AMA with Stefan Ionescu of Reflexer Labs

Transcript

hey bankless nation welcome to this community ask me anything we have the founder of rye from reflexer labs um created a really interesting stablecoin or is it a crypto dollar we will get into the terms and definitions in this community asking anything the first time around we had some technical difficulty with the live stream so hope you're hanging in there if not this recording will be available on youtube and of course as always on the podcast get your questions in on youtube we will put them in queue and uh try to fit them into the show david you ready for this absolutely this is a really cool project and i think really in the spirit of this week because uh this is this is coinbase

week and this is uh the week that crypto breaks into the nasdaq uh and we are slowly infiltrating the rest of the world pulling them into the world of crypto and then once you're in the world of crypto we have this brand new project uh called reflexer and rye which is a a self-sovereign stable coin uh not a not a crypto dollar but a stable coin and so we're really pioneering in all different directions and once you come into the fold we have this system that allows you to be self-sovereign without having to rely on the fed uh and have without having to rely on banks uh and so i think this is uh uh while you know coinbase is making a big splash on the legacy markets we have uh me on the other side of things on the when you go

into the rabbit hole we have these tools that can allow you to just completely remove yourself so these bridges from the legacy world into uh you know completely self-sovereign finance are getting really really strong and the end destination is also getting really really strong and that end destination to me is something like this project that we're going to talk about today which is reflexer and rye yes so we are doing this because these types of algorithmic stable coins are a big deal but what's an even bigger deal is that this is a self-sovereign completely bankless attempt at some sort of stability asset stability mechanism for crypto that means it's purely crypto native no meat space dependency it is truly in code we trust and therefore

hits very much the the bankless thesis of creating a a self-sovereign independent global money system for the world it's still an experiment but as david said we are deep down the rabbit hole so we are trying to figure out what this experiment might yield and what others like it might yield one quick disclaimer i love the vision for this project so much i am actually an investor and i i hope that this project is successful but if not reflexer and rye some other project like it it really fits the the spirit of going bankless and why we're doing it david anything else to add before we get in with stefan and dive into the community ask me anything yeah amin solomoni who's been

uh working with the reflexer team coined this term money gods uh and the money god comes from um just the fact that we can build something that is out of our control and it in fact controls us and this is why bitcoin is so powerful right bitcoin is not something that can be steered by any one or few humans uh it is something that just exists and either we can accept that and integrate with it or we can fight it but generally people who fight bitcoin lose now the ethereum app player i think allows that same sort of money godness right like we can build applications that control us that we cannot control and i think that's really a big through line that we're gonna have with this conversation with stefan

and overall the through line for why the ethereum app layer is so cool and so to me it's really really exciting to see app applications like reflex or like rye come into existence that really resonate with the the money god ethos or money god thesis about why crypto is so cool all right guys before we get into this conversation with stefan that i know you're going to enjoy we want to thank the sponsors that made this episode possible metamask is your go-to wallet for the bankless journey if you're going bankless you need metamask period browser and mobile get them both this is your tool to unlock the world of defy here's my favorite part now you can swap

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the uni-swap dow apply for a grant to uniswap just look at the size of the uniswap treasury it's almost three billion dollars this mountain of capital is looking for labor do you have something of value to contribute to the uniswap dow no matter how big or small your idea is you can apply for a uni grant at unigrants.org and help steer uniswap in the direction that you think it should go that's exactly what we did to get uniswop to be a sponsor for bankless and you can do the same for your project thank you uniswap for sponsoring bankless all right everyone we are tuning in to this ask me anything with stefan unesco he is on the founding team of reflexer

labs he's also a brilliant engineer this is the team behind the asset called rye which is going to be the topic of today's community ask me anything of course as usual get your questions in on youtube we will answer those but the first section is for david and i to actually uh ask some questions we get to be greedy uh and stefan it's it's great to have you welcome to bankless my pleasure to be here thank you for having me do you know i i really want to start with the the high level for folks here uh stefan um and a high level i guess the question is is sort of open-ended what problem do you think rye is solving right so rai is trying to solve some shortcomings in the kind of

usual mechanisms that you see around creating pet coins as they call them or crypto dollars as the bankers nation calls them uh it's it's mainly the fact that you need like we saw kind of a problem with die lost during 2020 during black thursday where they kind of struggled to keep die close to the peg dye went way above the peg at some point and they had to do something to bring it back uh and the thing that could they could have done was to de-peg die so not have it picked anything and managed to impose negative interest rates on their holders so kind of anyone who held die was subject to a negative rate that was

