16 February 2021
SN
10:26
Spencer Noon
Hey everyone, reminder that we have our AMA with Reflexer today @ 1pm EST!
M
10:31
Matt of UniWhales.io (WILL NEVER ASK FOR FUNDS)
I'm curious about their "Governance Minimization" - Many of us think that one of the reasons Indexed.finance has done well is due to their light governance. What specific advantages does there governance have over Maker and Reserve?
SN
10:33
Spencer Noon
Great question.
10:33
Any others? Drop 'em in
N
11:03
Nikita
Can you please explain how collateral auction mechanism and debt auctions will work? Specifically, we have seen multiple troubles with similar mechanisms ( for example at maker dao). What are the protection methods in case of major volatility?
SN
12:31
Spencer Noon
🚨t-minus 30 minutes!
SN
12:57
Spencer Noon
⚠️ 2-minute warning!
Ameen joined group by link from Group
C
13:00
Crypto AMA Bot
spanktoshi, let's jungle boogie.
SN
13:01
Spencer Noon
Oh hey @spanktoshi, welcome back
13:01
Let's get this started πŸš€πŸš€
A
13:01
Ameen
Hey, great to be back πŸ—Ώ
SN
13:02
Spencer Noon
Please welcome @sionescu and @spanktoshi of Reflexer to Crypto AMA!
S
13:03
Stefan
Hi everyone πŸ‘‹
SN
13:03
Spencer Noon
Let's start with some intros -- Stefan, can you tell us about crypto bio/background and how you ended up working on Reflexer?
13:04
Then, can you give a quick update on what Reflexer is, plus how it's going today? We'll then dive right into questions
S
13:06
Stefan
I worked for around 3 years in crypto doing various things from scaling solutions to financial instruments. I then ended up as a Binance X grantee when I did most of my stablecoin research and found out about the initial design that DAI was supposed to have years ago.

In March last year when DAI broke way above the peg I coded a demo of the initial design and pinged Ameen about it. We didn't know each other before, I just knew that he wanted to build something called Metacoin.
13:06
We decided to work together and bring the initial Maker vision to life and that's how Reflexer started.
A
13:07
Ameen
I was annoyed at Maker going gov maxi, published the metacoin paper, then was lucky enough to have Stefan show up with the skills to build everything and hire me πŸ™‚
S
13:08
Stefan
In reply to this message
Reflexer is a project where we seek to build non pegged, stable assets. Think of how EUR floats against the dollar.

We are building an asset like that called RAI. RAI is backed by ETH and managed by an on-chain, PID controller.
SN
13:09
Spencer Noon
Cool. Anything else you’d like to add before we open things up @sionescu?
S
13:11
Stefan
Just that I'm excited to finally build a stable asset that's not tied to fiat 😊
SN
13:11
Spencer Noon
πŸ‘Œ
13:11
Alright folks, have at it.
13:12
There is a lot to unpack with the mechanism @sionescu, and I'd venture to guess many of the folks in this audience don't have an understanding of it. Perhaps you could walk us through some of the core parts in more detail?
13:13
It seems like MakerDAO was design inspo, so feel free to weave in comparisions when appropriate. I think that'd be helpful since most folks understand it quite well
S
13:13
Stefan
In reply to this message
The same advantages that Uniswap has vs CEXs.

You can't change the rules, I know what to expect. As a dev that builds on top of you, it's way easier to adopt and stick to your infra when you can't destroy my work with 1 governance proposal.

There's also the part with social scalability:

http://unenumerated.blogspot.com/2017/02/money-blockchains-and-social-scalability.html
MZ
13:15
Maya Zehavi
What’s the time expectation (or TLV) expectation before u can launch an automated PID? Any estimate from simulations?
S
13:15
Stefan
In reply to this message
The design is actually simpler than it looks.

Instead of having a peg (essentially a number) that always sticks to the same value (e.g 1 like in 1 USD), the "peg" moves up or down in RAI's case.

It will move down if the market price of RAI is above the "moving peg" and up when the market price is below it.
SN
13:16
Spencer Noon
What is a moving peg?
S
13:16
Stefan
In reply to this message
This design allows for both positive and negative rates unlike DAI that can only go to 0% with their stability fee.
SN
13:16
Spencer Noon
Also, what is an on-chain PID controller?
S
13:17
Stefan
In reply to this message
We will publish this in the next couple of weeks. For now our estimate is that at least 3% of the RAI supply must be on the exchange/s from which we pull market price data.
13:18
In reply to this message
Think of DAI: it should always come back to $1.

In RAI's case, the moving peg can start at any value (e.g $5) and from there the protocol itself will make it move up or down.
13:21
In reply to this message
It's a smart contract that reads some kind of data from an oracle (in this case, the market price for RAI) and does some computation according to specific rules.

PID control is used in the real world to regulate things like temperature and pressure in industrial systems.
SN
13:24
Spencer Noon
In reply to this message
Can you help us build more of an intuition about this? Why is it desirable to have a moving peg? Can you walk us through a few scenarios and how the peg changes in those cases?
S
13:24
Stefan
In reply to this message
Currently we're using an auction mechanism similar to Compound's: the protocol offers a fixed discount in collateral auctions and you can bid with RAI and buy ETH at that discount.

The collateral auction/liquidation mechanism also has another difference compared to Maker: you can attach an insurance contract to your CDP/position and in case you get liquidated, that insurance contract can first try to save your position. In case it can't save it, you get liquidated.

As for debt auctions, currently the logic is very similar to Maker's although we have the option to add a staking pool that also protects the system. The staking pool would get diluted in case the protocol is underwater.
W
13:25
William Phan | Hex Capital
if governance is allowed to turn off the PID controller during unstable situations, why is there a need for a PID controller? How does the system return to stability with no control scheme in place?
Nd
13:27
Nick de Bontin
What are the main use cases you see for RAI?
S
13:29
Stefan
In reply to this message
The protocol has more flexibility in setting its own monetary policy.

For example, if the market price of RAI is above the moving peg, we need a way to bring it down. The problem is that no one might want to mint RAI and sell it on the market (think of Black Thursday).

In this case, the protocol will devalue RAI. Basically, the moving peg will start to go down and each unit of RAI inside the protocol becomes cheaper than before.

This allows people who have open CDPs to leverage even more because 1 unit of RAI is becoming cheaper compared to 1 unit of ETH.

Moreover, RAI holders expect that, because the peg is moving down, the market price will most probably follow at some point. This compels holders to sell now instead of later when the market price already depreciated.
13:32
In reply to this message
There are cases such as market manipulation when the controller can do more harm than good,in which case it should be turned off.

The controller automates rate setting and eases the burden on governance which is now free to take care of other aspects of the system.

In control theory you also have scenarios where the controller turns off in case it detects an anomaly. This is to make sure it doesn't harm the system instead of helping it.
SN
13:33
Spencer Noon
In reply to this message
Do any existing networks use PID controls?
S
13:36
Stefan
In reply to this message
They approximate a controller. Gauntlet wrote a small article a couple of months ago where they mentioned that things like AMPL look very similar to a controller.

The space is heavily unexplored though so we had to build our infrastructure from scratch.
A
13:36
Ameen
Bitcoin uses a rudimentary control system (not PID) to manage its difficulty adjustment - would have been hard to stick to "immutability" if humans were in the decision loop for what the difficulty should be πŸ™‚ https://breakermag.com/difficulty-adjustment-is-why-bitcoin-will-never-die/
JH
13:37
Jared Hedglin
What parameters will governance be in control of when the system launches?
MZ
13:37
Maya Zehavi
Will volumes & liquidity be leading parameters?
S
13:38
Stefan
In reply to this message
Initially all of them. It's a complex system and removing governance from day one is not practical.

We have a very detailed plan for it though:

https://docs.reflexer.finance/ungovernance/governance-minimization-guide
SN
13:38
Spencer Noon
In reply to this message
What makes Reflexer not an approximate of a controller?
S
13:38
Stefan
In reply to this message
Mainly liquidity but yes. If there is more liquidity, it's harder to mess with the controller and make the system unstable.
A
13:39
Ameen
In reply to this message
Fun fact - most central banks have guess and checked their way to discovering control theory - most of the monetary policy formulas they use as "rules of thumb" approximate PID controllers - https://www.imfs-frankfurt.de/fileadmin/user_upload/Events_2018/MMCI_Conference/Papers/09-Raymond_Hawkins-Monetary_Policy_and_PID_Control.pdf
S
13:41
Stefan
In reply to this message
We essentially apply canonical control. For example, the proportional is the delta (difference) between the RAI market price and the moving peg.
SN
13:42
Spencer Noon
How stable do you expect Rai to be in practice?
13:43
Also, dropping in a qusetion from Twitter:

bradygreenick asks: How will Reflexer plan to make RAI as ubiquitous as stable coins on DeFi? Will there be like-assets available to pool with on protocols lke Curve?
S
13:44
Stefan
In reply to this message
This highly depends on RAI liquidity and on the controller parameters we set. That being said, we want to get to a point where the RAI market price and the moving peg are close to each other almost all the time (think of DAI) and the moving peg varies by less than 10% per year.
13:46
In reply to this message
Yes we plan to talk with Curve about this and see what we can build together.

We will seek to integrate with other protocols ranging from money markets to options/futures platforms and show other teams how they can leverage the repricing mechanism behind RAI. We wrote a couple of examples and focused on money markets and options:

https://docs.reflexer.finance/rai-use-cases
SN
13:49
Spencer Noon
Does Reflexer have anything like Maker’s DSR to encourage minting of new Rai?
13:50
What about incentivizing Rai contraction?
S
13:51
Stefan
In reply to this message
DSR is actually a pretty bad idea.

All DAI holders would get "interest" if DAI were to have a moving peg and the peg would revalue/go up.
13:53
In reply to this message
Moving the "peg" up is actually what helps contract the supply or at least compel people to go long on RAI.

When the moving peg goes up, 1 unit of RAI will become more expensive compared to 1 unit of ETH. RAI holders will also expect that the market price will follow the moving peg at some point, meaning that if you want to make profit you should long RAI before the rest of the market.

This is a self-fulfilling prophecy because the fear of someone else going long will make you go long.
Adam Patel joined group by link from Group
C
13:55
Crypto AMA Bot
Oo ya, adampatel23. We up in this!
SN
13:56
Spencer Noon
Interesting!
13:57
Does Reflexer utilize oracles?
S
13:57
Stefan
In reply to this message
Yes. We have an oracle for ETH and one for RAI which is used to feed the market price in the controller.
SN
13:58
Spencer Noon
What are you using for those?
S
13:58
Stefan
In reply to this message
For ETH we're currently using Chainlink, for RAI a 16 hour TWAP from Uniswap v2.

Oracles will, for better or worse, still be governed in the long run and we're looking for solutions to make them more resilient.
SN
14:01
Spencer Noon
Makes sense.
14:01
30 minute warning 🚨
14:02
Do you expect the #1 use case of SAFE users (for the audience, that means user who generate RAI with their ETH) to be leverage?
14:03
Additionally: in reading your docs, it seems like a key assumption is that economic agents of Reflexer will be shorting Rai, using derivative products built on top, etc. -- are you doing anything to incentivize these L2 applications/primitives to get built?
S
14:04
Stefan
In reply to this message
Yes although compared to other protocols they can actually make money simply by having a position open. This happens when the moving peg goes down.
SN
14:04
Spencer Noon
How exactly? ELI5 πŸ™‚
S
14:07
Stefan
In reply to this message
The first integration we want to do is with something like Opyn. We'll post a bounty in the next week.

Additionally we plan to talk with other options protocols that have recently come out and present the case of RAI where you can take a put or a call depending on your expectations of how the peg will move.

L2 is still tricky because there's no clear winner so initially we'll focus more on existing L1 protocols.
14:10
In reply to this message
If the RAI moving peg goes down and if you levered with RAI, you expect that the market price will also follow at some point. This means that you'll be able to buy RAI at a cheaper price from the market and close your position.

Another detail is that while the peg is going down, your collateralization ratio goes up (assuming the ETH price doesn't tank) because each unit of debt you took gets cheaper compared to ETH
SN
14:11
Spencer Noon
Hmm interesting -- in what conditions would the Rai peg go down while the ETH price remains stable?
S
14:12
Stefan
In reply to this message
A surge in demand for RAI which would make its market price go up and thus RAI would start to be repriced down inside the protocol.
SN
14:15
Spencer Noon
Got it, thanks Stefan. 15 minute warning folks! Get your questions in please.
MC
14:16
Mariano Conti
Maker's collateral auctions are good for price discovery (no oracle needed) but bad for capital efficiency and composability (can't use flash loans for example), at least until dutch auction liquidations. how does Reflexer handle this?
S
14:19
Stefan
In reply to this message
We focused on composability and efficiency, hence the fixed discount implementation we have now.

We're thinking about moving to an increasing discount version in the future where the discount starts at a smaller value and goes up until it hits a cap.

Moving to dutch on Maker's case is a good move imo although I still prefer the fixed discount version because it's pretty intuitive.

As you mentioned, we're unfortunately opening the auction to a possible oracle attack.
14:20
In reply to this message
This is why I've been thinking of ways to add insurance in the protocol and potentially a staking pool that takes the initial risk in case the protocol is underwater but also receives part of the protocol's cashflow.
MC
14:21
Mariano Conti
πŸ’ͺ
SN
14:22
Spencer Noon
Thanks @nanexcool!
14:22
@sionescu final couple questions here
14:23
Can you explain Reflexer's token economics?
S
14:26
Stefan
In reply to this message
Sure. There will be a protocol token very similar to MKR.

We discussed with our community and decided that we will most probably stick with the surplus auction mechanic from Maker but also have a separate staking pool.

You can put your tokens in the pool and receive part of the surplus that's accruing in the protocol. In exchange for this, your tokens can get sold in case the protocol has bad debt.

If there is nothing to sell from the pool, then the protocol will mint new tokens using debt auctions.
14:27
In reply to this message
The staking pool won't be available in the beginning though. We will focus on making the system stable and self-sufficient.

The system can use part of the surplus to pay for updating oracles and the PID which are essential for making everything work.

This is why self-sufficiency will come first.
SN
14:28
Spencer Noon
Gotcha, super helpful
14:28
Okay @sionescu that's just about all the time we have for today -- thanks for coming on!
S
14:29
Stefan
It was my pleasure!
SN
14:29
Spencer Noon
Three final questions:
- when are you launching?
- best way to stay up to date on reflexer?
- best way to get in touch?
S
14:31
Stefan
In reply to this message
- Tomorrow πŸš€
- Check our twitter @reflexerfinance and join our Discord: https://discord.gg/QYBEw6Z
- DM me on Twitter @stefan__ionescu or you can find me in our Discord
SN
14:31
Spencer Noon
Awesome -- thanks again and thanks folks for tuning in! Until next time.