RAI: The First Stablecoin - Bert Kellerman

Transcript

okay hi i'm bert from reflexor labs and i know the title is a little provocative just a little bit but hopefully i can convince you uh that rye is the first stable coin okay so when you think of stable coins you might think of these these are dollar pegged centralized assets these are essentially certificates for off chain usd so when you hold these you have to have there's third party trust involved you have to believe that there's a dollar off change somewhere that corresponds to your digital representation because they're representing usd t usd they are also motivated to follow aml guidance

so the digital representation online they all have blacklists basically these are the usdc and usdt blacklists you can see the trend there as i was making this the number kept going up i had to keep updating the graph those are centralized tables you might also think of of these these are dollar pegged decentralized stables so these are stables that are represented at least in some part by uh cryptocollateral and then there's um unpegged decentralized stables and that's right uh rye is a fork of the maker dye code base

everyone knows die 10 billion die in circulation and okay this is one of the issues with decentralized stable coins that rye was born to fix supply demand imbalance okay and what that means is the market price of a stable coin is not trading at the redemption value of the coin uh why does this happen uh all state uh collateral-backed stable coins uh exist as debt to someone who has minted them against their collateral so if there's excess supply or excess demand the market price will uh will deviate most most common with collateral shocks

if a coin's backed by collateral the collateral drops people who own the debt in that coin don't want to get liquidated so they buy their coin and you get these scenarios here why is this bad okay so if you don't want to get liquidated and you own debt in one of these coins uh when you pay your debt back you're getting a dollar worth of credit in the system but if the market is deviated like this you have to pay extra just to pay your debt back you might have to buy the coin at a dollar five on the market just to get a dollars worth of credit in the system so is this stable

in these situations in these time frames these behavior of collateral back stable coins i think you can say it's not stable okay and that's how rye was born so a history of maker dow is up here single collateral dye launched in 2017. it was backed only by ether there is a technical spec envisioned at maker called the purple paper and this was how to deal with the supply demand imbalance problem ultimately the purple paper was not implemented and multi-collateral dye was launched in 2019 uh the reason it wasn't implemented uh was

the pmf of dye was you know the maker team really wanted one die to always be equal to one dollar that's what it boils down to so rye looked back and said you know what we think the purple paper should have been we think fixing the supply demand imbalance problem is more important than always being worth one dollar so ry ry is only backed by ether uh we think ether is first layer money so we want a stable coin that is only um that only represents our first layer money minimal governance so this is a core value of the team

and the protocol did anyone read uh ray dalio's book this year on the history of reserve currencies anybody okay so my take away from that book is that every reserve currency has failed in history because of humans so humans eventually become externally motivated and they don't make the correct decisions for the system so we recognize that we recognize the fallibility of humans and we do not want to have governance we are not going to have governance meetings we are not going to be voting on parameters we are not going to have any of that this is eventually going to be rye is going to be for you it's not going to be

ours it's going to be for the community that's a core value of ours algorithmic rates that's how stability is achieved i'll explain that more and because of the algorithmic rates we end up having a floating redemption value so it's different different than most dollar paid all dollar pegged stable coins okay how right how is right made it's made like any other collateral backstable coin user locks ether in a reflexor safe and with that ether is collateral you can mint rye as a loan with a very small annual rate right now it's point five percent

so once you meet rye um you can do whatever you want to usually involves market selling it and going along another crypto or farming or going leverage long eth it's up to you so those are the mentors and then there's people who just want to buy and sell uh stables so entering and exit stables as your outlook on the market changes okay how is rye stabilized so first some definitions the redemption price that's the face value of rye that is the backing the amount of ether that backs each rye that's enforced through a process called global settlement that we inherited from

maker if the system was ever to go through this then one rye would be redeemable for that amount of ether and then the market price so we're going to define it we're not going to act like it doesn't exist we're not going to hope it just trades at the right value we're going to define it because we're going to influence it with the money god that's reflexer's mascot is the money god the money god's an autonomous smart contract controller that makes decisions to stabilize its sole purpose is to drive the market price to trade at the redemption price okay quick overview of feedback control it's

a type of feedback control it's the controller it's a loop uh you have a controller the controller does something to a system and the system produced an output that is measured so input to this uh feed to feedback control is a target value we have an actual value coming from the system and the controller looks at the error the difference between the target and the actual value and then the controller provides some system input in physical systems this could be opening a valve for controlling fluid could be controlling voltage temperature a variety of things

filling up a glass of water at a sink is feedback control okay your hand on the knob is the controller the system is the faucet the cup the water your eyes looking at the water rising as it gets towards the target and then you that's feedback and as you see it approaching you control with your hands you slow the water down okay so moneyguard it's a type of feedback control called a pi controller all you need to know about that is it it considers two types of error it looks at current error and then it looks at historical error just like when a central bank meets to determine rates they look at what's going on with the economy right

now and then what's been going on the past eight weeks it's the most common type of controller deployed in like industrial control it's good for noisy systems and there's even research that shows that modern monetary policy resembles this type of control pi is a subset of pid control so we think we we're going in the right direction okay i think this okay this is a video a simulation of what a pi controller looks like so let's use the example of like a heating system in your car you're going to turn the dial to the red value the system is the blue value it's going to adapt

the green is the air you can ignore the green so you get in your car it's 30 degrees outside and you want it to be 70 so you turn the dial up and the system starts to respond probably sending voltage to a heat coil or something in a car i don't know you want it to be hotter so you turn the dial up the system responds you want it to be colder system responds and attempts to converge and if you can't make up your mind the system will still attempt to converge even if it can't all the way it's called marginal stability okay so how do we use the principles of feedback control to make a stable coin

trade at its redemption value okay our desired market price is the face value of rye it's the redemption value that's what we want the market to trade at and the actual market price is where it is trading so we have a smart contract that looks at the difference and it sets awry rate and that is going to appreciate or depreciate rye and influence the market to converge so uh our previous example before with the other stable coins and the elevated market price if we have that with rye in this situation we have the market way

up so the controller needs to create cell demand and how does it do that oops a little lag a lot of lag so it decreases the redemption value okay to influence people to sell if you hold rye it's depreciating you're gonna sell it if you are a mentor your future debt is getting cheaper so it makes sense to mint and when you meant you usually sell so everyone is incentivized to sell and the money god will do that until there's convergence and the opposite for the opposite scenario markets trading under we need to create by demand

and all participants are incentivized to buy okay so how's it going this is our v3 rydei pool from about the last eight months a lot of volatility in the beginning when it launched but i wanted to include uh redemption price of rise in red in the market the spot market is in black so you can see we started at about 302 over this period and we ended at 302 5.

after our initial volatility the total deviation percent deviation after august was about plus or minus one percent was the max so you can see uh the the controller opposes the market to induce uh convergence after august this period of um the markets under the redemption price is um positive uh finally here we had um our curve pool we our curveball came online so we had a lot of demand for rye and so market went up and the redemption value is decreased and eventually that will converge so it's free-floating but at any time

the the amount of ether that backs each rye is equal to the redemption price in red okay so why is ride the first stable coin okay it ensures the stability of the market price to the redemption value okay this is important you're not stuck with long periods of time where you have to pay a premium on your on your debt to repay your debt and the important thing it can do this and only be backed by ether i forgot to mention something back when we had all the three charts of the deviations um

every other most stable coins deal with that let's go back because this is sort of important how do most stable coins prevent this or deal with it they put other stable coins in their system as collateral that's the common way to deal with this typically it's usdc maybe it's a decentralized coin that is ultimately backed by usdc so they avoid this by centralized collateral and that's the one thing we did not want to do

because we're about minimal governance and eat only backing rye so again we can force convergence of market to the redemption and be maintain the purity of each only collateral and the icing on top it's completely autonomous with a smart contract controller okay governance minimization this is our timeline we're minimizing it we're freezing parameters the first phase is in april we don't want to have control the second phase is in august that's happening what's going to remain uh ungoverned at that point would be the pi parameters and oracles pi parameters because we're still fine-tuning

and we want to make sure we're um we have the best parameters we've just turned on the historical error i mentioned pi controller as two types of error we've just we're looking at enabling the historical error soon and so we want to fine-tune that to make sure it gives the right trade-offs uh and then oracle's oracles are third-party so we don't want a long-term dependency we don't want a third party to be able to take the system down by turning off an oracle so those will remain okay and so last year's been pretty busy with integrations we've had about 40 integrations we have several dows holding rise of reserve currency we're on several lending platforms some

l2s exchanges so i've been pretty busy okay so in closing okay all of these on the left these are dollar pegged uh coins they are equal to one dollar always that's the redemption value but uh one rye is equal to one ride thank you [Applause]