This is the epicenter episode 460 with guest Amin soleimani.
Welcome to episode of the show which talks about the
Technologies projects in people driving decentralization and the
blockchain revolution. I'm Brian Crane and I'm here
with Frederick Ernst today, we're going to speak with mean
silly money. He's been on the podcast before
today, we're going to talk and he's a co-founder of reflux or
rap, we're going to talk about reflexes today and the stable
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So with epicenter, we are looking to hire a community
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help us grow the audience and, you know, produce better
content. So if you're passionate about
Krypto, And creating content we want to hear from you.
You can find a link for applying in the for the position in the
show notes. And yeah, if you know somebody
else, you think might be good fit.
Just shared with them and would love to hear from you.
And if that mean, thanks so much for coming on, it's great.
Having you Yeah, it's great to be here.
So I was I was listening to this long three-hour discussion
devoted it just today. I think I'll finish you today
about tornado cash and, you know, all these things and I
heard you in there to sort of, you know, speaking a little bit,
the voice of, you know, pure crypto decentralisation.
You know, I think there's a lot of other voices in there as
well. I guess that sort of ties may be
a bit into reflexes, too, but I don't, Maybe you can have like a
brief background from you like, you know, who do you, how did
you get into crypto and then sort of, how did that end up
with you working on reflex sir? So I got in the crypto, like,
many people buying mushrooms on the Silk Road, a decade ago.
I lost all my money in macaques sometime.
After that, I learned solidity. Joined consensus, worked on
ethereum spark contract stuff, built some advertising stuff,
some micropayment stuff, payment channels, they channels,
eventually started sanctioning is trying to bring the crypto
blockchain, etherium micropayments Tech to porn and
Outsides and then later started reflex ER which makes a stable
coin Rye, a fork of maker does die so that it would stay sort
of eith maximalist. Also helped start Dows started.
Malik Dow back in the day. Made Medicare tell Ventures and
allow of code base and so helped build some of the early early
doubts, really generally excited about furthering tools for
people to maintain sovereignty. Have Yes to financial services,
be able to store money transact, privately securely.
I don't know how this made me the poster child of
decentralization in that last three-hour conversation that we
had. It was a Twitter spaces hosted
by John Gunther and her I think company like espresso sis is
like a privacy thing. So there are some
representatives from that on it. As you go is there there's a
bunch of people Zuko's obviously much, you know, he's an actual
crew. I prefer he's a veteran of the
space. I think I was just the angriest
and loudest person on the call because tornado is kind of
personal for me, helping with Malik Dow, we gave tornado their
first grant. I knew the people doing it, you
know, I like them. I'm not happy.
That one of them is sitting in a jail cell, right now?
It's not great. So I was very angry.
I was just expressing that on the call.
I think obviously the stuff has far-reaching implications.
A lot of the conversation has moved, not only from privacy to
also the implications of like censorship and stable coins,
having sensible collateral and stuff like that.
And so, you know, I've been able to contribute in multiple places
in this course. Several coins having sensible
collateral that sounds like maker the other poster child of
decentralization in this space, which kind of which is an image
that has kind of fractured over the tornado fall out a little
bit. And I really want to talk about
this at length, but before that, I think we kind of need to cover
our bases here and kind of understand how Rai works and how
it's different from maker. So maybe I think Listen as well.
Be familiar with how Maker Works and right built on a lot of
ideas from maker. So more specifically, the first
version of maker what's now called.
Sorry. So can you talk maybe a little
bit going from there? And what, you know, talking
about the point where you chose to go on a different path than
makeup. Yes, I was a big maker fan.
Dyfan. All through 2018 19 spec chain,
couldn't get bank accounts and so died was a really great
resource for us to be able to not lose all of our money in
eith during the bear Market back then.
I liked it as like cypherpunk money, it was like you know only
backed by eith, there's not a lot of governance, just kind of
works the motivation to Fork came.
Later in 2000, think 21. They started adding other forms
of collateral. They went multi collateral so
they started loading up on us-- DC and they started doing a lot
more governance and so I wanted to see what the sort of pure
decentralized. Sort of stable coin could work
like and so we forked off of multi collateral die and we made
Rai Rai has only a single form of collateral just raw Eve.
That accepts and you deposit the eith and fairly the similar way.
To Min, try the same way, you might MIT die.
The key difference between Ryan and die is that in order to
maintain stability, without having centralized collateral,
like u.s. DC, which allows people to short
die against us, DC, easily, and keep diet the peg die.
Awry allows the system to have negative interest rates.
Now, Felt like a negative interest rate, where you lose
money, it doesn't turn your hundred dollars into $99.
The way it works is that it changes the actual Peg price.
So in all of the other stable coin systems, they have a peg
price of one dollar. Rise says, well actually we're
going to make it less than a dollar and this is a way to
incentivize people to sell it and so it does.
So gradually over time and it expresses the rate at which it
will do so on, that's called the Redemption rate which is
shorthand for the rate of change of the Redemption price.
Which itself is like the peg. If you like maybe before we get
into like the exact mechanics over, I, maybe it would be worth
to speak a little bit because you because you said, you know,
there was like two points, right?
Basically that bothered you one was there was it became multi
collateral right. In today, I think it's something
like 70% is, you know, like USD see, right in maker and the
other thing was, like, the governance.
Can you talk a little bit maybe like Why did you think those
were big issues? And, you know, a little bit like
sort of division that you solve for r?
I, you know, sort of like opposing maker Yeah, so the two
issues, right? The multi collateral and the
governance. So at the time it didn't seem
like multi collateral and like the u.s.
DC in flow is going to be that bad right now.
It's really bad right now, they've like 20% crypto
collateral and like 80% you know us DC and USD see derivatives.
So it's not entirely unfair to called.
I look at USD see condom You know, I do that.
I thought it was a safe way to use USD.
See, you know, like friends, don't use, let friends, use you
SCCM protected. Well, we'll come back to whether
or not that's the case, but the, the sensor ability of the
collateral is an issue. Because if, for example, the
u.s. DC has to freeze the die,
contractor all of the die contract.