draining value from them and that would have made them sell and bring dye back to the target price score of the peg as they call it so we're basically trying to solve problems that are kind of more technical in nature um in in the coin or stable coin area as i recall staphon this was actually contemplated in some of the discussions in the original uh die design actually um i figured it's called t tf rm something like that some sort of target reference rate okay target great feedback yeah so like what's interesting to me is uh dave and i have made this comment almost on every episode it feels like but like the the the what we're seeing is every experiment in

krypto and in d5 that can be tried will be tried right and so dye went in its own direction on a number of fronts they went multi-collateral they went a bit more governance driven in terms of their stability design rather than algorithmic and they don't have the ability to do these negative rates and so is rye sort of a reaction to that is it sort of taking some of these concepts and the the road that was not traveled by dye and implementing them it is on the one hand i wanted to build this simply to show that the initial maker team was right and that it is possible to have an asset that's stable and yet not picked anything and it is possible to have negative rates in

crypto so it was more like curiosity for me to see if it can be done and how and then see how people might use that so and i kind of knew about maker because i prior to kind of starting to talk with the mean who's in our founding team and you know getting to know him and nikolai who also used to work at maker i kind of studied maker for about six months i just did kind of research on stable coins and i knew about the purple paper and i knew that they didn't implement the rfm before the other i think problem that at least in my mind this solves so you're taking this in a different direction maybe looking to get a better stability mechanism out of it but like the big crypto vision right is to have a money

system that can operate independently of meat space and what is meat space right meat space is obviously you know commercial banking but it's also meat spaces is central banking meat space is also nation state uh governments i know amin in his in his article that david you referenced um calls this an independent state global reserve asset and unit of account independent of the state this has been part of the crypto vision and we have independent monetary units in the form of bitcoin in the form of ether today but these units are not stable can you talk about the um i guess your thoughts on that is that part of what rai is trying to solve as well

yeah that's the idea so we shouldn't like crypto in general i don't think crypto should fully depend on the dollar or specifically on any monetary policy that's external from the chain so we should have a unit of account that's just that just depends on it just lives on a blockchain and you can just trust it and it's stable and you can transact with it so that's kind of the idea like not depend on the feds to dictate what happens to what i hold so yeah it's pretty it's pretty much kind of the original crypto vision in a way so stefan i want to take people to school a little bit here because um you know someone made the comment i saw on on twitter it's like uh you have to be full-time into define crypto to actually like understand what's going on

and i feel like that's especially true of sectors that are um like doing a tremendous amount of innovation so new projects are coming out in sort of the the crypto dollar stable coin sector uh all of the time and it's very difficult for people to come up with you've got these new acronyms like mfay and you know um fracks and what like what is all of this stuff so let's take people to school i want some kind of an orientation here uh to help ground the rest of this conversation so i think of a few buckets as far as i'm going to generically call them stable coins though i know david wants to have a semantic discussion about what staple coin actually is we'll get to that um but let's let's uh start with the first

bucket and i think that's important and this is stable coins that are on the one hand dollar pegged versus stable coins on the other hand that are not pegged to the dollar as a unit of account can you talk us through that so which side does rye fall on versus other projects and why so as far as i know rye is the only stable asset for now that's not pegged anything so it's not paid to the dollar it's not paid to euro or rather anything it just has like starting price starts at like let's say we started at 3.14 that was like pi was our initial target and from that point like rye and the

system behind it uh reprices itself so it changes the target it changes kind of the peg where rye should always come down or up to or it should always come back to um and just to be clear uh you guys picked 3.14 because you needed a number to start and you guys just picked pi because why not and there's no and so the only reason why you picked pi was because you need a number but there's no formal relationship between rye and pi moving forward it just was the starting number and now it's in the past and now it doesn't matter anymore yeah pretty much so we could have started at 100 bucks one thousand ten thousand it doesn't really matter it works the same it's just maybe the human perception

like you can start really high really really low it's just that i'm going to share a screenshot here and this is from the folks at missouri that sort of shows shows this in the context of the um the possibility trinity and uh and stable coins right so um what we have on um the right is kind of this uh non-pegged stable coin this is maybe where where rye fits uh and this um this is different than all of the dollar pegged stable coins that exist today so there there are different really trade-offs here right um but this is similar to like uh you know a non-peg dollar staple coin is really similar to a currency of a sovereign nation right

so like the the yen for instance it trades against the dollar but it is not in any way pegged to the dollar right and so they have to almost bootstrap that demand for a new unit of account any any just comments in general on some of the trade-offs that you guys are making with the impossibility trinity and having something that is non-pegged to the dollar i would say the main advantage in a way is full discretion over setting your own monetary policy so the system can choose exactly what interest rates it wants it can choose exactly when it wants to attract capital or repel capital so you have more flexibility on in general exchange from your monetary policy as opposed to peck points

so the peg coins though they've gone in this direction because i think they've wanted to bootstrap their unit of account demand right because everybody uses the dollar we all know what the dollar is rye is an entirely different unit of account essentially and people aren't yet familiar with it is that some of the trade-off here that you don't you're not able to bootstrap and say yeah you know what one rye is worth because it's always like one dollar or flexes around that rate can you talk about that trade-off right that's a trade-off in terms of kind of integrating rye in the ecosystem people don't yet kind of understand how can something be stable and float and i'm like well you can look at the euro how it floats against a dollar or as you

said yen or any other currency so one for now it's kind of education is the hard part kind of telling people that this is stable without just referencing something external to it is the tough part all right guys so that's lesson one dollar pegged versus non-dollar pegged rye is non-dollar pegged let's talk about another bucket that i think in you know staple coins uh of in terms of collateralized on the one side versus uncollateralized on the other what is collateralized versus uncollateralized and which is rye so like die it's over collateralized uh it's right right now the minimum

c ratio collateralization ratio in rye is 145 percent that's for east so you can put e in the system and mint y until your position goes to that minimum collateralization ratio and below that you get liquidated again exactly like you make or die um under collateralized stable coins are the ones that try to go below 100 backing with collateral or even to zero and they try to maintain stability with the different mechanisms that's not well now we lost both camera and audio one moment guys while we wait for stefan to come back maybe internet connection issue this

time we're not having good luck technically oh oh he's totally gone he's totally gone all right well so what he was saying is that uh rye is uh collateralized just like that and so it's very similar to a cdp mechanism uh so you submit ether and then you can mint rye but you can only mint a lesser value of rye than what you collateralize and i actually don't know those parameterization ratios at the top of my head um probably something around 150 ryan do you know i don't know off the top of my head but you know 150 seems like the magic number for die and so i think a lot of like uh collateralized stable coins have sort of adopted that there we go uh stefan okay so we lost you real quick and so we were

kind of filling in the gaps we talked about how rye is very similar to scdp where you stick in your eat you uh collateralize your eat and then you mint uh rye just like how you meant die uh but is there what's it is the uh what's the parameterization ratio for ether and and rye like is 150 what's that number it's 145 percent so it's a bit lower than the one the usual one in maker can we talk about some of the trade-offs right so um collateralized the example of that is rye an example of that is die uncollateralized an example of that is maybe fey not sure what are some examples out there maybe empty set dollar maybe the original basis cash design would be

examples of these things so what are the trade-offs on uh you know collateralized versus uncollateralized it seems like you know one of the trade-offs has got to be well with collateralize you you've got something backing it at so there's like a bottom level of value that the thing can sync to and uncollateralize there's like nothing backing it but how do these trade-offs um appear to users so when you have something backing your bitcoin or stable queen people tend to trust that a bit more like we saw in practice that basis that doesn't really work like there's always a bank run people just sell that until it goes to almost zero so it doesn't really work you need something kind of instill credibility to other people

otherwise it doesn't work okay as long as we are taking folks to school then we've covered to collateralize under uncollateralized dollar pegged versus non-dollar pegged um rye is non-dollar pegged collateralized let's talk about this this other area that i think is important which is uh govern stability versus something that's more algorithmic and what i mean by that is uh you know the stability mechanism that the like interest rates for a cdp in maker are determined by maker governance those that own the mkr holder that's not the case with rye rise maybe more algorithmic stability on that side of the spectrum these are my own terms

but you tell me like how what's what's wry and what is how do you minimize governance how is that different yeah so rye is a bit different compared to die because we also have stability fees for every collateral type that's in the system but in our case stability fees are more or less fixed or bounded they kind of price the risk that an asset brings to the protocol so for example we can price kind of the risk for ether at two percent interest per year so when you open a position you need to pay kind of two percent interest per year to keep it open um we have something else that's used to for stability to actually stabilize rye and that lever is called the redemption

rate that thing is a number on in a smart contract that every second is multiplied by the current moving peg that ri has and it results in a new moving peg for rye so if the if the moving pack for rye right now is let's say three dollars that number in one second from now that number will be multiplied by that current peg and it will result in a new peg and that's how the redemption rate uh changes the moving peg that ry has and by changing the peg it it kind of imposes either a negative or a positive interest rate on holders because the idea is that when the moving

peg goes up we have a positive interest rate so you kind of burn something by holding y and when there's a negative interest rate you lose value by holding y so this minimizes governance and why is governance minimization important for self-sovereign money we at reflexer generally believe that human discretion will be the main thing that will make an asset unstable in the future so human discretion in general means that anyone can come they can impose their will on the majority of the people and they can say i want this thing to work like x even if it's suboptimal so we think that the ideal way to build this stable asset is to just put the

system in charge with an algorithm in charge and let it work yeah in a way this is a this is a very austrian idea it's a very like like bitcoiner idea it's a very hayek idea of like you know there should be these these private money systems that try all of these various experiments and the best one will uh will win out this is why it drives me crazy by the way when you have somebody who's maybe a bitcoin maximalist who's who says things like you know um ether and ethereum based money systems that's all fiat right like that's not austrian at all like hard money fixed supply is the only way to go i'm like ethereum's trying a massive amount of

austrian hard money experiments that don't have human discretion like go look at rye um which brings me to maybe in our education series here to get grounding the last bucket here which is trusted versus trustless stable coins and i think this is a this is an important one because in order to be on the more trustless side of the spectrum and guys it is a spectrum here there's nothing that humanity has ever created or can create that is a hundred percent trustless um but the more trustless it is the more self-sovereign a money system can become if you believe in the protocol sync thesis as david and i do then more trusted systems will sink to

the bottom of this but like trust can come about in the form of governance as we just talked about but also in the form of what collateral assets are are backing the system and this is what's kind of interesting here's another uh chart from asari um i think david i see some of your handiwork in here from from some triangles you put out on bankless um at one point but so what we have here is a comparison of of money systems right um you've got the reserve asset at the bottom and if we look at old analog systems uh that used to be based on gold and then dollars were really collateralized at one point in time before we went off the gold standard by that gold as a reserve store value asset

and then kind of banking was built on top of that this is similar to what rye is doing ether as i understand it is the collateral for this and why ether maybe you'll tell us but i think it's probably because it is the most trustless collateral source found on ethereum and then you could build a more stable currency on top of that collateral resource and then of course we have defy that can be built on top of this and and tap into this can you talk about that am i right that ether is the uh the form of collateral and can you talk about why ether that's right so the main reason why we picked east uh it is because it's simple

it's the most restless asset on ethereum and it's also simple to governance minimize the protocol in general when you just have ether like you don't have external trust assumptions like usdc for example or rap vtc so you don't need to kind of fear that some other party can just take your cloud hole and the system breaks um and it's also again easy to governance minimizer protocol so we can automate everything we just have one cloud rule type it's pretty easy to kind of put some smart contracts put some code in place make every all the parameters kind of change themselves and people just put ease in the system and it just works like that's where we want to get that's the point where we want to get why did maker go in the direction of multi-collateral

versus you guys are remaining in the direction is almost part of the original dive the single collateral diet version which was just ether i mean i think one of the reasons i've heard is so that they can have more economic bandwidth let's call it to to increase the supply of dye um can you talk about maybe some some trade-offs you guys are making there why they went in this direction um versus you that's right so kind of ease the kind of total market cap of east is kind of the max kind of value that rai can have i believe it's kind of the economic bandwidth that that's kind of limiting us and we took this decision again because we want a governance minimizer protocol we want to have at

least one of these protocols that just doesn't depend on humans even if it maybe remains a bit smaller than die or other systems we can use it and we don't need to trust like some other third party that and we don't need to think that the system breaks so we just want to have like one of these experiments that just works and it doesn't depend on anyone else so just to drive this point home uh rye rai has committed to not ever including any other collateral other than ether into its collateral type because the introduction of other collateral would be would necessarily necessitate the requirement of actually voting that collateral in one and also trusting the issuer of that other asset when ethereum

was born in the first block and also the next like 10 000 blocks there was only one asset and that one asset was ether there were no other assets other assets came to ethereum because humans issued those assets those assets can't be used as collateral inside of rye because one it would have to be voted like human determined to be included and also it would be a trust mechanism on those other collateral so rai will only ever be collateralized by ether ever due to the nature of ether as the primary asset of ethereum yep that's right that's right so it's again this this system should be simple so we can governance minimize it and it should be trustless

these are the goals we took this decision because we want to fulfill these two the math here is pretty simple here guys too as far as like we've called ether a trustless source a a source of trustless economic bandwidth in in the past and so if ether's total market cap is like 1.45 trillion at some point in the future that means rye can at maximum be like close to a trillion it can't be beyond that because it's using ether as its source of collateral so that's kind of the constraint that you were talking about of course that's less of a constraint if ether is 10 trillion 20 trillion 30 trillion dollars right uh so there's a little bit of a i guess a bull

case assumption for people valuing trustless collateral and trustless economic bandwidth that is part of the uh the dye case here david i want you to maybe introduce kind of your question here because i saw you tweet this out a couple of weeks ago about the semantic definition and the difference between crypto dollars and stable coins because crypto dollars is also a term the industry uses maybe you can explain that and introduce that right i saw i saw stefan tweet out um i think perhaps out of frustration frustration that people kept on calling ryan stab a stable coin when he was like no rye's not a stable coin uh because people when they when they say stable coins they're talking about on chain dollars right in my mind

the right and this is this is just a semantics conversation this is like what words do we use to describe these things in my mind if we're going to use the term for things tokens that are redeemable for a dollar or worth one dollar on ethereum we should call them dollars especially especially usdc let's just call those dollars because it's not like when i have dollars in my wells fargo bank account i call them wells fargo dollars even though that's what they are they are they are a claim on dollars that is provided to me by wells fargo usdc is a claim on dollars provided by circle usgc is just a dollar if we want to get more specific we can call it a crypto dollar stable coins don't have the term dollar in them uh and so stable coins to me uh as a word

are illustrative of a a coin a token that is stable and if if if it was a dollar we would call those a stable dollar coin or a crypto dollar or a dollar but i think a stable coin leaves room to for specifically something that is not a dollar because if it was a dollar we would just use the term dollar and so in my mind rye is actually the only stable coin on ethereum uh stefan how do you feel about this take that's pretty much correct again i'm generally when i try when i explain something i'm trying not to fight people like they have like a certain framework that they use to think about things and i'm like okay you can use that framework i'm trying to build a new one that's kind of right a couple of years ago like

even before die was released stable coin was meant to meant demean low volatility or dampened volatility compared to something compared to ether or compared to anything that you can think of so rye is kind of at least my knowledge the only stable coin for now on ethereum i think also importantly uh the calling crypto dollars stable coins uh does too much gives too much to what the dollar is because the dollar is perhaps actually not all that stable because it loses value every single year and perhaps it doesn't lose that much value but the reason why people assume the dollar is stable is because we don't have any other frame of reference for it

uh stability is always a referential thing it's always relative you can't have stability in one asset without comparing it to another asset and so now that we have something like rye maybe we'll actually be able to charge the value of dollars versus rye and we'll find out that rai is actually better storehold of wealth over time perhaps making it a better stablecoin than a dollar right for now uh right now we're still at the beginning the system is still kind of tried out it's still kind of a demo when it's doing an experiment and i would say that right for now is kind of devaluing faster than the dollar uh people still are still learning about the system and they don't really know how to interact

with it um but i guess yeah we will see how rai will behave in one or two five years from now david just for what it's worth man i'm i'm on your team on this one like um i definitely believe the term stable coin is more accurate for something like rye and is not accurate for something like usdc those are more crypto dollars however if if we're going to kind of push that narrative forward even if it's the true narrative i think it's going to be an uphill battle my friend because the whole industry just buckets all of it and calls it all stable coins and there's not unless you're deep down the rabbit hole i don't think the average user knows the difference between using usdc versus dive versus versus rye and

the different trust assumptions that you're taking on there um but it's definitely a narrative battle i'm uh i'm happy to fight we'll see if we make it's progress this is 100 a semantics conversation and stefan as the ceo of a brand new defy app i can totally understand why you are not interested in fighting that fight however we will fight that fight if we will fight that fight for you that's that's what bankless does well the other the way the way stefan can help really is like or why can help is get on the radar right is like be successful that's what will really turn the conversation um so can we talk about that uh stefan is like so how many weeks or months are you guys from from launch to mainnet at this point in time

uh about two months we're close so on 17th uh this month we will have two months since we launched okay um there's not a ton of time so two months in let's talk about this a little bit um first so post launch how has rye maintained stability what were kind of some of your expectations and how has it actually gone and while you talk i might bring up coin gecko to sort of we could folks on youtube can see this on the charts but how has it done as far as uh you know stability maintenance so in the beginning for for a couple of weeks actually in the first month uh rye traded way above one of its moving peg for a long time um there was kind of a ton of demand because we had some

incentives in the system that made people just trade right way above uh the moving peg um now it's a bit more stable so it managed like after one month it managed to go below the moving peg and then the moving thing started starting to go up uh because up until that point it just went down down down because if rye was devaluing itself and now it's starting to go up again um so we kind of expect in the long run we hope and we expect to see rye kind of just oscillating around that moving peg and not just continuously devaluing itself so what is that moving peg then is that the um the pie three three dollars and fourteen cents so that was the initial moving peg and now it's around 3.02

because we were also kind of tuning the uh smart contract that that's in charge with kind of changing the moving peg inside the system um and now kind of it's tuned but we're still waiting on the market to kind of learn about raw and learn how it works so right now it's about 3.02 how has that performed versus your hopes or expectations it's pretty much in line with them i was expecting people to trade way above the moving peg and why devaluing itself uh i think we will still see a couple of weeks of that if not a couple of months uh but at some point i we hope like by pushing kind of educating our community we hope to see um kind of rise stabilize stabilizing

itself a bit more so uh stefan i actually started tinkering with this around launch a couple days after after launch and as bankless listeners might know i'm really bullish on ether and so i put some ether into into reflexer and i borrowed some rye and then i sold rye into uniswap for more ether and i put that ether back into reflexer and so not only was that good because ether price went up and i got more ether but also rye has gone down in price so my collateral that i leveraged up which is uh not financial advice don't do that unless you know where you don't know what you're doing uh that went up and then the what i owe went down and so when i finally repay my i'm gonna have

to buy that off the secondary market and then and then go back to reflexer and burn it and then i can get my eth back uh so yeah pat myself on the back that was a good move let's talk about these market forces market dynamics um why why did you suspect that rye would devalue itself initially why was that your your uh assumption is it because it's like me yes and also uh generally you can see you know dollar coins pet coins trading slightly above the peg kind of for long periods of time so we were kind of expecting especially in the beginning right to devalue itself in order to kind of bring the market price down

um this kind of ends also the fact that we have a an incentives campaign running uh that kind of messed a bit with this how the system works uh we kind of expected the system or rye to go down in value at least initially okay so what what do you expect for it to happen out in in the long run uh do you expect it like let's go out um two years let's go out next two years uh what would you expect rye to do over that time frame or do is that even a possible question to ask it's tough to say because the system is just meant to look at what the market does and then it reacts to the market so if the market trades right at the premium then ri will go down if it

trades right at the discount it will go up um so it's really hard to say like in two years what will happen my i would say that at least in next year bry might have a slight bias to go down uh because again there will be kind of adoption there might be demand and people will trade right at the premium okay so if there is rye demand that is going what is that going to do to the rye price um so if if like the market price of rye on uni swap for example is above the target that we want uh this target will start to go down because the system wants the market to bring the market price down and close to the target even below the target

um so kind of there's kind of we we saw that in our models when we kind of simulated rye we saw that if there is kind of a continuous premium on the market price uh rye will just probably reprice itself to zero which is like not that good so we have some ideas now to kind of tinker with the controller and make it work even if there's kind of a constant premium for a long period of time um but that's kind of what you can expect so if the if we don't do like we will change some things but if we don't do something now you will kind of see a slight bias to go down in terms of kind of y value so the way amine shows this or describes this as kind of like as a spring right it kind of like

oscillates back and forth um but the the goal of the spring the controller as you mentioned is to restore and return ride to some equilibrium point right right the idea is that in rice case there's not a fixed equilibrium like the target changes it's not like fixed to one dollar or to something of the target itself changes instead of doing something else to bring the marketplace to a target and what determines what that target is i think you mentioned this earlier but but that's always the part that gets people hung up and including me the system itself so we just said in the beginning like why is this like it's

3.14 bucks inside the protocol and from that point on just the controller or that yeah the smart contract that changes the moving peg just did its job and change the moving peg down because it wanted people to just sell right and bring the market price back down to the moving peg and what are the inputs to that system um so kind of the controller the pid controller kind of has three terms it has p i and d p is the proportional so it kind of takes into account the current difference between the market price of right and the target that we want for rye uh the integral kind of sums the error that kind of over let's say 24 hours that all the errors that we

saw between market and target price and it kind of sums all of these and then it sums the i term with the p term uh and then it kind of spits out a result and that result is kind of the pace at which the moving peg changes in the protocol and that basically the market kind of affects what that pace is and how the moving peg changes like if uh amin likes to use this example if joe lubin comes tomorrow and puts like 10 billion uh in east in the system uh he can crash the protocol and then the moving peg will quickly start to go up because it wants people to buy rye and bring the market price back up so in a way kind of the market decides

is it something like a trailing average of of rye price is that it's kind of a the net effect of this or is that not accurate not really like you can think of that in terms of the integral term uh but it's not really a trailing um okay it's not it's just it just is so the price just is and then at every couple of hours the system says okay the market price is this i want this to happen so i will make the moving peg now go that way and that's it like it just is and is there is there an oracle in this system coming from the uniswap trading pair yeah yeah so we have uh we use we use chain link for ease usd uh for now and we use unisof v to our pool to get the

right east price and then using chain link we get raw usd and then that goes in the controller did i did i notice a hint of uh uh wishing for better oracles in that in that comment yeah perhaps talking about that we we love chain links like it was really easy to use them we still want to use something that doesn't really need human management so ideally also another uniswap pool that just takes the heat price and we use that in the system do you think that's coming hopefully yes especially with unisoft v3 so hopefully yeah what's so interesting about this from a high level right is we've we've had kind of like david use this term money gods

