RariCapital

Summary: We propose the addition of a RAI/FRAX/USDC/DAI pool to Fuse. A pool like this would be unique for two main reasons: the rate at which RAI’s moving peg is repriced would supercharge the interest rates offered in the pool while opening new possibilities for Frax to deploy capital using an AMO that leverages RAI in combination with DAI and USDC.

Background: FRAX is the first fractional-algorithmic stablecoin protocol. It is a hybrid model stablecoin which is more capital efficient than fully backed/overcollateralized models. Since launch in 2020, FRAX has never broken the peg and has stayed within 1 cent of $1 entirely which is an industry first for a non-overcollateralized stablecoin. FRAX also introduced the concept of Algorithmic Market Operations Controllers (AMOs) which allow for arbitrary market operation strategies that stabilize the price of FRAX by using other DeFi protocols. Due to FRAX’s capital efficiency and resilient peg stability, it is able to conduct important market operations through a proposed RAI AMO to purchase, mint, borrow, and/or lend assets in the Rari Fuse pool to keep FRAX tight to the peg.

RAI is the very first stable asset with a moving peg that can impose both positive and negative “interest rates” on its holders. It is fully collateralized by ETH and managed by an on-chain PI controller. RAI’s controller is in charge with calculating a rate at which the moving peg increases or decreases, thus compelling market participants to bring RAI’s market price back and close to the peg. Due to this breakthrough in stable asset design, RAI’s mechanism can autonomously influence interest rates on secondary markets where it is being used. RAI’s design allows FRAX to leverage the moving peg mechanic and create an efficient and liquid money market. The FRAX AMO can lend RAI when the PI computed rate is positive and borrow RAI when the rate is negative.

Abstract: This proposal presents a setup for a new Fuse pool which includes FRAX, RAI, USDC and DAI. RAI’s repricing mechanism can have a direct impact on the interest rates offered in the pool while Frax’s AMO strategies can bring significant liquidity and usage.

Motivation: This proposal outlines a Fuse pool with characteristics that are not present in any other money market protocol. The pool takes advantage of RAI’s repricing mechanism in combination with Frax’s market operations framework in order to create a liquid market for stable assets.

For: Add the RAI/FRAX/USDC/DAI stable asset money market in Fuse.

Against: The RAI/FRAX/USDC/DAI market is not added.

Link to forum post: https://forums.rari.capital/d/44-stable-asset-focused-pool-fraxraiusdcdai