Then everybody holding die, has to, you know, is kind of stuck,
they need, they don't have a way of getting their money back.
And the people who have Ethan, the system were also kind of
stuck because they don't have a way of like, paying back their
debt. So it's not great for the
system. The governance stuff is also
something that we wanted to improve on a lot of the
governance comes from having multiple forms of collateral
needing to manage the different kinds of collateral and how you,
you know, assign risk to each one with the stability for you
etcetera. But another thing that you do
with the governance is you like vote to set in Straights.
So whenever die is not stable bunch of people get together in
a meeting and they say, we will raise this ability for you to
something higher. For example, if the dye is below
Peg, you know, so they did this before died went below Peg to
like 95 cents and then they raise this ability for you to
like 20% and then diary Peg. So the thing that ride does that
school, is it automates this process and zooming out to like
the vision of this thing? The vision of this thing NG is
like we want International cooperation on a reserve
currency. This has not been my goal for
that long. It's actually been a stated goal
of the central Bankers of the earth who have thought about
this for a long time. The way that they make progress
on this is they write papers in ethereum.
We can do more than writing papers.
We can test things. And so Riya is a demonstration
of a system that has a transparent rules based engine
too. Stabilize itself, that isn't
necessarily dependent on a group of people to go and figure it
out. Maybe let me, let me, let me
Loop in here so make a in its original design.
Also, if I recall correctly, had had a Target rate feedback
mechanism and they ended up not implementing this in and and and
it basically ended up introducing this governance
based parameter to do, you know why?
That happened. Yes, so basically it was a
political thing and it seemed at the time that the dollar Peg was
more palatable and would get more adoption than letting it
float. It was like it was a little too
weird. I don't know if people remember
at the time. Like I was sending twenty
dollars of eith when Heath was $20 is like pizza money, the
existence of something like died was a great Innovation because
it was the first stable coin ever that.
There and people could use to even transact, like using not
volatile asset. But yeah, the the original
design had the trf EM, Target rate feedback mechanism that was
Nikolai. The technical co-founders plan
was not to Peg. It it seemed he lost the
political battle and the pragmatists were more interested
in having a dollar Peg because that would help growth.
And so maker, never really had to deal with this problem of
trying to force people to not hold die or sell their die.
If the If the price of die was above the pack.
And yes you see was also introduced later, right?
Wasn't one of the early collaterals introduced a couple
of years ago when prices fell precipitously, it looked like
the entire system might collapse at some point that's when they
introduced the u.s. DC collateral, right?
Yeah. So it was right around black
Thursday, I think March 12th 2020.
Eith crashed a lot. I think 50% in 24 hours and I
spiked up and In order to deal with the excess dye to man, they
added the peg stability module, which allows you to Mint die
against us DC. And so, that was how they were
able to lower the price of die by adding the u.s.
DC. Now, I've made memes where I
have like maker introducing the u.s.
DC as like a trojan horse for aetherium, right?
And it's like the caption is like where did it all go wrong?
And it's like that day is what it all went wrong.
It didn't seem it was going to go all wrong from there and you
know like it didn't seem obvious that we were going to end up at
like 80% you SEC and die from that point.
But for me, it was enough to want to try something different
and to try and see how far we could get with Rye.
Let's have. Let's continue this discussion
after the technicalities Brian. If you don't object because
basically in the maker in the maker Forum there's also
discussion currently going on that was started last.
Week by Runa about whether, you know, to kind of make die also
free float. So, basically, this is kind of,
I think there's a larger discussion to have a, to be had
here a couple. Yeah, absolutely.
So, let's kind of before we kind of look at the exact feedback
mechanisms kind of May. I give you my idea of how Rye
works and you can correct me. Because it's a Recount intuitive
and a little weird mechanism to be honest.
So basically, if it goes off pack and the pack is arbitrarily
chosen, so it's not one US dollar but you started it pie
dollars to kind of to kind of make everyone understand that
this is super arbitrary. And then basically the the
mechanism that is behind it kind of tries to push back the Market
price to the Redemption price at any point in time, no matter
where the regen Redemption price currently is, and the way that
it does, it is, it does move the Redemption price closer to the
market price. It moves it further away, which
is a little bit counterintuitive.
Can you talk about that? Yeah, so the market price, so
the things happen in like the sequence, right?
It could be like the price of Youth goes down, you know, the
price of people by ride a cover, their their debt right now the
price of Rise higher. And so well the price of Rye
being higher. You need to get people to sell
the right or you need to get more people to Min, try and sell
it the way the protocol does that as it moves, the peg price.
Down away from the market price as you said.
So if the market price starts out at, you know, let's say
three dollars and the and it's at equilibrium at three dollars
and it goes up by, you know, let's say 5% or something that's
like three dollars and I don't know, one percent three sets of
15 cents. Well that's a lot.
And so that's going to set a negative rate.
And so what's going to happen next is that the peg that
started at three dollars is actually going to start dropping
to 90999. 98 at a specified rate.
And so this is going to create the incentive for people holding
ride to realize that they should sell it because in the future,
not only is the price going to go lower, but if the price goes
lower and they don't sell it, then the price is going to go
lower faster. So it's kind of an exponential
function that you're throwing in front of this thing.
And it's basically like, you know, will keep growing until it
resolves the question on day. So so the 2315.
And now this Redemption Now it's already different, right?
From this Peg, right? So the peg was at with three and
its trading at 3:15 and now it's decreased to 298.
I mean, why, why do I believe that the price in the future is
going to go down because the peg price is lowered.
Well, if it doesn't, it's going to keep going down faster.
So like you might stare at, you know, - I don't know.
Something like 30% rate if you have a five percent difference
and the sort of what it's tuned, it's like 126 127 in terms of
like 1% error will drive a six or seven percent, you know, rate
and so like, let's say you're staring at a negative 30 percent
rate. Well, you know that as soon as
Price goes back to three or you know, whatever the new
Redemption price is that the rates going to go away.
But so long as it doesn't, that rates going to keep growing and
the price is just going to keep dropping and this is a good deal
if you have minted rye and you're shorting Rye because for
me as somebody who's shorting Rai, my debt is shrinking, which
is sort of the same thing as making money, as a rye holder.
You know, maybe I have the expectation that the market
price won't catch up to the Redemption price.
But if it does, then I stand to lose a lot of money and the way
the system is designed is that the rates just keep getting
stronger if it doesn't. So it's it's sort of like you
know, don't fight the FED. We have our own version which is
the money God always wins, you can hold the price you know high
or low if you want for a while but the end result is just going
to be that the net change in the Redemption price you know the
peg is going to move even Further against you when you try
to hold the market price, I still don't fully understand how
the Redemption price being lowered forces, the market price
to get lower. So it creates an expectation
that the price of lie will be R. I would be lower in the future.
Why? Because the rate is negative.
And so you either, well, you either expect that the market
price will catch up to the rim from pricer.
You don't write if you don't, you will just be educated
because the market price will eventually catch up to the
Redemption price because the money got always wins.
Because at some point the rates are so strong.
That somebody's going to take it, right?
Let's say you ignore the rates. Let's say, you're you hold all
the the Rye. Let's say you're the one who
bought Upright a 315 right? 5% above the peg right now, you
get to sit there and wait as the the Redemption price gets lower
and lower. And so at first, it was, you
know, a five percent error. Then a fry goes down the
Redemption price goes down another, you know, 15 cents.
Now, it's a 10 percent error and so now that rate that was 30% is
now something like double that, you know, something like 60%,
and that process only takes like with the current like controller
tuning. Only like a month.
Month or two to fully offset a gap in the market price by the
same Gap in the Redemption price.
So you're staring at the rates doubling in something like, you
know, a month or two and if the initial rates didn't work, maybe
the stronger rates will write and that process doesn't stop
until the market returns to equilibrium.
So you can take the trade, you just might not like how it goes.
You know. It's in other words if you're
trying to manipulate the price of Rye it should be expensive
for you. If you are trying to cause the
Redemption price to go up or down, you have to do something
that the market actually punishes you to do.
And so everyone else who is aligned with stabilizing Ryback
to its Redemption price since the make money And you would
lose money because at some point in the future, if, you know,
right, the market price, does eventually go back to, you know,
to 85 or whatever, the Final Redemption price is like you
just lost that whole Delta as a rye holder.
So yeah, I believe that I have no problems believing that I
think that works. It's kind of like the gyroscope
that kind of writes itself, right?
So basically wobbles more and then it wobbles less.
So I think I think I buy that part.
The thing that I don't fully You understand?
I mean is I mean you have articles built-in, right?
So basically clearly the the protocol cares about the price
ratio of Heath to the u.s. dollar.
So how so basically it clearly cares about that ratio, biet not
the value itself. So in as how much does this I
mean that that the u.s. dollar is is still influences the
system, right? So basically it's not pegged to
the u.s. dollar but it is somehow correlated, right?
Yeah. This is a thing.
We've also learned is that right referencing?
The dollar still makes it a dollar denominated asset, you
know, it has the ability to float away from the dollar, go
up, 10% 20% 50, you know or down the equivalent but it still is
Is subject to the esoteric dollar swings in the market,
right? If the Dollar by itself one day
became stronger or weaker. That would you know somewhat
reflect in the Rye trajectory, right?
It won't it won't show up in the Rive market price, probably as
quickly. But it'll you know if the dollar
is strengthening R, I might weakened against the dollar.
If the dollar is weakening R, I might strengthened against the
dollar, Okay. So basically if you look at the
decline of the right price from three point one four dollars to
currently 2.9 cure. So that would that would reflect
a strengthening of the dollar and weakening of the East price,
right? You have to be really careful to
explain Ryan macroeconomic terms because Ryan is so small that
the incentives for For Rye holders are typically vastly
greater than any sort, of macro economic incentives.
For example, the greatest price change in Rye happened in the
first three weeks. And it was sort of we
effectively sponsored an attack on our own system, by offering
flx incentives to write eith LPS without requiring any sort of
minting requirement, which now most of our liquidity incentives
require is that you also Mint arrive at your lping.
What we inadvertently did in the first three weeks was basically
pump millions of dollars into holding, you know, for people to
whole dry by offering incentives for the LPS.
And so people minted some rice, some people initially did and
then the rest of them went and they bought Rye off the market
to LPA. And then somebody else comes
along buys that rye off the market to LP it and they all,
you know, pumped up. The price of rice.
I think like 10 12, 13 percent above the peg, so it started at
3.14, it was like 3.3, you know, at some point and then it took
us three weeks, to figure out how to fix that.
And then once we fixed the incentive, the you know to
requirement it went back to Flat, the flat was around $3 at
that time so much of the you know about 5%.
Of the arrived Redemption price. The Redemption price lowered by
about 5% in those three weeks because the rates were like -
70, the controller was also a little bit stronger and we to be
absolutely clear like we thought that people were being
irrational and in doing that. But it turns out because some of
those people, you know, flx opened at whatever 1001 it.
Did they were sort of being rational in that they were able
to To like play their Ponzi game and like exit the LP for some of
them before, you know, the the price of Rye declined.
And the, you know, the flx that they were able to get was more
than that. So long story short, we're
learning to be more careful about how the incentives can
warp. The perceptions of how the
system is working to most people who are using it.
They sort of know this but to somebody who's on the outside,
you Very easily look at it and be like, oh that's the dollar.
Yeah, I think so basically you kind of just screwed it up with
your own incentives but in a way the market does this for you all
the time, right? So basically if you actually
have to rely on fairly sensitive Market feedback, kind of the all
the externalities that you can't price in kind of have an effect
on me. Anyway.
So for instance, currently if you hold, he's there.