right which is really the the math or the code the the the protocol behind the the force of money right so most famously the trust in code for bitcoin is there shall be 21 million and fixed supply and we cut it in half every four years the trust in code for something like rye is you have eth and then it's this pid that's that's the code this spring mechanism behind the system is the thing that you're trusting in and that is all written in smart contract code on ethereum so it is also equally immutable as the entire ethereum platform i think that's super cool

yeah that's that's what we're shooting for so many people ask like but why not put more collateral types in brian i'm like well if we can have rye and then we can have other systems like cry which would be great so like nothing stops us from experimenting a bit more with money guns okay very cool we're gonna get back to this conversation with stefan i know dave and i have dominated i've just got a couple more questions about how rai has done since launch and then we're going to get into some of the listener questions and maybe we'll get some spicy takes from you stefan about some of the other elgo coins that are out there and recent events but before we do that we want to thank the sponsors that made

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that is on the reflexer.finance website because i want to ask you about another success criteria of a an aspiring staple coin and that is total supply how many units are out there right now so how many units of rye are out there right now what is the market cap of rye and is that meeting your expectations so far so the market cap is around 100 million dollars right now uh the supply kind of floats between 32 and 34 million rye um it's pretty much in line with what i expected we actually expected a bit less simply because people don't yet understand right so it's going pretty well up until this point yeah you know mentally i

mentally for a second there that math didn't check out to me but then of course i remembered that rise of course worth three dollars right and not one dollar so it you know that math checks out now um let's talk about another i guess area of the success of a stable coin that is uh what it's being used for ultimately a stablecoin has to ascend through a i guess monetization path maybe the first step some would say is being used as a collateral source for other assets maybe a collateral source in d5 but eventually you got to start on being used as a medium of exchange and a unit of account and that can happen sporadically in all sorts of different

ways as we've seen with bitcoin and ether so far and other stable coins where are you seeing the use cases for rye right now and where do you expect to see them in the future right now i would say use cases are pretty much defy centric so kind of money markets um derivatives so that kind of stuff actually rye can be used in two money markets right now uh and we will have a third one by the end of the month um so we we have like money markets on premium and on fuse um and we're also working with a couple of people for example to add rise a cloud to type in projects like uma uh and other synthetic platforms that will probably come in next month so what's the plan to grow um this is a question from actually some someone else

on the bankless team our editor what's the question to grow from 100 million where you are today which is not too shabby by the way uh in the not too distant past that was um where dye was in fact i think dave if i'm remembering correctly when we had mariano on it was like around 100 100 million or so that was in in 2020 so sort of mid-2020 you guys are already there what's the plan to get to 1 billion 10 billion 100 billion right uh i think it's many use cases so as you said ryan needs to become a medium of exchange on ethereum so people need to use it for something more than just d5 they need to use it for payroll um they need to use it for

bounties so i would say implanting the idea of rye as money is important for club right to grow so this brings me to a question from one of our listeners who came in from the discord iggy does reflex labs have a token yet and like of course we're talking about rai as a token a monetary token is there a token associated with reflex or labs and if if yes what does that do yeah so we we plan to have a token tomorrow we will actually have the first genesis community distribution for that token um the idea is that the token is very

similar to mkr in a way because the protocol rye is very similar to dye the token will act mainly as a backstop for the system so we will protect the system it will kind of ensure the system against the black swan event for example and in the long run even if like rye is meant to be governance minimized like very very few components will be governed by humans there will be some things like oracles for example uh that need to be upgraded in the long run and people can vote on those upgrades using the token and then is it also theoretically possible to vote out governance like we're like oh you know we've upgraded to unit swap v3 there's liquidity on your swap v3 we

don't really see any viable like upgrade paths ahead of us uh which means that the only viable upgrade path after that is to vote to have no more votes ever is that something that you guys uh consider uh that's what we want to do although the idea is that like we remove control we remove most of the control we kind of show the community that we're very serious about not having humans in the protocol and then we hope that the community will just take know we'll take our kind of position and they will they will vote most of the other remaining control out uh if possible if not they need to decide right so it's a it's a governance minimization process and and hopefully it ends at you know zero

governance but but there's more to the to the token as well you talked about it's a backstop for this system so let's talk about that for a little bit but maybe the community let's also talk about the way that the system as a whole captures value in the relationship of the flx token in that scenario right so again flx is very similar to mkr it has kind of exactly the same mechanism for now there is kind of a stability fee inside a protocol uh people need to pay that stability fee when they meant by these stability fees accrue in the protocol's balance sheet and kind of after a certain point the system itself will try to auction a portion of the stability fees in exchange for flx tokens

