 USD for DAI but variable for reflex-bonds
2. Market price: the price that the market values the reflex-bond at
3. Redemption rate: a per-second rate (which can be positive or negative) used to incentivize CDP creators to generate more bonds or pay back their bond debt; the redemption rate gradually changes the redemption price; similar, but not identical to an interest rate
4. Borrowing power: how many reflex-bonds can be borrowed against one unit of collateral; every time the system receives a price feed update for its accepted collateral types, the feed data is divided by the redemption price and then divided again by the liquidation ratio in order to calculate the borrowing power; if we use ETH as an example: let’s say ETH’s price is 100 USD, the liquidation ratio is 150% and the current bond redemption price is 1 USD; the borrowing power for ETH is approximately equal to 100 / 1 / 1.5 = 66.67 USD"

Also, the redemption rate should ideally be modified by a PI controller that can help minimize the market/redemption price deviation (as shown above in ideal and simplified scenarios) or even a PID controller that can reduce the overshoot provoked by the integrator (spoiler: there is smart contract code for PI and might soon be for a PID controller).

The controller can be launched with specific parameters and then be fully autonomous, in which case the system would have a lower reliance on governance, or its parameters can be manually adjusted over time. A warning though: the fully autonomous option, if chosen from the beginning, can prove to be ineffective because of the lack of real world data to base the parameters on.

Another important detail is that the redemption rate mechanism replaces the savings account (in Maker’s case, Dai Savings Account) and implicitly removes the savings rate (Dai Savings Rate) where stablecoin holders earn interest.

After launching the system, anyone will be able to atomically deposit ETH to create reflex-bonds and then deposit reflex-bonded ETH in another protocol to borrow or create other cryptoassets, as well as synthetic gold, oil, stocks or even the current prevailing synth, synthetic USD. The bonds act as middleware between the initial cryptoasset and the final protocol. The main benefit of using the bonds as collateral is that they dampen some of the volatility from the assets supporting them.

To encourage their usage in other systems, the reflex-bonds can be set up with a default positive redemption rate. The upside is that the bonds would have a higher redemption price over the long-term. On the other hand, reflex-bond CDP creators would progressively need to add more collateral to their positions in order to avoid liquidation from the repricing of the bond. Of course, the default redemption rate can be small enough so that liquidation is not an imminent threat."

• From Ameen's blog (17-2-2021):

"Nikolai’s true genius in designing RAI was capitalizing on the opportunity to make it self-referential. It’s completely absurd, but it works. RAI is pegged to RAI. 1 RAI = 1 RAI. Well, most of the time. RAI starts out with some arbitrary initial target price (also called the redemption price) — it doesn’t matter what it is — that’s what RAI starts out thinking it should be pegged to. When RAI notices that its market price has deviated from its target price, RAI’s algorithmic controller automatically sets an interest rate to proportionally oppose the price move and incentivize people to return RAI to its target price. It works kind of like a spring: the further the market price of RAI moves from the target price, the more powerful the interest rate, and the greater the incentive to return RAI to equilibrium. In terms of the basic abstract overview of how RAI achieves stability without an external price target, that’s really all there is to it. RAI is pegged to itself, and uses interest rates to maintain price stability. We’re nerds, so we initialized the target price at 1 RAI = $3.14."

Upgrades

• Proto Rai stablecoin using PID controller has an unaudited demo on mainnet (2-11-2020).

Liquidity Mining

• From the live announcement (17-2-2021):

"In the meantime, we’re not saying that there will be retroactive mining rewards for the initial cohort of RAI/ETH LPs, but we’re also not saying there won’t be."

Oracle Method

• Integrated Chainlink (26-7-2020).
• According to the announcement (13-4-2020):

"The difficult part comes when designing the oracle and the redemption rate setter. One option for the collateral price feeds is to build an aggregator for different oracle networks, store the result from each network in a sorted array and then pick the median. Part of the stability fees can be used to pay for oracle calls by using Uniswap v2 to swap bonds with each oracle’s specific fee token. The price feed for the bond can be taken from a BOND/COL Uniswap v2 pool, where COL is one of the collateral types underpinning the bond, or it can be provided by governance whitelisted oracles until an oracle network offers BOND feeds.

As for the rate setter, a straightforward implementation is a PI controller where the smart contract computes the proportional automatically and governance only sets the integral term. A more complex implementation uses a PID controller where the integral and the derivative terms are calculated by the contract using market price deviation accumulators. With a PID, governance may still need to adjust some parameters, although overall, the power they have over the system is minimized."