Fairly lucrative things, you can do with it at zero risk.
So basically kind of steak it for instance, and that gives you
like a guaranteed even if you liquids case, like gives you
like a guaranteed like four or five percent.
So basically if you have anything less, if you stand to
make anything less than that, does your mechanism still work
or is it kind of screwed by that?
So I don't think any of these things, screw the mechanism to
be totally clear. Rye works with a negative twenty
percent rate forever, right? Works with a plus 20% rate
forever. Right?
Works with, you know, 0% rate forever like okay fat.
But I mean, is it attractive to use?
Yeah, that's a different question.
Because, you know, you could Attractive to, who is a good
question, right? So like for people who have eith
and who have the opportunity to, you know, get liquid staking
returns of whatever 45 percent, as he said, they would possibly
need you more incentive to men. Try and so, the existence of
stake teeth in the ecosystem, and the fact that ride does not
accept steaky, this collateral creates an opportunity cost for
Anybody depositing eith into the rice system and so that makes it
so that they might want to get paid more to do so.
And so they might prefer a negative rate in this sense,
rise very like Farm to Table in terms of its ability.
Like you know exactly where your yield is coming from like your
yield is coming from the Rye holders, who are paying you to
Mint, you know, right against your teeth.
If the rate is higher, that means the eith depositors are
demanding more. If the rate is more - right?
And if the rate is positive, that means The Ether depositing,
right? Mentors are actually paying two
men try. So it balances the supply and
demand for the asset itself. Yeah, I understand.
I mean I understand that basically doesn't make or
destroy money. I totally get this.
It's a conservative system and that in that sense.
But basically, on the flip side it means currently you have to
pay like 14 and a half. Percent to actually hold right.
Which seems unattractive to me. So who are the people who
actually whole Drive? Yeah, it's a good question and
Rise market cap is obviously shrunk a lot.
Having it you know, only backed by eith means that when youth
goes down, your economic bandwidth is also reduced and
you know, the market cap, sort of shrinks necessarily there's
about 15 ish million Rai outstanding.
The people holding it are typically either lping it or
dowse that want to be holding it.
That was until recently one of the largest holders but the
negative rates, you know, cause them to sell.
And so you know, it's not going to be like rise and going to be
friendliest towards the largest group of people, it's going to
be friendly as for the people who care the most about
decentralization, right? So it's if you, if you SDC works
for you, if you're not worried about, you know, blacklisting or
having your collateral, A class that then like you know you SEC
or die could work for you if you care a lot about, you know, the
the collateral type and you also want to know exactly like have
some degree of predictability in the trajectory then R I might be
for you. So you mentioned for the week
you mentioned I think you both mentioned State, 'if I guess
accepting steak Eve as collateral would undermine a bit
right there. What if trustless Nest nature?
No, because you can have like, some dependency on our lighter
down stuff. But, of course, at the same
time, it would make it like, much more attractive to like
Min. Try is like, how do you think
about that? Is this something that like, if
you like, definitely not or maybe it's on point used to
think about that? Now, we don't think about that,
we already Froze, all of the collateral, so R, I can only
ever be backed by Eve. We actually can't change that
anymore. I think it's teeth is good
collateral. It might not be good for what
we're trying to do with Rye, which is just try to minimize
the surface area for a tax and like having steak teeth as a
collateral type makes it, you know, you somewhat have to be
dependent on leidos governance like King.
Well and I'm not screwing anything up, or having any sort
of like a tax or hacks, or existential, you know threats.
Whereas when you only use ethos collateral, you have the, you
know, as long as the theorems working seemingly it'll be okay.
So less dependency, of course, it could drive more growth,
personally. I think that a better
opportunity is to just make more Rye like things I don't think.
That Rai will be the last Rye like thing.
I think for ride to work, there will be more.
I like things and by R, I like things.
I just mean stable coins that aren't necessarily pegged to the
dollar stable coins that have mechanisms that stabilize
themselves whether their controller works exactly.
Like rise or not is sort of an optimization problem, you know,
deal with later, once you've already decided to not have a
peg that's already, you know, the first step.
So I think There could be more Rye like systems.
We might even help launch them or contribute to launching them
on other, you know, even on layer 2 is that have like steak
teeth and more forms of collateral.
It was, it was pretty expensive to have lots of forms of
collateral on ethereum last summer to, because the gas was
so high and you need to spend gas for all the price weeds and
things. Yeah.
So one thing I'm curious about about, you know, if we guards to
the right price, right? So right price I started at 3.14
now is 2.9 to or something like that, like, in the long run,
like what would I mean, could it go to $1 or $5 or like in, what
would determine that? Like if it let's say if I was
like, someone is like, I want to hold, you know, some acid in you
know, like crypto stable coin and You know, I would like to
have it there for like five years and you know, not have to
worry about it and maybe maybe if the dollar like I don't know.
Hyper-inflated some point probably not going to have next
five years but some point, I guess, you know like not that to
happen with, you know, like to be protected from that.
It's right solution for this. I would say it depends stability
is really in the eye of the beholder.
If you think that like in five years, the dollar is still a
dollar than, like, you're going to want dollar stable coins.
It's rise weird for me because people are, like, I don't get
it, I don't understand. It's like long-term price
trajectory, you know, and I'm like, I perfectly understand.
Its long-term, you know, price trajectory.
I just don't understand the intermediate Market things.
Might have to happen to move it around, like, I can perfectly
predict what the ride Redemption price will do from the market
activity, right? If you want to make Raya dollar
that's easy, simply hold it above the peg for a couple years
and it'll get there, you know, it will devalue itself 30
percent 40 percent every year we have this funny conversation on
Twitter. I was like should be rebase
tried to a dollar. Right metallic think.
So a couple other people chimed in and they think so Eric Wall
was mad at us. Who's calling Ryan?
Money. And we were like, yeah, well,
you know what? We are autistic, and we can stay
autistic longer than you can stay retarded.
