Ethereum Foundation DevCon 6 - Opportunity & Global Impact Track, 15 Oct 2022

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From YouTube: Let's start a RAI-ot! by Fabio Hildebrand | Devcon Bogotá

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https://archive.devcon.org/archive/watch/6/lets-start-a-rai-ot/

Launched Feb 2020, RAI—a fork of DAI—is an ETH backed stable-ish coin that uses an onchain PI controller to set interest rates automatically and emphasizes “ungovernance”.

If you’ve ever looked at a central bank and thought about replacing it with a computer, this talk is for you!

Come listen to the RAI story so far, what we’ve learned, where we’re going, and why we think the RAI model of controlled, floating exchange rates are going to be the future of DeFi and beyond.

Speaker(s): Fabio Hildebrand
Skill level: Intermediate
Track: Opportunity & Global Impact
Keywords: Stablecoins,DeFi

Follow us: https://twitter.com/efdevcon, https://twitter.com/ethereum
Learn more about devcon: https://www.devcon.org/
Learn more about ethereum: https://ethereum.org/

Devcon is the Ethereum conference for developers, researchers, thinkers, and makers.
Devcon 6 was held in Bogotá, Colombia on Oct 11 - 14, 2022.
Devcon is organized and presented by the Ethereum Foundation, with the support of our sponsors. To find out more, please visit https://ethereum.foundation/

A

A

Guys to join us in Orion so who, in the audience, have heard about uh die, raise your hands nice. So when the audience has heard about Rye nice and who has uh use dry up to now yeah few people, we need to work more on that I guess so right is a fork of maker, Dao dying.

A

So with a bunch of differences it has. Eth only has collateral, he has a floating pad, so it's not one USD as back to when USD as dies, it's self-stabilizing with a pi controller and it has minimal governance too. That's what we call in governance and we're pretty sure this is the future of Finance.

A

So here we have a quote by Nikolai he's the technical co-founder of maker and the main architect or the main head behind uh die and I'll actually read his quote, because it's very relevant to the presentation until this is in textbooks as a historical turning point for theory of Central Banking, we're still early so yeah, suffice to say we're we're still early.

A

So before uh I go into what the system is and how it works. I'll tell you guys uh a story more of a personal story. Actually, so let's do the interactive thing again and please raise your hands if you have lived in a place with inflation over a hundred percent a year, yeah there's quite a few. It's a lot of them right.

A

So that's great kudos to the EF for making the event here so keep your hands up if you've lived through over a thousand percent a year, so yeah a few of them right, two thousand three thousand Good Times, so I'm Brazilian and as a kid I remembered uh when my family got, you know their paycheck, we would run to the store and buy stuff, because if you wait until the weekend next day, you'd pay, you know you got less stuff for your money. Basically, prices were raising every day in a big inflation.

A

In Brazil we had uh over three thousand percent yearly inflation between 93 and 94, uh the average yearly. Inflation was over two thousand percent. So here we have the roller coaster that it was right. It wasn't like really smooth uh after the military dictatorship uh in Brazil uh from the 60s till mid 80s.

A

They left with a really messy economy, so all the leaders that came in they came in with a plan. Basically the focus was you know: how do we deal with inflation? Some of those plans were disastrous right. They involved freezing prices freezing wages in this one, the color plan. They actually seized people's savings. It never gave it back.

A

This is actually new to me. I learned this. While preparing to the presentation here we have a graph of the number of people in the monetary Council of Brazil or the guys. You know setting rates and the inflation in Red. So you see how they correlate right, so the less people you have it seems to be better right. So, yes, and and this sharp decline in the inflation was in 94., it was called Plano.

A

It was really interesting. I mean they did some obvious things right, cut government spending, uh stop printing money right and they also did one thing. That was not really obvious. They created another unit of value, so things were priced in this new unit that was called urv or when he died or unit of real value, but they were still paid in the currency of the time that was the what's it called crusadero and after a while, once people were, you know, free from the inflation mindset.

A

Urv became the Brazilian Herald that we have to this day. This plan was mostly successful, so we went from over two thousand percent inflation to mostly single digits since then.

A

So now we think okay, the US is exempt from this right so far, so good but uh yeah. Actually they seem to be losing control there. So, during the covet years they printed 30 percent of the money supply and they seem to have underestimated the resulting inflation from it. So they took long to act and now they seem to be overreacting, throwing the whole world into a recession right and now going back to crypto. So we have like a speed run of what we're talking about right. So oops we had here the Luna UST.

A

You know Fiasco graph, let let's do another one raise your hands. If you lost money in Luna UST, so yeah lots of people and yeah, please, the other ones should pay a beer. You know to those guys so yeah I know it was painful. So vitalik wrote an article recently about stable coins just after the Fiasco right, comparing Rye to UST and the main takeaway, for me at least, was that if your stable coin cannot contract, if if it cannot win down, it's likely a Ponzi right.

A

So here we have, you know the the graph showing you know when Luna or UST had to win down. For the first time it was ugly. 50 million was erased from the market in a so that's uh billion with a B right. So lots of money uh now think about what happens if the USD has to contract the USD with a d right?

A

How would it work so, but I'll leave this? You know as an exercise for you guys to think about this. So here, having lived through hyperinflation I can't help, but wonder you know: how do we get ourselves out of this Dark Age?

A

So these are some of the questions we were obsessed when building rhyme. So what if the humans are the actual main source of instability, what if our currency was honest waiting for currency was not a Ponzi. What if our money supply automatically expanded and contracted? What? If proper, Central Banking has never been tried.

A

So here's a picture of Milton Friedman he's a famous economist and we're trying to achieve. You know his his vision here so back to what is right, we will now go through. You know not that you guys know why I care so much about this thing. uh We will go through and explain each one of these bullets to you guys so like die rise over collateralized, you open a collateralize that position by depositing eth and minty Rai. We call it a safe, it's not to be confused with it knows it's safe, you know so.

A

The die CDP is a safe for us. If our collateral Rachel drops below the minimum 135 percent, your East will go to a liquidation auction just like die. We have no Ascend there, so you haven't one time. One hour time delay to react in sharp. You know price changes and like mkr, we have flx so that works as a domain backstop if liquidations fail and Rye is backed by eth. Only.

A

This is very, very important because centralized collaterals have a way of taking over if you're, not careful. Dye is now generated from around 80 percent, centralized collateral, the vast majority being usdc.

A

So we all know after the tornado cash events recently that you know they can freeze any holder, including you know, pools and systems. If that happens, you know, die holders will suffer. Die will lose most of the value by only backing Rye with eth. We want right to inherit the money-ness that eth has earned.

A

We also made the decision you know to prevent sort of like this actually prevents Rye from really scaling. Rye can only grow so much, you know, and we expect that it will grow as it grows in in value too. I'll get back to this uh towards the end of the the presentation.

A

So people often ask us, you know how is it stable if it's not one USD so the way we see this, it's more like, like a foreign exchange, foreign currency right. So here we have the exchange rates of several currencies, the largest ones against USD and the Rye Redemption price is the smoother line in green there.

A

So, as you can see, it's not much different than well foreign exchange, we're doing about as good as China there. So bagged stable coins have a big problem, also highlighted by vitalik they're, either pegged when everything is okay, you know or they're off bag, and everyone is freaking out. You know what the is going on. So right has one mode: it's always off pack, you know that's business as usual. It's a matter of degree, so we're not getting out of bed, because it's soft pack right see how cozy it is.

A

Pepe is, and here we go to the pi controller, that's the heart of the system, the coolest part too. So we have a graph here. The market price from uniswap curve is the red line over there. Redemption price is the smoother line in Gray, so when the market price goes above, the Redemption price or Redemption price is basically the internal system Peg right when the market price goes above, the Redemption price, the Redemption rate goes down and starts pushing the Redemption price down.

A

The opposite is also true. So if the Redemption price or if the market price goes below the Redemption price, the Redemption rate will go up and here below we have actually the rates. The Redemption rate is formed. Like two rates we have the P rate in blue and The Irate in Orange. The period in blue is instantaneous.

A

So when the price market price crosses the Redemption price, it will immediately cross to the other side we can see recently in the recent days, it's been the first time in a while, where the market price went below the Redemption price, and the period immediately goes positive there.

A

The eye rate starts the error of the last 30 days. So it's like a memory. It makes the controller stickier. This is why it's not yet positive right, The Irate, is a lot higher than the or a lot higher to the negative side than the period there. Stability for right means balancing rise, supply and demand and not begging it to one USD.

A

So with Rye, you know where the yield is coming from. When rates are negative, right holders are paying right borrowers when rates are positive right, borrowers are paying right holders. This value, transfer between right holders and Borrowers is mediated by the pi controller we saw previously, and they the controller, actually incentivizes the balancing the supply and demand for Rye. So we have a saying that the money God always wins.

A

So we say this because it's pointless to fight against the money gun, push against the controller. The rates increases potentially against you and you burn money. Basically, you don't want the angry money God against you, so you want to keep him happy. If you help him work, though you can make money out of it now on to ungovernance. That's what we call. You know minimal governance, so the system has been controlled by the community since July this year.

A

When we started, we started with the usual team multisig and we completely transitioned to the Dow now, so the team multi-sig is no longer active and has no control of the system. But before doing that, we actually locked down pretty much everything. You know to prevent governance from being used as an attack Factor. So, unlike him, die where the governance can do whatever it pleases in right, governance cannot print right, cannot print, flx, cannot steal collateral and so on.

A

So the only things it does right now or it can do right now- is govern external dependencies like oracles like saviors and some of the parameters. The system has I mean some parameters. We felt we were not ready to set in stone like the pi controller parameters, everyone's still learning, so the community can't govern them through a vote. So we believe Rye represents the future of Finance.

A

Central banks in the future will be open source programs. The cost of operating a central bank will drop by a thousand times even more. You know they were run transparently and autonomously.

A

So the way the Fed works today is like maker down they get together in meetings and they decide on rates. As autistic people, we know you don't need meetings to set rates one day. Everyone else will learn this too. You know today we treat currency management as a holy art that only some Arcane Wizards can perform. In truth, the more we can demonstrate Simplicity, the more we can dispel the Illusions around how money should work.

A

We believe in a future where communities can take ownership of their own money, where the cost of deploying and maintaining a currency is as easy as the deploying you know, some open source code. So, as ameen said there, we can stay autistic longer that they can stay.

A

If Lords, you guys should join us right. If you have eth as a collateral in a system that has risk from centralized uh collaterals, you should move right. Deposit is like borrow rise, spend it you know long Rye short Rye do basically work with the money God. This is a tweet, interesting one from cure and uh it talks about a position.

A

Vitalik has in the system so vitalik in the recent months with the negative rates he made 75 000 by shorting right, so he's helping the money, God and making money you guys should maybe try it too. You know uh also join us on Discord meme. The dream right help us write: explainer content, uh there's a really interesting research Channel, where people discuss monetary policy, control theory and whatnot, uh at least also in our Dev Reserve Force we're building right now and there are plenty of bounties available there.

A

Also at not only technical, you know the response is for everyone so uh check it out and, lastly, we're also building the money, God League. So what what do we call the money? God League? Basically, we know Rye won't scale so, instead of envisioning one huge, stable coin to rule them all, we envision a future with thousands of Rye like systems.

A

So, as you can see over here, let me get a front makers discussing becoming a ride-like system now right abandoning the bag, so they can get rid of usdc. So maybe they join us in the future. You know by getting back to the original Nikolai Vision there uh there's also H2O from Ocean protocol. It's a fork of ride that is collateralized by their data tokens. There's also a group working on Thai, which is a multi-collateral version, and maybe you should join us too. You know if you have a good idea.