Their Other Projects

HAI

• HAI is a multi-collateral RAI fork on Optimism, announced on 20-4-2023:

1. ReflexerDAO has been providing technical guidance and operational support
2. 20% of the HAI governance tokens (KITE) will be used to buyback & burn FLX over time
3. SpankChain is the sole seed investor, covering the dev budget
4. Our estimated testnet launch is June 9th, with mainnet launch estimated by the end of July

Roadmap

• Can be found [Insert link here].
• From The Defiant (19-2-2021):

"RAI’s initial goal is to become an alternative to pegged-coins for use in DeFi as collateral and as a stable reserve asset. With time, its builders hope RAI could also become “the Ethereum Standard — a native unit of account for the Ethereum ecosystem,” wrote Ameen Soleimani, a Reflexer Labs member, in a post titled “A Money God RAIses.” If RAI fulfills its purpose within DeFi and starts to earn global adoption, it could “bring credible neutrality to the administration of a stable global reserve asset, a global public good,” Soleimani wrote."

Usage

• From their dashboard (22-2-2021): 100,911 ETH locked.
• From Our Network (21-3-2021):

"In the first month post-launch, the RAI TVL soared to $350M+ and the RAI supply grew to 48M+. Currently there are more than 1K positions with RAI debt."

• From Our Network (24-7-2021):

"The amount of RAI outstanding on secondary lending markets surpassed $15M, with Aave being the largest platform. RAI has one of the most diverse distributions. It’s used as both a store of value and as a way to capture high yield from markets such as Fuse, CREAM, Aave, Yearn, Sushiswap’s Kashi, and Idle Finance."

Competition

• From this twitter thread (19-5-2020):

"Ideally, $RAI operates within its own niche as stable collateral for protocols like Maker. Although, Maker has been thinking about implementing a similar target rate feedback mechanism."

• Other (algorithmic) stablecoins like Float Protocol and Fei Protocol. Float created a write up with its differences (20-3-2021).

Pros and Cons

Pros

• From their own twitter (17-2-2021):

1. "Both positive and negative rates that make its “moving peg” float
2. Native insurance for those minting RAI (WIP)
3. Smart contracts that will automate parameter setting as the protocol matures"

Cons

• From Dose Of DeFi (25-2-2023):

"It failed to generate enough demand for its stablecoin and its “un-governance” design prevented any changes to the core protocol. Ameen Soleimani, one of Rai’s co-founders has done a mea culpa, explaining that ETH is not great collateral in a world of liquid staking derivatives (LSD), which have the same fungibility but come with built-in yield."

• From a comparison by competitor Float Protocol (20-3-2021):

"There is a slight oracle risk as there is a slight price delay in the system due to the way oracles work. In theory, the price could drop very fast and loans which should have been marked for liquidation would not be correctly marked. The result would be that users have some time to save their deposits and leave the system under-collateralised.

One trade-off RAI makes is the system is less capital efficient than a partly collateralised one. A quirk of the system is that should demand for RAI significantly outpace the price increase in ETH, the long term dollar price of RAI could trend downwards. This is because the redemption price (RAI’s target price) moves downwards if there is excess demand for RAI. This could reduce the purchasing power of holders in real world terms.

Another risk worth noting is that on-chain PID controllers are complex and it might prove difficult to find the right balance to maintain a stable system. Reflexer provides a nice overview of PID risks here."

• From this twitter thread (19-5-2020): "Disadvantage of $RAI: capital-inefficiency."

Team, Funding, Partners

Team

• Incorporates original ideas from Dai Purple Paper.
• The term “reflex-bond” was pioneered by Nikolai Mushegian, MakerDAO’s technical cofounder and advisor to Reflexer (17-2-2021).
• Proposed to be used by CEO Stefan Ionescu, who works with MetaCoin.
• Ameen Soleimani is a co-founder of Reflexer Labs, Ionescu told CoinDesk, assisting with growth efforts on a part-time basis.

Funding

• From CoinDesk (5-8-2020):

"Has closed a $1.68 million seed round led by Paradigm, with participation from Standard Crypto, Compound founder Robert Leshner and Variant Fund, from a16z alum Jesse Walden."

• On its FAQ (22-2-2021) page The LAO, True Ventures, Divergence, Pantera, Lemniscap and MetaCartel are mentioned, and the above funds as well. This round brought in $4.1M (19-2-2021).

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