So, you know, what's the argument for not rebasing ride
to a dollar? Why didn't we start it at a
dollar in the first place, right?
And the, the point is that Ryan is not mean, reverting.
It doesn't actually care about what it's like initial starting
point is so what might happen if R I started at a dollar is that
it could like Drop to 95 cents and then people would buy it
because they think that that would make it supposed to go
back to Dollar at the dollar stable coin in like that's not
how it works. In fact, by buying Rye, you
know, at 94, like if the Redemption price is 95 cents,
like you might make it go down faster.
So rise designed once again, to to, like be predictable in terms
of how it responds to the market.
And so if over five years you think, you know, the like the
market is just Like always above the right markets, always above
the peg, then the Redemption price always going to go down
and it's going to slowly devalue in the flip side of that.
Let's say we get to the hyperinflation scenario, people
like to talk about this. The thing that I would expect to
happen is that right? I would roughly be in
equilibrium with the rates in the ecosystem to borrow against
either. So I would be surprised in the
Inflation scenario where we expect dot like the dollar to
drop, you know, 5075 whatever percent over the course of a
year. Maybe more.
If the rates to Borrowed I weren't like 10, 20.
You know the stability, if he wasn't like 10, 20 percent
because in theory emit should deep egg, right?
They should have to raise the stability for you to keep die
from Deep egging and likewise you know everywhere else in the
ecosystem we should see like pretty high.
Hi, borrow rates against ether for dollar-denominated assets.
So I would expect ride to roughly be in equilibrium with
those dollar-denominated. The debt rates debt, interest
rates. So is that going to completely
offset hyperinflation? I don't think so what.
It's somewhat offset. Hyperinflation seems possible.
Maybe even likely okay. But like you know you said sort
of like okay, you know, right. I reflect the this the market of
Ryan the trading and but like let's say in the Hindi example
of me like okay I just want to have some sort of decentralized
crypto you know stable coin. Like I have no idea of like or
people going to be is it going to be above the peg?
Blow the peg like like zero clue, Rhino interest in it
either? Right?
Maybe I just want to hold this thing.
So then that seem that seems to I mean because if you actually
look at the price chart since rise, existed, it looks pretty
good, right? It looks pretty stable, right.
It's Really been like okay 3.1 2.9, doesn't matter, right?
Like that's close enough like over an extended time, but of
course, if you don't say like, oh, maybe goes to the dollar or
like, you know, then that that's like a very different matters.
So I'm like, wondering a little bit about that of like, how well
it, like, Deserves because in the end people still want that
kind of predictability with a stable coin, right?
They want to know that it's going to be worth even maybe
it's relative to the dollar. Let's ignore the hyperinflation
scenario, but they want to know that kind of okay, year from
now, it's worth a similar amount.
I think that's like the fundamental goal of like all
currencies ever right? Is that like you want them to be
stable relative to like you're purchasing power or like that
the stuff that you buy regularly, you know, your toilet
paper and cheeseburger is not like why we set up this
Consumer, Price Index to try and track it and like that's what
our inflation metric comes from. Like the the short answer is
that, like if you only want to check on Ryan, every five years
it's probably not set up right for that for you right now.
It more because of the response, time of the controller, being on
the order of like, a few months, you kind of have to pay
attention to it with a little bit more frequency than that.
There are other controller setups that you could do that
change the rate much more slowly that Could be more friendly for
people to only check in every couple of years.
For example, the cool thing about Rye is that in the
meantime, it tells you exactly what it's going to do.
So like, it's not like the FED, it doesn't Bluff, you know, when
the Rye has a certain rate, it does what it says, right?
So if you can pay attention to it, you know it's fairly easy to
follow the instructions and do what it tells you to in the
sense that when the rates are R+.
It's saying hello, if you whole dry, you know, you'll probably
make some money and help like hello.
If the rates are - like, if you sell rye and wait and then by
back later, like you also might make some money, you know, the
protocol makes very clear to add, it's not Financial advice
the tag to all of the protocol statements but you get the idea.
So I mean maybe that's talk about the things that are still
had governed, right? So basically there's the flx
token that you touch upon briefly earlier And, and you
just set that you made it firmly single collateral.
So we see no other forms of Creator can ever be introduced
for this form of Rye. So what does f at X currently
actually govern? Yeah.
Flx governs. A couple things that governs the
controller parameters oracle's and like a couple other sort of
just infrastructure pieces like the gas Oracle for the Pinger
Bots you know to make sure that the price feeds are updated.
We like to. We have this meme called on
governance, right? And the idea is that we just
want to progressively remove governance over aspects of the
protocol. We want to do this to make it
harder for people to mess with it including ourselves.
We also just want to have pure meetings fewer moving Parts
fewer opportunities for human corruption.
So we want to take, we want to automate the controller as much
as possible. So far, you know, we don't
update the rates directly. We only update the parameters
that automatically update the rates and so we're able to To
have the controller discussions you know more more slowly like
we've run this thing in production for a year and a half
we rent it and P only form for a year then we added the integral
controller, about six months ago we just you know publish our
results of that experiment. We're trying to figure out what
to do next. So we're still in the process of
figuring out how to design the controller so that we can not
mess with it for a really long time and we're learning, what?
What That means to us because the ultimate goal is to remove
control. Re the price oracle's.
The system depends on chain link which is not quite decentralized
and we are adding backup oracle's that rely on chain to
Ops that we could quick to switch to easily through the
governance. We have a sort of like forkel
whitelist and then you can switch between the oracles
quickly, but adding something to the white list takes a long
time. I'm yeah, but the goal of all of
our meetings is to have fewer meetings.
So, we discuss the things that we want to remove control over
and then we progressively remove control.
It is, how much is the flx token?
Like the mkr token. So basically the MCAT open kind
of acts as a lender of Last Resort, right?
So does flx have a similar mechanism?
Yeah. Flx has that mechanism built
into. If you know, Rye becomes under
collateralized, then in the same way that I would.