and then these tokens are automatically burned for the flx token itself is there any sort of uh incentive system uh that you guys have going any kind of liquidity mining uh what does that look like most like most of our campaigns and rewards right now are focused on kind of growing rice having liquidity to make sure that unstoppable is liquid that the uh price feed cannot be manipulated easily uh we don't really have any plans for flx we kind of focus on growing the protocol making sure rye is healthy and then we will see if something else comes up very cool here's a question from um bankless listener above average joe is float on your radar and if so how would you compare their plan against rye

and i've got to be honest i actually don't know what float is maybe you do stefan yeah it's another attempt or design of creating a non-peg stable asset i don't think it's live yet i just heard about the protocol i didn't really check it um i think they they read they wrote an article about them and us and comparing us but i didn't really check them in depth can we talk about that as a category because we're in kind of recent news um faye has been a uh attempt at a crypto dollar maybe using our terminology um that is uncollateralized and that has uh recently come into the scene with

like with a massive amount of market value at the very beginning it's it's been a little bit shaky since that what's your take on fae and similar designs i would maybe just comment about mechanism design in general um i don't think a mechanism should force the market to do something i think the market should be allowed to do anything the mechanism should adapt what the market uh does not not the other way around so i think people who anyone who builds a protocol or a mechanism should take that into account and is that something that they didn't do i i haven't been tracking fey myself to the nth degree but it seemed that there were a lot of kind of

non-mechanism human intervention sorts of decisions that were involved and are continuing to be involved to get it back to stability what it needs to be is is that sort of what you're commenting on yes yes i didn't really analyze their mechanism in in detail um i just know that they they probably need to pivot right now i i think that's what the team is doing and i hope that they managed to bring uh faye back to one dollar what are some system do you think do you think uh maybe this is a philosophical question but do you think uncollateralized stable coins can ever be or crypto dollars can

ever be successful or are they fundamentally flawed we have an example a model uh there is kind of an asset called frax that's uh right now backed mostly by usdc uh but their collateralization ratio is on average below 100 and they managed to kind of make that work up until this point and it's working pretty well um i think people might manage to build something that's maybe below 100 percent but in general i don't really see these mechanisms kind of long-lasting in general i kind of think overclockerization is the security buffer that every stable asset needs to have so fracs to your point that's kind of a hybrid right it's not completely

yeah it's unique yeah what other staple coin designs are out there that that you do actually like i mean die of course because we we took inspiration from them um i just hope they would at some point maybe take the same decision that we took and they detached from the dollar and have negative rates do you know what it's like i um i actually like i get where you're coming from and there's an element of me that hopes for that but um there's also an element of like i'm glad that experiment is running on the side and that rye has its own experiment and that both of those experiments can come to fruition we get to see what the best experiment actually was i feel like that adds some additional uh resiliency to all of

ethereum's monetary experiments but i get what you're saying i've got another question coming in from the discord about plans to migrate rye to ethereum layer two what are plans there so we cannot really migrate the protocol itself like smart contracts are already deployed we cannot really migrate with all the ether that's in the protocol we can instead bring right l2 for example on loop ring or some other chain side chain or l2 where it can be traded or used in e5 and that i think that's the long-term plan and the reef the the rye system the protocol has to actually stay on the l1 to maintain that governance minimization

uh because l2s are don't have the same level of trust assurances that the l1 does rye can go anywhere but the rye credit facility the actual protocol the actual application that has to stay on l1 right yeah that's the idea so we we need rye to live in manhattan and then it can kind of go and take a trip on other streets or cities or whatever so yeah that's that's the idea love that manhattan analogy uh stefan uh for folks that have been intrigued by this entire conversation in the bankless nation and they're looking to kind of get involved in what reflexer and what rye is up to how can they get involved

i think the best way is to check our twitter so we are at reflexor finance and we also have links to our discord there and our website and that will be in the show notes as well guys of course if you are a d-gen like my co-host david hoffman here you can also experiment with going margin long on your eth using the rye platform there's definitely some alpha to earn if you do it well but of course risks and disclaimers as i say that eath is risky so is margin so is crypto in general in fact all of defy is risky you could lose what you put in uh we're headed is risky and eth on margin is even riskier

thanks david i feel like you said that for yourself too we are headed west this is the frontier it's not for everyone but thanks so much for joining us on the bankless journey thanks for having me thank you siphon hey we hope you enjoyed the video if you did head over to bankless hq right now to develop your crypto investing skills and learn how to free yourself from banks and gain your financial independence we recommend joining our daily newsletter podcast and community as a bankless premium subscriber to get the most out of your bankless experience you'll get access to our market analysis our alpha leaks and exclusive content and even the bankless token for airdrops raffles and unlocks if you're interested

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