A

You want to build another flavor of the system. Come talk to me. Join our Discord, we're happy to help. You know the more systems out there, the better right sort of like the Hydra vision of the thing. We don't need a huge, stable coin. We need several smaller ones to contain failures too. You know and allow for experimentation, so this meme was made by Charlie Noe from Paradigm. It's some true VC value. Add here so I'll leave this running here. While I take any questions from you guys. We still have eight minutes left so.

B

um So good morning, Fabricio two questions: uh could it be like a PID controller instead of just Pi controller and other? Could it be checking the price of it corrected by inflation, or that's like impossible to do? Yeah.

A

uh Interesting questions I mean we started with a p, only controller. Actually now it's a pi I, don't see. Why not could be a PID too, so in its experimentation right, there's still room for a lot of experimentation with Rye. We try to make it like as pure as possible. So only if minimal governance. Now with the forks, you know, I mean there's a ton of possibilities.

A

We see like Thai, for example, the guys explained that for a multi-collateral version you need more governance right to onboard new collaterals and their goal is, of course, to try to keep it to decentralized collaterals uh onto the other question. I forgot. What was the second one? Please remind me.

B

At that price could be checked by corrected by inflation.

A

Not just USD yeah, so pegging is a true challenge right by having Notepad I mean uh uh I went through the like the advantages of it. So if you're pegging to an inflation index, for example, you have the same problems of a packed currency, I mean it could be done, but then the negative rates could not be applied to price. As we do right, they could maybe be applied to the stability fees right or the borrow fees.

A

People pay, you know on their borrowed amount, so yeah I guess it could you know if you feel this is a nice idea. I guess you know come join the money, God league and yeah good it working to help so.

C

Hi, thank you, since there is no Peg when does right fail and under what scenarios yeah.

A

That's what has.

C

Happened, what are the 30 modes yeah.

A

That's uh hard to say: I mean uh there's no Peg and and I mean the there are a bunch of failure. Scenarios too right I mean we could, as in the black Thursday, you know maker failed to liquidate cdps. This could happen. uh Regarding the controller. You know there are some cases in control theory, where the controllers go crazy, too right, you've, seen like robots, going out of control and spinning like crazy and then destroying yeah. That's a PID controller. Failing that happens, we would need to Global settle the system, as maker did with Psy.

A

We had a proto-ri before right to be Global settled. So if the system becomes unsustainable, it can still be closed down and that everyone, both uh safeholders safe owners and Rye holders, can go back there and and get their East back. So it's not a complete loss, but we have to keep an eye on this. This is also an experiment right, so we're trying to be conservative but I, don't know in future iterations. It could be that not on rye rice, pretty much closed down, but I mean on other many God, League members.

A

This could happen. I, don't know we just have to keep an eye to see. If you know controller is not going crazy on us.

C

A

D

B

D

Summer, during the uh over here in front of you, dear right, hello,.

B

D

This summer, when it was when the market and Redemption price were different for like months and we were seeing like 30 different rates, it I mean um it kind of struck me that um why can't the system tolerate some sort of steady state error where market and Redemption price are just like different for a while, instead of the eye, just punishing us more and more and more yeah.

A

That that's actually a good point. uh This happened at the time. We're not sure why you know, like Nikolai claimed we were being attacked by some actor. You know trying to prove us wrong. uh Some people think you know because of the UST Fiasco, then, because of the tornado cash thing, you know a bunch of people, Market bought right and then the money God got mad. You know and punished everyone and vitalik made a bunch of money. That's the so yeah we're still discussing this there's. Actually there will be a proposal to tweak this.

A

We do feel the item right now is too strong. Maybe it could be punishing less. You know they make it less sticky. So yeah, please join the discussion. You'll like it. uh There will be a discussion in the Forum soon and until the end of the year we will tweak the perms. We try not to tweak him really like with a lot of with uh I mean too quickly. So we see the results. You know we see the thing how it plays out, but yeah there will be one change in this year.

A

uh It's been like that for over six months now so- and it I mean it withstanded, some pretty big shocks in between you know, which was we switched from uh Raging Bull Run to a bear market right and then things collapsed and that there were I mean people tried, started, valuing decentralization more so uh yeah I. Guess, let's see if next year is more stable, too, with new params and we will see the idea is to tweak less and less and and on a smoother way.