They both basically become algo Stables backed by printing their
governance token. All their reserves are met but
hopefully neither one goes under collateralized.
You know, too much. That that's a big problem in
there. Aren't people to step in to, you
know, help balance the books. So is is there is there also a
revenue side to F is the same as maker does a buyback and burning
of the tokens with the Surplus? Once it exceeds a certain
threshold in the Surplus treasury of the system?
Make sure that it has enough money to pay for Bots and
everything, the protocol makes money from stability fee and
liquidations. And how is this ability fee set?
Because in maker that says that some sort of committee having no
that does this. Yeah, we just said it to, I
think 2%. I think it's it might be locked
in Forever. The goal is to not change it.
We don't actually want to change the stability fee.
This ability is supposed to reflect the risk of the
collateral maker sort of uses it as a monetary policy tool.
I don't think that makes a lot of sense.
I think, you know, the Redemption price is well,
obviously, I think that the Redemption press is better to
use for that. And having two, knobs Is Not
Great to do that. So you just fix one of the
knobs. Stability for you and then play
with the other one. Yeah, but I mean, make a did the
exact Converse, right? They also only have one one knob
because they fixed the Redemption price to 1.so,
basically. It's kind of like, yeah.
So it's talk about that. It's to me, it's exactly
equivalent in terms of basically, how much control you
have over the system. Hmm.
Why did ruin proposed that they don't Peg died to a dollar
anymore in the Forum last week? Interesting question to mean,
they're kind of the mean, that's a really good.
Good question. I mean, why don't you answer
your phone, maybe for people who haven't read that post, maybe,
maybe can either of you give some context about like, you
know, what was written in the post and yeah sure.
So basically This Tornado cash u.s.
DC sanction. So when tornado cash was
sanctioned USD. See also went and froze, all the
USC. See in those contracts that made
a little bit of a wake-up call for everybody else who has u.s.
DC. Their contract that could
potentially be censored or, you know, Frozen and, and die has.
I think the most so like six billion USD Seas or something
like that, right? So ruin looks at this and is
like, huh? We need some way of reducing our
exposure to us, DC, and he looks at the knobs and he concludes
that the most effective knob that we have to use, is to
actually reduce the Redemption price over time.
I'm slowly. Now they could, of course, they
don't need to use our sort of Target rate feedback mechanism
that could just manually set like a negative half percent
rate to start with or 1% rate to start with, right?
And that could apply to all the dye and then what that makes it
as that. It's a less attractive you know,
for you to meant potentially against us DC.
And so yeah that's one of their tools to reduce Die demand and
to reduce the u.s. DC driven by demand.
And so, in the aftermath of this, it's been pretty funny
because Nikolai has been there in the forums and the Discord
and I've been there and it's like really funny because Rye,
which was sort of shit on or, you know, thought to be this
like stupid thing, that no one should care about is, like, the
whole research plan for their future, right?
Like, had we not done, right? Like, everyone would be sitting
there, twiddling their thumbs? Thinking ooh, - rates, like,
what do we do? No one's done it before it
sounds scary. I don't know, right.
But because we've done - rates even in, you know, the
simplified Pi model that we did it, it's like at least there's
an example that you can point to and, you know, look and and see
something that for the most part Works to stabilize and use that
as a direction. And the sort of reflects the
like three phases everyone goes through when they won the
encounter Rye. They start out and they're like,
man, Rai. This thing is weird.
I don't know how it works. I don't want it.
I'm like the dollars and then they learn a little bit more and
they're like, oh I get it, it stabilizes itself using the tag
like that, that kind of makes sense, but it's also like kind
of small and weird and I don't know if I want it and then they
learn a little bit more in there.
Like I finally understand why the system is designed like this
and I don't understand why everything isn't designed like
this and that LT seems to be coming true with die die.
You know, they bit The Poisoned Apple of u.s.
DC and now 80% of it is u.s. DC backed.
And the after side, which is what to do about it.
It's almost a civil war because all the people who have jobs
that depend on the u.s. DC and the rwi stuff like are
going to try to keep the system that way and so I don't know how
this is going to unfold, but it's I'm definitely on.
MD centralist, which is about trying to Reclaim monetary
sovereignty Ford I have died. Be what the you know, maker
holders and die. People want it to be and not
have it always necessarily be a dollar if being a dollar adds
too much risk. Yeah, I agree.
Do you think people should have been alarmed earlier by the fact
that so much of dyes actually backed by us dce?
Do you think we should never have gotten to this point where
it's like 80%? That's hard to say.
I think maker made the pragmatic decisions.
Based on the information they had at the time.
I think it would have been very hard for them to decide to not
use the u.s. DC.
And I for the last couple of years, I think that given the
fact that we've gone and done this research, you know, and
sort of prove that you can have negative rates without
destroying your whole system. You rent it and prod for almost
two years. I think they're in a much
better. Place the try and make this
decision now and then to be clear.
The thing is going to unroll over like several years, ruin is
sort of only talking about it now to get people prepared for
it. And we are excited about this
because it means more people will learn about Rye, learn
about the trf, M, learn about on Peg, you know, stable coins or
controlled Peg, stable coins and we can sort of migrate
intellectually away from the barren Wasteland of dollars.
Stable coin, dominance forever. Maybe if we zoom out a little
bit. So if you look at the demand for
for die off or daughter, you know, me Xavier coins in
general. So when people are crypto long,
there's always human, right? So basically, but this kind of
flips when people are crypto short, right?
So they don't want to use crypto for collateral.
So, basically, in in times like these, where people generally
And to be crypto short, do you think it's a, it's a bigger
bigger problem too, kind of to find people to Mint die or to
hold die. I don't know.
I mean, when, when crypto goes down, most of the stable coins
that use debt leverage to back them will go down as well.
It seems prudent to be able to impose negative rates because
more people are going to want to hold the stable coins.
Then people are going to want to take down debt.
You have a very basic supply and demand equation there.
