Stefan told us how he turned an old idea from a DAI Purple Paper into a new DeFi protocol.
Hello! What’s your background, and what are you working on?
Hi! I’m Stefan, co-founder of Reflexer Labs. Prior to Reflexer I’ve been a blockchain dev for about 3 years and worked on various projects involving scaling solutions (Plasma, when it was still a thing), financial instruments and stablecoin research.
I got into crypto during the 2017 bull cycle although heard about Ethereum in 2016 during The DAO hack. The main thing that drove me to crypto was the idea that you could have a group of people who pool together capital and focus their efforts toward a specific goal without an almighty government directing everything.
I got to work on Reflexer in early 2020. Reflexer is a project focused on building non-pegged stable assets. Instead of creating a token that has a fixed peg representing a fiat coin on-chain, we’re building assets that start at an arbitrary price and then their “pegs” (floating target prices) move around in response to market forces.
The first asset of this kind is called RAI. RAI is created similar to how Single Collateral Dai was minted back in the day: anyone can deposit ETH in the RAI protocol and then issue RAI until they hit a minimum collateralization ratio. Right now people use RAI to lever on their ETH or take advantage of its floating target price (for example, through arbitrage).
What’s Reflexer backstory?
The idea behind Reflexer and RAI isn’t mine. It came from the DAI Purple Paper which was written by a couple of OG MakerDAO team members years ago. The Purple Paper hints to the fact that DAI was not supposed to be pegged to anything. Rather, it was meant to have a floating target price (aka moving peg) that changes according to what the market price of DAI is on secondary markets.
The simplest way to describe the mechanism is that the target price would start to go up when the market price of DAI was below it and, in the scenario where the market price was above the target, the target price would start to go down. This would compel market participants to bring DAI’s market price back and close to the target price. This whole mechanism is now the main driving force behind RAI.
Prior to launching RAI, we had a 3 month mainnet demo that showed how an asset doesn’t need to be pegged in order to be considered stable. We got to this point with the amazing support and funding received from our investors such as Metacartel Ventures, Paradigm and Pantera.
The main thing that made me want to build RAI is that I truly believe DeFi has to have components which are completely detached from traditional finance. Relying on the US dollar means that when (not if) it will explode, DeFi will go down with it.
What went into building the Reflexer?
It took us almost 11 months from the moment we started to draft the RAI whitepaper until we officially launched it on mainnet. During this time, we focused most of our time and resources on R&D for RAI’s PI controller (the mechanism that changes RAI’s target price) and on securing the protocol. We spent three months testing a demo version of the protocol in production and had multiple audits for different parts of the system.
I’d like to mention how much the Block Science team has helped us in designing RAI’s controller and coming up with parameter recommendations. They’ve given us invaluable insights into the control theory field and helped port ideas in the smart contract realm.
To be fair, the most challenging part of the project isn’t technical. We realized it will take time and lots of educational material so people start to get comfortable with the idea of a stable asset that’s not pegged to anything. Going forward, we will have to focus on integrations, partnerships and documentation if we want RAI to succeed.
What’s your business model?
RAI works similarly to Multi Collateral Dai: every collateral type has its own specific stability fee. Stability fees accrue in the protocol’s balance sheet and from there, governance or an autonomous smart contract can decide how they’re used.
I don’t consider DAI a competitor for RAI because we’re serving different sectors (long term focus on real world collateral vs staying crypto pure) although there is a common thing in both of them: people use them to lever on their crypto assets.
What’s your position on the regulatory landscape today?
We all heard about the STABLE act and how regulators are paying more attention to the stablecoin industry.
What are your goals for the future?
We can’t wait to get to a point where the vast majority of RAI’s components are automated! We’re also preparing infrastructure in order to partner with other projects that want to issue RAI like assets.
We think there will be many floating stable assets issued in the next few years although in order to get there, we first need to prove that RAI works and has a clear protocol market fit.
What are your future thoughts for the DeFi market?
I think DeFi will start to shift from governance maximization to delegation and automation. As a result, developers will have even more time to build and ship products and more flexibility in taking decisions. Most governance decisions will focus on capital allocation as opposed to every single parameter change in a protocol.