A

You know like uh until we can set the programs in stone and just ungovern the controller too so.

E

What are the incentives for executing liquidations and maintaining the the system? Health um like, for example, like maker? Has this decaying? uh You know auction where, like Ave, you can have you'll find out there's a lot of a lot of people that should be liquidated that are not liquidated but maker. Everybody eventually gets liquidated. So what's the incentives and how is that maintained? And so.

A

E

Telemetry, do you have into to see what needs to be.

A

Liquidated so when we started the collateral auction house was a fixed discount collateral auction house, so it provided a fixed discount on it. You know against the market price, then after six months or so, even before maker liquidations 2.0, we started with an increasing discount auction. So it's pretty similar to maker I mean the implementation is completely different, but the the mechanism is the same and we're decentralization freaks too. So every call for Keepers in the system is incentivized. Somehow, uh actually the system right now for the keepers out, there is grossly overpaying calls.

A

So you can make a lot of money. By helping the system, uh there will be a proposal soon to lower the rewards because they were adjusted for gas prices from the bull run too, and now the network is, you know a lot. I mean block. Space is cheaper, so we can lower the rewards, and you know the system can save money until it's needed to raise them again. For other things, I mean for everything, there's an incentive.

A

There, I mean uh it depends on the call and on the on the on what you're doing so hello.

F

um What's the point of using a rye instead of straight eat if it's free floating and it's just backed by eth yeah,.

A

Rye is supposed to I, mean it's free-floating, but it's uh way less volatile than eth. So, while it's it is free-floating, it is a stable coin right, it's kind of like the Euro against the USD. You know, of course it's gonna oscillate right tomorrow. It's gonna have a different price, but it's not going to go crazy on you and crash 50 from today to tomorrow. Right, so right is a very dampened version of eth.

A

Basically, and we early on it's actually quite interesting because we had like we didn't, want to call it a stable coin, because everyone called stable coins. You know the one USD thing, and now we sort of we're sort of reclaiming the name. So we feel right is the only true stable coin and all the other ones are what we call peggies or pegged coins. You know so yeah, that's it! So if you need a stable client that retains you know the moneyness of it, that's right! That's the goal of it.

A

G

As the money God grows and adoption grows as a currency, what do you see or what do you expect from central banks and other institutions trying to corrupt or crack down on coins like right.

A

uh So yeah, the more decentralized you are, the harder it is for them right. So we're taking our precautions from day one. uh The idea is to have it. You know almost trustless in the future, so yeah they can try to stop. Ethereum I mean it's gonna, be hard right and yeah. Our main goal is actually you know uh some Central Banking Bankers are actually noticing this, so we feel that Central Bankers should not be setting rates right because they're people and they're like subject to politicians, you know making pressure and influencing them.

A

So in the future, as we see you know, they need to be very predictable on setting rates. So in the future, as we see they will have a software right might not be, ours might be theirs, but you know they will have a set of. You know an algorithm setting rates and then Central Bankers. Instead of monthly setting rates, they will just tweak the parameters. You know until they perfect that their their own controller right, yeah.

G

Isn't there a danger, though, in where there will be Crackdown? Let's say on the use case and then the attention towards stable coins, like rise, will just yeah.

A

I mean there is I mean everyone is noticing this right. uh We feel rise last in line, though uh the risk is there. I mean I, agree with you, but, for example, if if you look at die, they have usdc inside, so you know they're one action from circle from being frozen.

A

uh They also have you know a huge governance thing going with lots of people uh that can tweak and that can do many things in the system. We prevented that, so we try to close these doors. There's also another thing right.

A

When you look at stablecoin regulation, we're lucky that Regulators think stable coins are all packed to one so I think they're, overlooking still you know like all right works and how stable it is so yeah, I guess this is going to happen eventually, but we feel rise, the most resistant of all you know and we're keen to improve it too. You know with new designs new iterations of it. So that's amazing.