And so you have to balance it by having some sort of subsidy and
incentive, for the people who are missing and some sort of
Also, the people who are holding and so negative rates are the
way you do that. So, yeah, I think it makes
sense. I don't know what the like to
zoom out again, right? Like I don't think the end game
forever is dollar-denominated assets.
I think that in time crypto, will probably make its own price
indexes in time crypto. We'll probably You know, use
some other standards besides, you know, basket of Fiat
currencies or something. For now, we use the USD
reference for Rye because it's easy, it's liquid, you know,
it's relatively it's, you know, still today, the most stable
thing that we can use as a reference, there are some plans
not anything in motion right now, but things that we could
potentially use to move off of the dollar if we wanted in, you
know, over the course of 10 years. something, if you wanted
to switch to some other reference asset, What kind of
reference as it would that be? I mean, I mean basically some
sort of basket but how would that be constructed and don't
you need governance for that again?
Yes. And that's why we haven't done
it. The thing.
Like I don't really like that that problem because it's messy
and it deals with a lot of factors that are constantly in
flux. Like you know, when I said
earlier stability is in the eye of the beholder, Brian.
You were like I want to hold something for five years and
then come back. And it's like fine, well, you
want it to be fine relative to the stuff that you want to buy
in five years. So, if you could give me an
itemized list right now of everything that you want to buy
in five years, you know? Like that's the kind of thing
where it's like, yeah, things change, you know, we don't know
exactly what the future will look like.
We don't know what consumption will look like and so there's
sort of You know, the idea of this reference basket index
thing. Can you know, CPI, whatever,
we'll sort of always have to be a governing process?
Yeah, I mean I think gonna high-level right?
I think what the tornado cash. Said, you know this tornado cash
sanctions and I guess you can sort of interpret this in
different ways, you know, maybe to some extent but like I don't
know, North Korea and preventing they get some money and stuff
like that. But I think on another level
it's also just the government really not liking this crypto
thing, right? And you really not liking losing
control, right? And basically saying like, Okay,
we're going to try to like crack down on this.
And I think if you see something like maker and I mean, you see
is like such an obvious Avenue. So I think if that becomes
something that's like, I mean in the end, right?
Like, if you're gonna have some stable coin that's supposed to
be, you know, widely used by people and that's supposed to be
actually like neutral and, you know, you can use it
anonymously, don't have to do kyc.
You can use it across the world that's just doesn't want that.
You just cannot have you SEC and this-- knocking.
If I like it has to be actually decentralized.
Yeah, I believe that. I want to see more
decentralized, stable coins, more things that move away from
USD. See dominance u.s.
DC is clutter me. That's why I actually, you know,
people who are criticizing Care-A-Lot and of course that
turned out to be correct in retrospective.
But I always found that the criticism of all, it's not that
decentralized, you know, compared to make your main like
no sense at all. Yeah, there's points of
centralization wherever you look You know, the maker has oracle's
that are kind of centralized maker has the usec collateral,
right? Terra had, I mean, the lfg fund
was a multisig That was supposed to be backing.
It didn't have any sort of like, on chain algorithmic backing.
They just decided when to back it.
And so there's all sorts of like information asymmetries, like,
hey, if you're close to them and you know, that they're out of
money, you should short the shit out of you st.
Immediately, right? Like That's the kind of thing
that, you know, we try to avoid and decentralized systems.
So yeah, I think, I think the better criticism of Tara was the
one where vitalik blogged about it and also mentioned dry as an
example, because he talks about how if you're stable coin, can't
unwind in a like down market, like you were saying, you know,
if youth crashes, everything's going down, like if you're
stable coin, like can't unwind, it's basically a Ponzi scheme,
right? You're going to have some people
sitting there at the end of it like I would like my money.
I would you know, I want to exit and if they can't exit, then
you, you know, didn't design your system.
To be very friendly to those people to exit which you know,
systems that typically leave some people hanging or called
ponzi's. Do you think that he's a future
for, you know, algorithmic stable coins that are not backed
or is this? Do you think it you're playing
with fire, right? Like you can get shorted 20, you
know, even if your 80% backdoor 90% back to write the, the
window of opportunity is smaller but the risk is always present,
even things like maker and Rye, could in theory, become algo
Stables, if some Black Swan event hits, and they become, you
know, undercapitalized, you know, under collateralize, then
there's less money, backing them than their have in debt.
So, they need to recruit People who believe in them and if there
aren't any then you know, some people are going to get a
haircut, that's how the systems were designed.
So they try to make the haircut process, you know, transparent
Fair equal, right? It's not like you lose
everything, it's like you might lose whatever, you know, went
wrong, whatever. Degree of under
collateralization, you are as short of shared by everybody, if
it's 5% for example, 10%. But that's a huge difference,
right? Mean basically having like an
orderly shutdown even if it means everyone gets like a 10%
haircut. That's completely different to
the the situation where the person first person to cash out
gets their entire money back and you know, the, the, the 20th
person doesn't. So I mean, this is.
Yeah. So I think this kind of.
Yeah. So basically I'm totally with
the ordered shutdown process. We really fought a losing battle
of those of us. Care to try and not throw the
algo. Stable term out with the bath
water, you know? The because people are, like,
I'll go Stables a bad word now, right?
And it's like, I used to call Raya kind of algo stable.
It's how, you know, has an algorithm that stabilizes it,
but now I can't. Now we have to, you know, make
sure that like all we can do is try to explain that the bad
thing, wasn't actually the algo. It was the under collateralized
part Like Luna didn't hold the Luna like that, you use to meant
UST in a reserve somewhere. It wasn't a CD P.
They lit it on fire. You know, that.
So there was no reserves, the, the reserves was backed by the,
you know, future printing against the Luna token and
selling it. And so as soon as the Luna
demand, 120 the UST demand 10 and the whole thing went to 0,
so that's not great having collateral in your system is
Very helpful for protecting and systems like that.
We want the regulators and the public to know the difference
and so far, that's, you know, Matt Reading off of the algo
stable Hill and onto the over collateralized Hill.
