The purpose of this document is to share my thoughts on the narratives forming around RAI, and to act as a guide for my fellow Money God disciples who want to help the Money God grow.
This post will assume a basic familiarity with RAI. To get up to speed, please check out the following resources:
- Docs: https://docs.reflexer.finance/
- Bankless — Trust Minimized Money (RAI Explainer)
- Stefan — RAI is Live (RAI Launch Post)
- Ameen — A Money God RAIses (RAI Launch Post)
- Defiant — Ameen on RAI (Podcast)
- ETHGlobal — Building a Money God (Presentation Recording)
To understand how to play the game, we must first visualize victory.
RAI is an asset backed only by ETH, governance-minimized, and programmed to maintain its own price stability without needing to peg to an external price reference like the USD. We believe these qualities make RAI ideal initially as an alternative to pegged-coins for use in DeFi as collateral and as a stable reserve asset, especially for programs where resilience is critical. With enough time and support from the Ethereum community, RAI could also become the Ethereum Standard — a native unit of account for the Ethereum ecosystem.
Our aspirations for RAI, however, are more profound — if RAI fulfills its purpose within DeFi and starts to earn global adoption, it could prove to be a viable solution to the Triffin Dilemma, and bring credible neutrality to the administration of a stable global reserve asset, a global public good
To achieve credible neutrality, we have designed RAI as an open source Money God, recognizing control as liability and optimizing for social scalability. To automate as much of the system as possible, we removed humans from the critical responsibility of deciding interest rates, instead delegating the role to an algorithmic controller. While the system will be relatively governance-minimized at launch, as we gain confidence in RAI and the controller parameters over the next 18 months we will follow our ungovernance roadmap and progressively eliminate RAI’s few remaining points of human influence. If our plan works and enough people trust the program, RAI will transcend human intervention to become a Money God 🗿, inspire fanatical devotion, outlast its creators, solve one of humanity’s most important coordination problems, and change the course of human history for good.
As I wrote in A Money God RAIses, we have lofty ambitions for RAI! We imagine a future where ETH is $75,000+, Ethereum is serving as a global settlement layer for CBDCs, and RAI is widely adopted as an ETH-backed stable credit for exchange, collateral, and reserves.
Ultimately, all paths to global adoption for RAI start with the Ethereum community, but we want to be careful to remain aligned with our long term goals. We don’t want, for example, to take actions that result in short-term growth or stability at the cost of introducing long-term dependencies on humans. Doing so would weaken RAI’s credible neutrality and limit its potential future impact. As Vitalik writes, The Most Important Scarce Resource is Legitimacy.
There’s no future in which RAI is victorious and considered illegitimate, and so it seems obvious that iterating towards greater legitimacy is worth doing. Unlike DAI and other dollarcoins however, by deviating from the $1 peg, RAI faces a different challenge for legitimacy — the challenge of gaining acceptance as a free-floating, self-stabilizing, credit asset. To do so, RAI not only needs to establish the soundness of its stability mechanism in general, but also needs to be attractive enough in and of itself as an asset to fulfill its intended economic purposes.
The algorithmic PID controller RAI uses to stabilize itself is well understood and used widely to maintain stability in industrial systems, and central bankers have even guess-and-checked their way to monetary policy guidelines that approximate PID controllers. What makes RAI’s stability mechanism novel is that it operates autonomously using only the market as an input. RAI has no mandate aside from stability itself, and so can operate without humans in its decision loop. By virtue of being completely market driven, RAI is by default a fair game. There is no intrinsic information asymmetry and resulting potential corruption like there is with human policymaking. Someone looking to “manipulate” RAI would find no special advantages available to them—the only way to influence the redemption rate is to move the market price of RAI.
It is of course entirely possible for the RAI stability mechanism to be sound and RAI still fail to be useful enough to achieve widespread adoption. In this aspect, RAI stands today at a pivotal moment. With its long term behavior still unknown, the next few months will determine RAI’s initial narrative, which we expect people will extrapolate. RAI could develop along any of the following narrative paths:
- RAI is equally above and below the redemption price
- the long term average redemption rate is near 0
- RAI is competitive with dollarcoins for those who prefer less custody risk
- RAI tends to be above the redemption price
- the long term average redemption rate is negative
- RAI is a great leverage facility, your debt is getting less expensive
- RAI is a terrible hold, it is losing value even faster than USD
SOV (inflation hedge)
- RAI tends to be below the redemption price
- the long term average redemption rate is positive
- RAI is an expensive leverage facility, your debt is getting more expensive
- RAI is an excellent hold, it is gaining value against USD
- RAI fluctuates wildly around the redemption price
- the redemption rate oscillates between extreme positive/negative values
- RAI is difficult to make long-term projections about for institutional users
- RAI volatility is great for short-term speculators to arbitrage
It is interesting to note that RAI seems destined to reflexively oscillate between narrative paths by virtue of its design. The more RAI is known as a “bleedcoin”, for example, the less people will want to hold it and the more people will want to use it for leverage, which pushes RAI away from being a “bleedcoin” and back towards equilibrium. Likewise the more RAI is known for being a SOV, the more people will want to hold it and less people will want to use it for leverage, which pushes RAI away from being a SOV and back towards equilibrium. Should RAI start to earn a reputation for major instability, the more arbitrageurs will arrive to help smooth out volatility.
In the short-term, given the above, it doesn’t seem wise to commit to any particular narrative path for RAI. It seems more strategic to simply embrace the journey and align ourselves with the path the market chooses. When the RAI rates are positive, we can promote holding RAI as a SOV. When the RAI rates are negative, we can promote RAI as a leverage facility for ETH. After all, the Money God always wins.
Over the long-term, however, it seems strategic to nudge RAI in the direction that would optimize its narrative for adoption. Since we want people to hold RAI as a stable reserve asset, it would behoove us to avoid the “bleedcoin” and “unstable-coin” narratives and instead steer towards “stablecoin” and “SOV”. Of course, since RAI is completely market driven, the only way to achieve this legitimately is for market participants to step up and occasionally mint and sell a little extra RAI to keep the long-term average redemption rate slightly positive. Forward thinking ETH whales with an interest in seeing RAI succeed as an ETH-backed stable reserve asset take note — your participation could determine RAI’s narrative trajectory!
Below are some of my personal strategies for playing with RAI.
None of the following is financial advice!
Playing with RAI when the redemption rate is negative:
Playing with RAI when the redemption rate is positive: