Bankless - AMA with Stefan Ionescu of Reflexer Labs

Episode Date: April 15, 2021

Stefan Ionescu is a Founder of Reflexer Labs, the team behind the RAI stablecoin (or is it fair to even call it a stablecoin? Tune in to find out!) Like all our AMAs, the interview is live and incorporates questions from our Inner Circle Discord and live YouTube Chat. These are hosted the 2nd and 4th Wednesday each month, so mark your calendars, tune in, and ask questions! ------ 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/  🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/  🎖 CLAIM YOUR BADGE: https://newsletter.banklesshq.com/p/-guide-2-using-the-bankless-badge  ------ BANKLESS SPONSOR TOOLS: 💰 GEMINI | FIAT & CRYPTO EXCHANGE https://bankless.cc/go-gemini  🦊 METAMASK | DEFI PASSPORT https://bankless.cc/metamask  🦄 UNISWAP | DECENTRALIZED EXCHANGE http://bankless.cc/uniswap  🔀 KWENTA | SYNTHETIC ASSET EXCHANGE https://bankless.cc/kwenta  ------ Resources: Reflexer Labs: https://reflexer.finance/  Stefan on Twitter: https://twitter.com/stefan__ionescu?s=20  ------ This Week on Bankless: 🏴 SotN w/ Cryptex & Element (4/13: https://shows.banklesshq.com/p/sotn-42-ethereum-devs-building-defi  ⚒️ How to Use dYdX (4/13): https://newsletter.banklesshq.com/p/how-to-trade-on-the-dydx-rollup  📈 Market Monday (4/12): https://newsletter.banklesshq.com/p/coinbase-week-market-monday  🎙️Podcast w/ Hester Peirce (4/12): https://shows.banklesshq.com/p/-the-sec-and-defi-hester-peirce  🧢 Weekly Action Recap (4/10): https://newsletter.banklesshq.com/p/the-coinbase-tsunami-weekly-recap  🗞️ Weekly Rollup (4/9): https://shows.banklesshq.com/p/-rollup-coinbase-ipo-fei-protocol  ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures 

Hey, Bankless Nation. Welcome to this community. Ask Me Anything. We have the founder of Rye from Reflexer Labs created a really interesting stable coin. It's a crypto dollar. We will get into the terms and definitions in this community asking anything. The first time around, we had some technical difficulty with the live stream. So hope you're hanging in there. If not, this recording will be available on YouTube. And of course, as always, on the podcast, get your questions in on YouTube, we will put them in queue and try to fit them into the show. David, you ready for this? Absolutely. This is a really cool project. And I think really in the spirit of this week, because this is this is Coinbase Week. And this is the week that Crypto breaks into the

NASDAQ. And we are slowly infiltrating the rest of the world, pulling them into the world of crypto. And then once you're in the world of crypto, we have this brand new project called Reflexer and Rye, which is a self-sovereign stable coin, not a crypto dollar, but a stable coin. And so we're really pioneering in all different directions. And once you come into the fold, we have this system that allows you to be self-sovereign without having to rely on the Fed and without having to rely on banks. And so I think this is while Coinbase is making a big splash on the legacy markets, we have on the other side of things.

When you go into the rabbit hole, we have these tools that can allow you to just completely remove yourself. So these bridges from the legacy world into completely self-solvering finance are getting really, really strong. And the end destination is also getting really, really strong. And that end destination to me is something like this project that we're going to talk about today, which is reflexor and rye. Yes. So we are doing this because these types of algorithmic stable coins are a big deal. But what's an even bigger deal is that this is a self-sovereign, completely bankless attempt at some sort of stability assets, stability mechanism for crypto. That means it's purely crypto-native, no meat space dependency. It is truly in code we trust,

and therefore hits very much the bankless thesis of creating a self-sovereign, independent, global money system for the world. It's still an experiment, but as David said, we are deep down the rabbit hole. So we are trying to figure out what this experiment might yield and what others like it might yield. One quick disclaimer, I love the vision for this project so much. I'm actually an investor. And I hope that this project is successful. But if not, Reflexer and Rye, some other project like it, it really fits the spirit of going bankless and why we're doing it. David, anything else to add before we get in with Stefan and dive into the community, he asked me anything. Yeah, Amin Soleimani, who's been working with the Reflexer team,

coined this term money gods. And the money god comes from just the fact that we can build something that is out of our control and it in fact controls us. And this is why Bitcoin is so powerful, right? Bitcoin is not something that can be steered by any one or few humans. It is something that just exists and either we can accept that and integrate with it or we can fight it. But generally, people who fight Bitcoin lose. Now the Ethereum app player, I think, allows that same sort of money godness, right? Like, we can build applications that control us that we cannot control. And I think that's really a big through line that we're going to have with this conversation with Stefan. And overall, the through line for why the Ethereum app player is so cool. And so to me, it's really,

really exciting to see applications like Reflex or like Rye come into existence that really resonate with the money god ethos or money god thesis about why crypto is so cool all right guys before we get into this conversation with stephan that i know you're going to enjoy we want to thank the sponsors that made this episode possible bankless is proud to be supported by uniswap uniswap is a new paradigm in asset exchange infrastructure instead of a cumbersome order book system where trades are matched with other humans uniswap is an autonomous piece of software on ethereum which is what Ryan and I call a money robot. No human counterparties or centralized intermediaries,

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and you can do the same for your project. Thank you Uniswap for sponsoring Bankless. Metamask is your go-to wallet for the bankless journey. If you're going bankless, you need Metamask, period. Browser and mobile, get them both. This is your tool to unlock the world of Defi. Here's my favorite part. Now you can swap tokens directly in Metamask with a single swipe. This has got to be the easiest way to trade Ethereum tokens.

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and swaps can even automatically split up your trade to give you access to better liquidity. You don't even have to think about it. Try it out, download Metamask for desktop or mobile now at Metamask.io and start swapping. All right, everyone, we are tuning into this. Ask Me Anything with Stefan Yonesco. He is on the founding team of Reflexer Labs. He's also a brilliant engineer. This is the team behind the asset called Rye, which is going to be the topic of today's community. Ask Me Anything. Of course, as usual, get your questions in on YouTube. We will answer those. But the first section is for David and I to actually ask some questions. We get to be greedy. And Stefan, it's great to have. you. Welcome to Bankless. My pleasure to be here. Thank you for having me.

Do you know, I really want to start with the high level for folks here, Stefan. And a high level, I guess the question is sort of open-ended. What problem do you think Rye is solving? Right. So Rye is trying to solve some shortcomings in the kind of usual mechanisms that you see around creating pep coins, as they call them, or crypto dollars, as the Bank of Nation calls them. it's mainly the fact that you need, like we saw kind of a problem with die last during 2020, during Black Thursday, where they kind of struggled to keep die close to peg. Like, die went way about the peg at some point, and they had to do something to bring it back. And the thing that they could have done was to depeg die, so not have it pegged anything and manage to impose negative interest rates on their holders.

So anyone who held dye was subject to a negative rate that was draining value from them. And that would have made them so and bring die back to the target price score, as they call it. So we're basically trying to solve problems that are kind of more technical in nature in the pegged coin or stable coin area. As I recall, Stefan, this was actually contemplated in some of the discussions in the original dye design, actually. I figure what it's called T, TFRM, something like that, some sort of target reference, right? Okay. Target rate feedback mechanism.

Yeah. So like what's interesting to me is David and I have made this comment almost on every episode it feels like. But like what we're seeing is every experiment in crypto and in DFI that can be tried will be tried. And so Dye went in its own direction on a number of fronts. They went multi-collateral. They went a bit more governance driven in terms of their stability. design rather than algorithmic, and they don't have the ability to do these negative rates. And so is Rai sort of a reaction to that?

Is it sort of taking some of these concepts and the road that was not traveled by Dye and implementing them? It is. On the one hand, I wanted to build this simply to show that the initial maker team was right, and that it is possible to have an asset that's stable and yet not picked anything, and it is possible to have negative rates in crypto. So it was more like curiosity for me to see it can be done and then see how people might use that. And I kind of knew about Maker because I prior to kind of starting to talk with the mean,

who's in our founding team and getting to know him and Nikolai who also used to work at Maker. I kind of studied Maker for about six months. I just did kind of research on stable coins and I knew about the purple paper. and I knew that they didn't implement TRFM before. The other, I think, problem that at least in my mind, this solves. So you're taking this in a different direction, maybe looking to get a better stability mechanism out of it. But like the big crypto vision, right,

is to have a money system that can operate independently of Meetspace. And what is Meetspace, right? MeatSpace is obviously, you know, commercial banking, but it's also meat space is central banking. Meetspace is also nation-state governments. I know Amin in his article that David, you referenced, calls this an independent state global reserve asset and unit of account, independent of the state. This has been part of the crypto vision. And we have independent monetary units in the form of Bitcoin, in the form of ether today.

But these units are not stable. Can you talk about the, I guess, your thoughts on that. Is that part of what Rai is trying to solve as well? Yeah, that's the idea. So we shouldn't like crypto in general, I don't think crypto should fully depend on the dollar or specifically on any monetary policy that's external from the chain. So we should have a unit of account that's just, that just depends on, like it just lives on a blockchain and you can just trust it and it's stable and you can transact with it. So that's kind of the idea, like not depend on the feds to dictate what happens to what I hold. So yeah, it's pretty, it's pretty much kind of the original crypto vision in a way. So, Stefan, I want to take people to school a little bit here because, you know, someone made the comment I saw on Twitter. It's like you have to be full time into defyne crypto to actually like understand what's going on. And I feel like that's especially true of sectors that are like doing a tremendous amount of

innovation. So new projects are coming out in sort of the crypto dollar stable coin sector all of the time. And it's very difficult for people to come up. up with. You've got these new acronyms like Faye and, you know, fracks and what, like, what is all of this stuff? So let's take people to school. I want some kind of an orientation here to help ground the rest of this conversation. So I think of a few buckets as far as I'm going to generically call them stable coins, though I know David wants to have a semantic discussion about what stable coin actually is we get to that. But let's start with the first bucket. And I think that's important. And this is

stable coins that are, on the one hand, dollar pegged versus stable coins, on the other hand, that are not pegged to the dollar as a unit of account. Can you talk us through that? So, which side does Rye fall on versus other projects? And why? So as far as I know, Rai is the only stable asset for now that's not picked anything. So it's not picked to the dollar. It's not peg to euro or to rather anything. It just has like starting price starts at like let's say we started at $3.14. That was like pie was our initial target. And from that point like Rye and the system behind it reprises itself. So it changes the target. It changes kind of the peg where Rye should always come down or up to or it should always come back to. And just to just to be clear,

you guys picked 3.14 because you need it. a number to start. And you guys just picked pie because why not? And there's no. And so the only reason why you picked pie was because you need a number. But there's no formal relationship between Rye and Pye and Pye moving forward. It just was the starting number. And now it's in the past. And now it doesn't matter anymore. Yeah, pretty much. So we could have started at 100 bucks, $1,000, $10,000. It doesn't really matter. It works the same. It just may be human perception. Like you can start really high or really low. It's just that. I'm going to share a, a screenshot here, and this is from the folks at Masari that sort of shows this in the context of the

possibility Trinity and stable coins, right? So what we have on the right is kind of this non-pegged stable coin. This is maybe where Rye fits. And this is different than all of the dollar-pegged stable coins that exist today. So there are different really trade-offs here, right? But this is similar to like, you know, a non-peg dollar staple coin is really similar to a currency of a sovereign nation, right? So like the yen, for instance, it trades against the dollar, but it is not in any way pegged to the dollar, right? And so they have to almost bootstrap that demand for a new unit of account. Any just comments in general on some of the tradeoffs that you guys are making with the impossibility Trinity in having something that is non-pegged to the dollar.

I would say the main advantage in a way is full discretion over setting your own monetary policy. So the system can choose exactly what interest rates it wants. It can choose exactly when it wants to attract capital or repel capital. So you have more flexibility in general to change from your monetary policy as opposed to pegged coins. So the peg coins, though, they've gone in this direction because I think they've wanted to bootstrap their unit of account demand, right? Because everybody uses the dollar. We all know what the dollar is. Rye is an entirely different unit of account, essentially. And people aren't yet familiar with it. Is that some of the trade-off here that you don't, you're not able to bootstrap and say,

yeah, you know what one Rye is worth because it's always like $1 or flexes around that rate. Can you talk about that trade-off? Right. That's a trade-off in terms of kind of integrating Rye in the ecosystem. People don't get kind of understand how can something be stable and float. And I'm like, well, you can look at the euro, how it floats against a dollar, or as you said, yen or any other currency. So one, for now it's kind of education is the hard part. And kind of telling people that this is stable without just referencing something external to it is the tough part. All right, guys. So that's less than one. Dollar pegged versus non-dollar pegged. Rye is non-dollar pegged. Let's talk about another bucket that I think

in, you know, staple coins of in terms of collateralized on the one side versus uncollateralized on the other. What is collateralized versus uncollateralized and which is Rye? So Rye is exactly like Dye. It's over collateralized. It's right now the minimum C ratio, collateralization ratio in Rye is 145%. That's for ETH. So you can put ETH in the system and mint try until your position goes to that minimum collateralization ratio. And below that, you get liquidated again, exactly like in maker or die. Under collateralized stable coins are the ones that try to go below 100% backing with collateral or even to zero. And they try to maintain stability with a different mechanism. That's not. Now we lost both camera and audio. One moment, guys,

while we wait for Stefan to come back. Maybe internet connection issue this time. We're not having good luck technically. Oh, he's totally gone. He's totally gone. All right. Well, so what he was saying is that Rye is collateralized just like that. And so it's very similar to a CDP mechanism. So you submit ether and then you can mint rye,

but you can only mint a lesser value of Rye than what you collateralize. And I actually don't know those parameterization ratios at the top of my head. Probably something around 150%, Ryan. Do you know? I don't know off the top of my head, but, you know, 150% seems like the magic number for five die. And so I think a lot of like collateralized stable coins have sort of adopted that. There we go. Stefan, okay, so we lost you real quick. And so we were kind of filling in the gaps. We talked about how rye is very similar to at CDP, where you stick in your eth, you

collateralize your eth and then you mint rye, just like how you mint dye. But is there, what's the, what's the parameterization ratio for ether and and rye? Like it's 150 percent? What's that number? It's 145%. So it's a bit lower than the one, the usual one in Maker. Can we talk about some of the tradeoffs, right? So collateralized. An example of that is Rye.

An example of that is die. Uncollateralized. An example of that is maybe Faye? I'm not sure. What are some examples out there? Maybe empty set dollar. Maybe the original basis cash design would be examples of these things. So what are the tradeoffs?

on, you know, collateralized versus uncollateralized. It seems like, you know, one of the tradeoffs has got to be, well, with collateralized, you've got something backing it. So there's like a bottom level of value that the thing can sync to. And uncollateralize, there's like nothing backing it. But how do these tradeoffs appear to users? So when you have something backing your Bitcoin or stable coin, people tend to trust that a bit more.

Like we saw in practice that basis doesn't really work. Like there's always a bank. run, people just sell that until it goes to almost zero, so it doesn't really work. You need something kind of instill credibility to other people. Otherwise, it doesn't work. Okay, as long as we are taking folks to school, then we've covered to collateralized, uncollateralized dollar-pegged versus non-dollar pegged. Rye is non-dollar pegged, collateralized. Let's talk about this other area that I think is important, which is governed stability versus something that's more algorithmic. And what I mean by that is the stability mechanism that the like interest rates for a CDP in Maker are determined by

Maker governance, those that owned the MKR holder. That's not the case with Rye. Rye is maybe more algorithmic stability on that side of the spectrum. These are my own terms, but you tell me, Like, what's Rye and how do you minimize governance? How is that different? Yeah, so Rye is a bit different compared to Dye because we also have stability fees for every collateral type that's in the system. But in our case, stability fees are more or less fixed or bounded. They kind of price the risk that an asset brings to the protocol. So, for example, we can price kind of the risk for Ether at 2% interest per year.

So when you open a position, you need to pay kind of 2% interest per year to keep open. We have something else that's used for stability to actually stabilize Rye. And that lever is called the redemption rate. That thing is a number in a smart contract that every second is multiplied by the current moving peg that Rye has. And it results in a new moving peg for Rye. So if the moving peg for Rye right now is, let's say, $3. That number, in one second from now, that number will be multiplied by that current peg, and it will result in a new peg. And that's how kind of the redemption rate changes the moving peg that Rye has.

And by changing the peg, it kind of imposes either a negative or a positive interest rate on holders. Because the idea is that when the moving peg goes up, we have a positive interest rate. So you kind of burn something by holding right. And when there's a negative interest rate, you lose value by holding right. So this minimizes governance. And why is governance minimization important for self-sovereign money? We at Reflexer generally believe that human discretion will be the main thing that will make an asset unstable in the future.

So human discretion in general means that anyone can come, they can impose their will on the majority of the people, and they can say, I want this. thing to work like X, even if it's suboptimal. So we think that the ideal way to build this stable asset is to just put the system in charge with an algorithm in charge and let it work. Yeah, in a way, this is a very Austrian idea. It's a very like Bitcoin or idea. It's a very high-ac idea of like, you know, there should be these private money systems that try all of these various experiments and the best one will win out. This is why. it drives me crazy, by the way, when you have somebody who's maybe a Bitcoin maximalist

who says things like, you know, Ether and Ethereum-based money systems, that's all Fiat, right? Like, that's not Austrian at all. Like, hard money, fixed supplies, the only way to go. I'm like, Ethereum's trying a massive amount of Austrian hard money experiments that don't have human discretion. Like, go look at Rye. Which brings me to maybe, in our education series here to get grounding the last bucket here, which is trusted versus trustless stable coins. And I think this is an important one because in order to be on the more trustless side of the spectrum, and guys, it is a spectrum here. There's nothing that humanity has ever created or can create that is 100% trustless. But the more trustless it is,

the more self-sovereign a money system can become if you believe in the protocol sync thesis as David and I do, then more trusted systems will sink to the bottom of this. But like trust can come about in the form of governance, as we just talked about, but also in the form of what collateral assets are backing the system. And this is what's kind of interesting. Here's another chart from Masari. I think, David, I see some of your handiwork in here from some triangles he put out on bankless at one point in time. But so what we have here is a comparison. of money systems, right? You've got the reserve asset at the bottom. And if we're looking at old analog systems, used to be based on gold. And then dollars were really collateralized at one point in

time before we went off the gold standard, buy that gold as a reserve store of value asset. And then kind of banking was built on top of that. This is similar to what Rye is doing. Ether, as I understand it, is the collateral for this. And why Ether? Maybe you'll tell us, but I think it's probably because it is the most trustless collateral source found on Ethereum, and then you could build a more stable currency on top of that collateral resource. And then, of course, we have DFI that can be built on top of this and tap into this. Can you talk about that? Am I right that ether is the form of collateral? And can you talk about why ether? That's right. So the main reason why we picked ETH,

It is because it's simple. It's the most trustless asset on Ethereum. And it's also simple to governance minimize the protocol in general when you just have ether. Like you don't have external trust assumptions like UIDC, for example, or RAPBTC. So you don't need to kind of fear that some other party can just take your collateral and the system breaks. And it's also again easy to governance minimize the protocol. So we can automate everything.

We just have one collateral type. It's pretty easy to kind of put some smart. contracts, put some code in place, make all the parameters kind of change themselves. And people just put ease in the system and it just works. Like that's where we want to get. That's the point where we want to get. Why did Maker go in the direction of multi-collateral versus you guys are remaining in the direction of is almost part of the original die, you know, single collateral die version,

which was just ether. I mean, I think one of the reasons I've heard is so that they can have more economic bandwidth, let's call it, to, to, to, increase the supply of dye. Can you talk about maybe some tradeoffs you guys are making there? Why they went in this direction versus you? That's right. So kind of ease, the kind of total market cap of ETH is kind of the max value that Rye can have. ETH is kind of the economic bandwidth that's kind of limiting us. And we took this decision again because we want to governance minimized a protocol. We want to have at least one of these protocols that just doesn't

depend on humans, even if it maybe remains a bit smaller than die or other systems. We can use it, and we don't need to trust some other third party that, and we don't need to think that the system breaks. So we just want to have like one of these experiments that just works and it doesn't depend on anyone else. So just to drive this point home, Rye has committed to not ever including any other collateral other than ether into its collateral type because the introduction of other collateral would be would necessitate the requirement of actually voting that collateral in one and also trusting the issuer of that other asset when Ethereum was born in the first block and also the next like 10,000 blocks there was only one asset and that one asset was ether there were no other assets other assets came

to Ethereum because humans issued those assets. Those assets can't be used as collateral inside of Rye because, one, it would have to be like human determined to be included. And also, it would be a trust mechanism on those other collateral. So Rye will only ever be collateralized by Ether ever due to the nature of Ether as the primary asset of Ethereum. Yep, that's right. That's right.

So it's, again, this system should be simple. So we can governance minimize it. and it should be trustless. These are the goals. We took this decision because we want to fulfill these two. The math here is pretty simple here, guys, too, as far as like we've called ether a trustless source, a source of trustless economic bandwidth in the past.

And so if ether's total market cap is like 1.45 trillion at some point in the future, that means Rye can at maximum be like close to a trillion. It can't be beyond that because it's using ether as its source of collateral. So that's kind of the constraint that you were talking about, of course. That's less of a constraint if ether is $10 trillion, $20 trillion, $30 trillion, right? So there's a little bit of a, I guess, a bull case assumption for people valuing trustless collateral and trustless economic bandwidth that is part of the die case here. David, I want you to maybe introduce kind of your

question here because I saw you tweet this out a couple of weeks ago about the semantic definition and the difference between crypto dollars and stable coins because crypto dollars is also a term the industry uses. Maybe you can explain that and introduce that. Right. I saw I saw Stefan tweet out, I think perhaps out of frustration that people kept on calling Rye a stable coin when he's like, no, Rye's not a stable coin. Because people, when they say stable coins, they're talking about on-chain dollars, right? In my mind, The right, and this is just a semantics conversation. This is like what words do we use to describe these things. In my mind, if we're going to use the term for things, tokens that are redeemable for a dollar or worth one dollar on Ethereum, we should call them dollars.

Especially USDC. Let's just call those dollars because it's not like when I have dollars in my Wells Fargo bank account, I call them Wells Fargo dollars, even though that's what they are. They are a claim on dollars that is provided to me by Wells Fargo. So USDC is a claim on dollars provided by circle. USDC is just a dollar. If you want to get more specific, we can call it a crypto dollar. Stable coins don't have the term dollar in them. And so stable coins to me as a word are illustrative of a coin, a token that is stable. And if it was a dollar, we would call those a stable dollar coin or a crypto dollar or a dollar. But I think a stable coin leaves room for specifically something that is not a dollar.

Because if it was a dollar, we would just use the term dollar. And so in my mind, Rye is actually the only stable coin on Ethereum. Stefan, how do you feel about this take? That's pretty much correct. Again, I'm generally when I explain something, I'm trying not to fight people. Like they have like certain framework that they use to think about things. And I'm like, okay, you can use that framework. I'm trying to build a new one.

That's kind of right. A couple of years ago, like even before Dye was released, stable coin was meant to mend, to mean low volatility or dampened volatility compared to something, compared to ether, or compared to anything that you can think of. So Rye is kind of, at least, to my knowledge, the only stable coin for now, only thing. I think, and also importantly, the calling crypto dollars stable coins does too much, gives too much to what the dollar is. Because the dollar is perhaps actually not all that stable because it loses value every single year.

and perhaps it doesn't lose that much value. But the reason why people assume the dollar is stable is because we don't have any other frame of reference for it. Stability is always a referential thing. It's always relative. You can't have stability in one asset without comparing it to another asset. And so now that we have something like Rye,

maybe we'll actually be able to chart the value of dollars versus Rye and we'll find out that Rye is actually a better storehold of wealth over time, perhaps making it a better stable coin than a dollar. Right. For now, right now we're still at the beginning. The system is still kind of tried out. It's still kind of a demo and it's doing an experiment. And I would say that Rai for now is kind of devaluing faster than the dollar.

People are still learning about the system and they don't really know how to interact with it. But I guess, yeah, we will see how Rye will behave in one or two, five years from now. David, just for what it's worth, man. I'm on your team on this one. I definitely believe the term stable coin is more accurate for something like Ryan and is not accurate for something like USDC. Those are more crypto dollars. However, if we're going to kind of push that narrative forward, even if it's the true narrative, I think it's going to be an uphill battle, my friend, because the whole industry just buckets all of it and calls it all stable coins. And there's not, unless you're deep down the rabbit hole, I don't think. the average user knows the difference between using USDC versus Dye versus versus Rye and the different trust assumptions that you're taking on there. But it's definitely a narrative battle. I'm happy to fight. This is 100% a semantics conversation. And Stefan, as the CEO of a brand new defy app, I can totally understand why you are not interested in fighting that fight. However, we will fight that fight. We will fight that fight for you. that's what Bankless does.

Well, the other, the way, the way Stefan can help, really, is like, or Rye can help is get on the radar, right? It's like, be successful. That's what will really turn the conversation. So can we talk about that, Stefan? It's like, so how many weeks or months are you guys from, from launch to Mainnet at this point in time? About two months.

We're close. So on 17th, this month, we will have two months since we launched. Okay. So it's not a ton of time. So two months in, let's talk about this a little bit. First, so post-launch, how has Rye maintained stability? What were kind of some of your expectations and how has it actually gone? And while you talk, I might bring up Coin Gecko to sort of, we could focus on YouTube and see this on the charts. But how has it done as far as stability maintenance? So in the beginning for a couple of weeks, actually in the first month, Rye traded way above kind of its moving peg for a long time. There was kind of a ton of demand because we had some incentives in the system that made

people just trade Rye way above the moving peg. Now it's a bit more stable. So it managed like after one month, it managed to go below the moving peg and then the moving peg started to go up because up until that point it just went. down, down, down because Rye was devaluing itself. And now it's starting to go up again. So we kind of expect, in the long run, we hope and we expect to see Rye kind of just oscillating around that moving peg and not just continuously devaluing itself. So what is that moving peg then? Is that the pie three, three dollars and fourteen cents? So that was the initial moving peg.

And now it's around three point O two because we were also kind of tuning the smart contract that's in charge with kind of changing the moving peg inside the system. And now kind of it's tuned, but we're still waiting on the market to kind of learn about Rye and learn how it works. So right now it's about $3.02. How has that performed versus your hopes or expectations? It's pretty much in line with them. I was expecting people to trade way above the moving peg and Rye devaluing itself. I think we will still see a couple of weeks of that, if not a couple of months.

But at some point, we hope, by pushing, kind of educating our community, we hope to see kind of Rye stabilizing itself a bit more. So, Stefan, I actually started tinkering with this around launch, a couple days after launch. And as bankless listeners might know, I'm really bullish on ether. And so I put some ether into reflexor, and I borrowed some rye, and then I sold Rye into Uniswap for more ether. And I put that ether back into Reflexer.

And so not only was that good because Ether price went up and I got more ether, but also Rye has gone down in price. So my collateral that I leveraged up, which is not financial advice, don't do that unless you know what you're doing. That went up. And then the what I owe went down. And so when I finally repay my Rye, I'm going to have to buy that off the secondary market and then go back to Reflexer

and burn it. And then I can get my ETH back. So pat myself on the back. That was a good move. Let's talk about these market forces, market dynamics. Why did you suspect that Rye would devalue itself initially? Why was that your assumption? Is because of deans like me? Yes. And also generally you can see dollar coins, peck coins trading slightly above the peg

for long periods of time. So we were kind of expecting, especially in the beginning, right, to devalue itself in order to kind of bring the market price down. This kind of ends also the fact that we have an incentives campaign running that kind of messed a bit

with how the system works, we kind of expected the system or Rye to go down in value at least initially. It does. And so what do you expect to happen out in the long run? Do you expect it? Let's go out two years. Let's go out the next two years. What would you expect Rye to do over that time frame?

Or is that even a possible question to ask? It's tough to say because the system is just meant to look at what the market does. And then it reacts to the market. So if the market trades right at the premium, then Rye will go down. If it trades Rye at a discount, it will go up. So it's really hard to say, like, in two years, what will happen? I would say that at least in the next year, Rye might have a slight bias to go down. Because, again, there will be kind of adoption.

There might be demand, and people will trade Rye at the premium. Okay, so if there is Rye demand, what is that going to do to the Rye price? So if like the market price of Rye on UNICEF, for example, is above the target that we want, this target will start to go down because the system wants the market to bring the market price down and close to the target, even below the target. So kind of there is kind of, we saw that in our models when we kind of simulated Rye, we saw that if there is kind of a continuous premium on the market price, Rye will just probably reprice itself to zero.

which is not that good. So we have some ideas now to kind of tinker with the controller and make it work, even if there's kind of a constant premium for a long period of time. But that's kind of what you can expect. So if we don't do, we will change some things, but if we don't do something now, you will kind of see a slight bias to go down in terms of kind of dry value. So the way Amin shows this or describes this is kind of like as a spring, right? that kind of like oscillates back and forth.

But the goal of the spring, the controller, as you mentioned, is to restore and return Rye to some equilibrium point. Right. Right. The idea is that in Rye's case, there's not a fixed equilibrium. Like the target changes. It's not like fixed to one dollar or something. The target itself changes instead of doing something else to bring the market price to a target.

And what determines what that. target is. I think you mentioned this earlier, but that's always the part that gets people hung up and including me. The system itself, so we just said in the beginning, like, Rye is this, like it's $3.14 bucks inside the protocol. And from that point on, just the controller or like, yeah, the smart contract that changes the moving peg just did its job and changed the moving peg down because it wanted people to just sell Rye and bring the market price back down to the moving peg. And where do the input system? that system. So kind of the controller, the PID controller kind of has three terms. It has P, I, and D.

P is the proportional. So it kind of takes into account the current difference between the market price of Rai and the target that we want for Rai. The integral kind of sums the error that kind of over, let's say, 24 hours, all the errors that we saw kind of between market and target price. And it kind of sums all of these and then it sums the I term with the P term. And then it kind of spits out the result. And that result is kind of the pace at which the moving peg changes in the protocol. And that basically the market kind of affects what that pace is

and how the moving peg changes. Like if Amin likes to use this example, if Joe Lubin comes tomorrow and puts like 10 billion in the ETH in the system, he can crash the protocol. And then the moving peg will quickly start to go up because it wants people to buy Rye and bring the market price back up. So in a way, kind of the market decides. Is it something like a trailing average of a Rye price? Is that kind of the net effect of this or is that not accurate?

Not really. Like you can think of that in terms of the integral term, but it's not really a trailing. It's just it just is. So the price just is and then at every couple of hours, the system says, okay, the market price is this. I want this to happen. So I will make the moving peg now go that way. And that's it. Like, it just is. And is there an Oracle in this system coming from the Uniswap trading pair? Yeah. Yeah. So we have, we use, we use ChainLink for East USD for now. And we use Uniswap B2 or pool to get the Rye East price. And then using Chainlink, we get to Rye USD. And then that goes in the controller. Did I, did I notice a hint of wishing for better oracles in that,

in that comment? Yeah. Perhaps talk about that. We, we love ChainLink. It was really. easy to use them. We still want to use something that doesn't really need human management. So ideally, also another uniswap pool that just takes the eat price and we use that in the system. Do you think that's coming? Hopefully, yes, especially with uniswap V3. So hopefully, yeah. What's so interesting about this from a high level, right, is we've, we've had kind of like David uses our money gods, right, which is really the math or the code, the protocol behind

the force of money, right? So most. famously, the trust in code for Bitcoin is there shall be 21 million and fixed supply, and we cut it in half every four years. The trust in code for something like Rai is you have ETH, and then it's this PID. That's the code, this spring mechanism behind the system is the thing that you're trusting in, and that is all written in smart contract code on Ethereum. So it is also equally immutable as the entire Ethereum platform. I think that's super cool. Yeah, that's what we're shooting for. So many people ask like, but why not put more collateral types in Rye? And I'm like, well, we can have Rye and then we can have other systems like Rye,

which would be great. So like nothing stops us from experimenting a bit more with Monegas. Okay, very cool. We're going to get back to this conversation with Stefan. I know David and I dominated. I've just got a couple more questions about how Rye has done since launch. And then we're going to get into some of the listener questions. And maybe we'll get some spicy takes from you, Stefan, about some of the other elgo coins that are out there in recent events. But before we do that, we want to thank the sponsors that made this episode possible. Guys, we've entered a bull market. Now is the time to start building your crypto empire. And you should do it on Gemini. You already know Gemini is the world's most.

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where you can stake your SNX or ETH and earn fees from synthetics. So, Stefan, we talked about the one measure of success of Rye as being the price stability of Rye as a unit, Right now I'm showing a dashboard that is on the reflexer.finance website because I want to ask you about another success criteria of an aspiring staple coin, and that is total supply. How many units are out there right now? So how many units of Rye are out there right now? What is the market cap of Rye? And is that meeting your expectations so far? So the market cap is around $100 million right now.

the supply kind of loads between 32 and 34 million Rye. It's pretty much in line with what I expected. We actually expected a bit less simply because people don't yet understand Rai. So it's going pretty well. You know, mentally for a second there, that math didn't check out to me. But then, of course, I remembered that Rye is, of course, worth $3. Yeah. Right?

And not $1. So, you know, that math checks out now. Let's talk about another, I guess, area of the success of a stable coin, that is what it's being used for. Ultimately, a stable coin has to ascend through a, I guess, monetization path. Maybe the first step, some would say, is being used as a collateral source for other assets, maybe a collateral source in D5. But eventually, you've got to start on being used as a medium of exchange and a unit of a count and that can happen sporadically in all sorts of different ways, as we've seen with Bitcoin

and Ether so far and other stable coins. Where are you seeing the use cases for Rye right now? And where do you expect to see them in the future? Right now, I would say use cases are pretty much defy-centric. So money markets, derivatives, so that kind of stuff. Actually, Rye can be used in two money markets right now. And we will have a third one by the end of the month. So we have like money markets on premium and on fuse. And we're also working with a couple of people, for example, add Raya's a collateral type in projects like OMA and other synthetic platforms that will probably come in next months.

So what's the plan to grow? This is a question from actually someone else on the bankless team, our editor. What's the question to grow from $100 million where you are today, which is not too shabby, by the way, in the not too distant past. that was where Dai was. In fact, I think, David, if I'm remembering correctly, when we had Mariano on, it was like around 100, 100 million or so. That was in 2020.

So it's sort of mid-2020. You guys are already there. What's the plan to get to $1 billion, $10 billion, $100 billion? Right. I think it's mainly use cases. So as you said, Ryan needs to become a medium of exchange on Ethereum. So people need to use it for something more than just defy. They need to use it for payroll. They need to use it for bounties. So I would say, kind of implanting the idea of Rye as money is important for kind of Rye to grow.

So this brings me to a question from one of our listeners came in from the Discord, Iggy. Does Reflex Labs have a token yet? And like, of course, we're talking about Rye as a token, a monetary token. Is there a token associated with Reflexer Labs? And if yes, what does that do? Yeah, so we plan to have a token. Tomorrow we will actually have the first Genesis community distribution for that token. The idea is that the token is very similar to MKR in a way because the protocol Rye is very similar to die. The token will act mainly as a backstop for the system. So we will protect the system. It will kind of ensure the system against a black swan event, for example.

And in the long run, even if, like, Rye is meant to be governance minimized, like, very, very few components will be governed by humans. There will be some things like oracles, for example, that need to be upgraded in the long run. And people can vote on those upgrades using the token. And then is it also theoretically possible to vote out governance? Like, where, like, oh, you know, we've upgraded to Uniswap v3. There's liquidity on Uniswap V3. we don't really see any viable like upgrade paths ahead of us, which means that the only viable upgrade path after that is to vote to have no more votes ever.

Is that something that you guys consider? That's what we want to do, although the idea is that like we remove control, we remove most of the control, we kind of show the community that we're very serious about not having humans in the protocol. And then we hope that the community will just take, we'll take our kind of position and they will, they will vote most of the other remaining control out if possible. If not, they need to decide.

Right. So it's a governance minimization process and hopefully it ends at, you know, zero governance. But there's more to the token as well. You talked about it's a backstop for the system. So let's talk about that for a little bit. But maybe the community, let's also talk about the way that the system as a whole captures value in the relationship of the FLX token in that scenario. Right. So Again, FLX is very similar to MKR. It has kind of exactly the same mechanism for now. There is kind of a stability fee inside a protocol. People need to pay that stability fee when they meant why. These stability fees accrue in the protocol's balance sheet. And after a certain point, the system itself will try to auction a portion of these stability fees in exchange for FLX tokens.

And then these tokens are automatically burned. For the FLX token itself, is there any sort of incentive system that you guys have going? Any kind of liquidity mining? What does that look like? Most of our campaigns and rewards right now are focused on kind of growing rise, having liquidity to make sure that unostock pool is liquid, that the price feed cannot be manipulated easily. We don't really have any plans for FLX. We kind of focus on growing the protocol, making sure Rye is healthy, and then we will see if something else comes up. Very cool. Here's a question from bankless listener above average Joe. Is float on your radar?

And if so, how would you compare their plan against Rai? And I've got to be honest, I actually don't know what float is. Maybe you do, Stefan. Yeah, it's another attempt or design at creating a non-peg stable asset. I don't think it's live yet. I just heard about the protocol. I didn't really check it. I think they read, they wrote an article. about them and us and comparing us, but I didn't really check them in depth. Can we talk about that as a category because we're in kind of recent news, Faye has been a attempt to add a crypto dollar, maybe using our terminology, that is uncollateralized, and that has recently come to the scene with a massive amount of market value at the very beginning. It's been a little bit shaky since that.

what's your take on Faye and similar designs? I would maybe just comment about mechanism design in general. I don't think a mechanism should force the market to do something. I think the market should be allowed to do anything. The mechanism should adapt what the market does, not the other way around. So I think people who, anyone who builds a protocol or a mechanism should take that into account.

And is that something that they didn't do? do. I haven't been tracking Faye myself to the nth degree, but it seemed that there are a lot of kind of non-mechanism, human intervention, sorts of decisions that were involved and are continuing to be involved to get it back to stability, what it needs to be. Is that sort of what you're commenting on? Yes. Yes. I didn't really analyze their mechanism in detail. I just know that they probably need to pivot right now. I think that's what the team is doing, and I hope that they manage to bring Faye back to $1. What are some system? Do you think, maybe this is a philosophical question, but do you think uncollateralized stable coins can ever be, or crypto dollars, can

ever be successful, or are they fundamentally flawed? We have an example, a model. There's kind of an asset called FRAX that's right now backed mostly by USDC, but their capitalization ratio is on average below 100%. And they managed to make that work up until this point and it's working pretty well. I think people might manage to build something that's maybe below 100%, but in general, I don't really see these mechanisms kind of long-lasting.

In general, I kind of think over-catalization is the security buffer that every stable asset needs to have. So Frax, to your point, that's kind of a hybrid, right? It's not completely Yeah, it's a hybrid realized. Yeah. What other stable coin designs are out there that you do actually like? I mean, die, of course, because we took inspiration from them. I just hope they would at some point maybe take the same decision that we took and they detached from the dollar and have negative rates. Do you know what? It's like I actually like, I get where you're coming from. and there's an element of me that hopes for that.

But there's also an element of like, I'm glad that experiment is running on the side and that Rye has its own experiment and that both of those experiments can come to fruition we get to see what the best experiment actually was. I feel like that adds some additional resiliency to all of Ethereum's monetary experiments. But I get where you're saying.

I've got another question coming in from the Discord about plans to migrate Rye to Ethereum layer two. what are plans there? So we cannot really migrate the protocol itself. Smart contracts are already deployed. We cannot really migrate with all the ether that's in the protocol. We can instead bring Rye to L2, for example, on looping or some other chain, side chain, or L2 where it can be traded or used in DFI.

And I think that's the long-term plan. And the RIF, the Rye system, the protocol has to actually stay on the L1 to maintain that governance minimization because L2s don't have the same level of trust assurances that the L1 does. Rye can go anywhere, but the Rye credit facility, the actual protocol, the actual application, that has to stay on L1, right? Yeah, that's the idea. So we need Rye to live in Manhattan and then it can kind of go and take a trip on other

streets or cities or whatever. So yeah, that's the idea. Love that Manhattan analogy. Stefan, for folks that have been intrigued by this entire conversation in the bankless nation, and they're looking to kind of get involved in what Reflexer and what Rye is up to, how can they get involved? I think the best way is to check our Twitter. So we are at Reflexer Finance. And we also have links to our Discord there and our website.

And that will be in the show notes as well. Guys, of course, if you are a D-Gen like my co-host, David Hoffman here, you can also experiment with going margin long on your ETH using the Rye platform. There's definitely some alpha to earn if you do it well. But of course, risks and disclaimers, as I say that, ETH is risky. So is margin. So is crypto in general. In fact, all of DFI is risky. You could lose what you put in.

We're headed west up. risky and re-eathe on margin is even riskier. Thanks, David. I feel like you said that for yourself too. We are headed west. This is the frontier. It's not for everyone, but thanks so much for joining us on the bankless journey.

Thanks for having me.