So, hopefully you guys can help with that narrative.
Yeah, no. I mean I think obviously Tara
went horribly wrong and UST went horribly wrong and it was like,
tragic how, you know, lots of people, lots of money.
It's just that if you look at the, I mean maker, right?
Well, maker struggle to scale, more struggled, more scaling
than you is T. And the only way they actually
got the scaling is by adding this like centralized, you know,
basically USD coin to it, right? So if in you know, I mean you
said yourself right? Like probably the main they had
no choice but to make that decision, you know would have
been hard to make, you know, to just have eith and you know with
right, you know, seeing okay, it's very small.
All right so like we really haven't seen anything, get to
any kind of scale right? That's actually collateralized
you know, with actual crypto ass Assets.
So I think that whole scaling issue is like it feels like a
big big challenge to Me. Maybe I mean, maybe this would
be super interesting to get your take on to me in large part.
This feels like mainly in Oracle issue, because basically, if you
had good price feeds for all kinds of assets, you could use
them as collateral. And I mean, this is, this is the
reason why we don't see more real-world assets as collateral,
because there is no good price feeds for them.
So, basically, Somehow be magically, you know, I could,
you know, wave my wand and kind of have a good price feed for.
I kinds of things. I feel like most of these
problems would go away. All answered, both questions.
So on the one hand, Brian you're correct.
No well-designed. Decentralized.
Stable coin has scaled today, right?
We could say rise, well, design hasn't scale.
You could say, maker is well-designed.
Until it's killed using you SC. See, you could say, you know,
USD see skill, are you sdt scale or UST?
Scale? Tara but it wasn't poorly.
It was poorly designed and then, you know, fifty billion dollars
in Flames. So I think the answer is it's
still a work in progress and Frederick to your question of
what if we had lots of price feeds?
You know, maker was designed to, you know, include real world
assets, part of the challenge. There is also liquidation.
Right? If I say, I have a house and the
housing market, crashes, I use my house as collateral for a
loan somehow. You have to carry out some sort
of unchain liquidation, process auction somehow you have to get
the dye, you know, back into the system.
So there's, there's complications there and the hard
part's always the paperwork with, with any of these like
real world interfaces. So, My solution is going to
sound really silly. My solution is youth, hit 75
thousand dollars and then decentralized stable coins can
scale it's like maybe maybe like we're still in the experiment
running phase of the decentralized cable coin part.
Maybe it's a good thing that they're, you know, some hundred
million dollars. Maybe like if r i was Tens of
dollars. I would actually be freaking out
right now. You know, like any any
weaknesses of the system would be like, much more apparent and
risky. So I think it's important that
we don't know. Figure this stuff out.
But like also realize that it's still pretty early and as the
collateral base grows and we have even stronger, native
assets than it. Seems overwhelmingly likely that
the stable coins will grow proportionally to I mean,
usually we ask, what's, what's on the roadmap?
For the project, it looks like that.
Like, you know, together with your meetings, you kind of
reduce your roadmap choices. So maybe I'll ask this the other
way around, do you guys plan to ro to offer an out-of-the-box
white label solution for people to make their own versions of
Rye with whatever collateral they want?
Because I think this is something that lots of projects
Might actually use right? Lots of dowels for instance who
have their own governance token and so on.
It's not a plan to make the like fully white label, you know, out
of the box thing. It's actually a little harder
than, you know, it seems and also rallying people around
assets as like, you know, it might it might not make sense
for like, you know, everybody to have every project to have their
own civil, maybe it does, I'm not sure I think our plan right
now is to work with like groups that have the dev capacity to be
able to Fork the system and manage it themselves.
And then we provide support. And Maybe, you know, get some
tokens out of it or have some sort of, you know, partnership
agreement or something. But yeah, it's a little bit too
hard to go like full white label in like three years, maybe it
won't be something. I've always said, is that like
the cost of deploying a sophisticated smart contract,
platform, you know, drops by a factor of 10 every year.
So with that look like was like, 2018, it was like 10 of, you
know, rocket science levels. A little dabs had to like make
maker Dow from scratch over 18 months.
You know, then like a small group of like for people in 2020
could do it. Right.
And then like, you know, in a couple of years from now, it'll
be like one guy just like deploys, everything, right?
So that's where we're going. I think the tools that Dows have
reported wanting our things too, like automatically, manage
vaults. Like, for example, you know, if
you want to leave something for five years, and Act like maybe
you don't want a whole draw itself, you want to hold the
like Vault that automatically Arbitrage is Right, given the
market conditions, you know, and makes you money in the meantime.
So people want things like that. Like urine, you're in style
tokenized vaults. It's a little bit tricky because
we have to manage, you know, like debt and liquidation stuff.
So working on that also working on, we did just roll out our
like governance. Or my know, we call it on
governance, but it uses the compound Bravo and it works like
all the other governance is the on governance is just the meme
to make sure that, you know, we try to not do too much
governance things. And then the last thing is that
we are still researching and iterating on the controller with
the goal of coming up with some sort of controller that we can
lock in for a really long time without needing change it.
That won't of course happen without running it in prod for a
while. Maybe, you know, a couple of
years with whatever we think is close to final, but we are
talking about that encourage people to join our Discord and
jump into the research Channel, just publish some stuff about
the controller, how it's working, how could be updated.
Yeah, we're just trying to remove things, make it harder to
change. Hopefully also make it so that
if one day the u.s. decides that I can no longer touch it because
I'm a US citizen. There's other woohoo, can still
touch it and make it run and they don't live in the u.s.
Cool. Thanks so much.
I mean there was a that was a perfect like wrap off and
summary at the end and thanks so much for coming on.
There was very great glad you working on this and I'm excited
to see you know we're right goes and where the idea of you know
better better decentralized stable assets, how that evolves
in general. So thanks so much for joining us
Yeah. Thanks for having me.
Thanks for giving me the opportunity to talk to you guys
about it. Cool, and thanks so much for
listening this for once again tuning in.
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