RAI Newb Explainer

Getting Started with RAI

RAI Basics

Goal: a cryptonative asset with a floating peg, backed by ETH and algorithmically maintained to be stable for the Ethereum economy.

RAI by Reflexer Finance

RAI Basics TLDRs;

RAI behaves similarly to USD when the Federal Reserve changes interest rates, QE and QT. RAI is automated and instead of being backed by gold or nothing, RAI is backed by ETH and uses the redemption rate (interest rate) and auctions (QE / QT) to maintain price stability.

RAI is a simple central bank

RAI is the Federal Reserve as a robot

RAI Price

RAI is stable asset with a floating peg or exchange rate

RAI has a market price and redemption price (algorithmic price)

backed by ETH collateral (overcollateralized)

when user locks up eth, they mint RAI (take out a loan of RAI, long eth)

when user pays back their RAI loan, they can withdraw eth

RAI Redemption Rate (interest rate)

the stability is managed by a redemption rate (similar to interest rates)

redemption rate is made up of p rate and i rate

rates react to the error (deviation or fluctuations) of RAI’s price price

RAI price (initial redemption price) was set at launch to 3.14 (initial market price)

1 RAI = $3.14 USD

RAI redemption price changes based on the redemption rate - the error between the system’s redemption price and the current market price

RAI Price TLDR; RAI is stable because it’s backed by ETH. Its price converges around $3 based on the redemption rate (like an interest rate), that stabilizes the price.

The redemption rate is based on how much RAI changed historically from its redemption price (how far from expected price did it move? original redemption price of $3.14). When the redemption rate (interest rate) changes, people’s desire for RAI changes (demand), and that moves price back to equilibrium. RAI is self-referential, collateralized and autonomously maintained by an algorithm on ethereum.

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.