Nexus Mutual – Yield Token Depeg Cover – RAI Proposal
Author: Stefan Ionescu
Thank you to @BraveNewDeFi and @Gauthier for mentioning Yield Token Cover as a potential avenue for RAI.
RAI was created as an alternative to USD-pegged coins and as an experiment in peg-less stability. The project began as a ethresear.ch post and was then picked up and built into the system we see today by the newly formed Reflexer Labs team.
RAI is an incarnation of the early (and abandoned) design for Single Collateral Dai: it is solely backed by ETH, meant to have less governance as times passes and uses a funding rate to automatically balance market forces and keep itself stable.
This funding rate can be either positive or negative. A negative rate can compel market participants to sell RAI when it is traded at a premium compared to its floating “target price”, something that is missing from all pegged coins currently on the market. The target price is the price that the protocol wants RAI to have on the open market.
Nexus offers cover for depeg events that might happen in Yield Bearing Tokens. At the moment, cover for USD-pegged coins can be paid for in DAI (and NXM) which by itself is a pegged coin. This creates a circular dependency where one scenario is covered by an asset with a similar risk profile.
The main motivation for this proposal is to put forward the idea of replacing DAI and having RAI as a payment option for depeg cover. Given that RAI is a peg-less stablecoin (and may I say, the only true stablecoin) and has a mechanism in place to stabilize itself autonomously, it also has a unique value proposition for the Mutual and for those seeking Yield Token cover.
Depending on feedback, I can provide an analysis using the framework provided in this proposal so the Mutual can get a general idea about using the RAI in the capital pool to get yield.
I would like to gather feedback from the community about this post and invite everyone to discuss about the potential benefits to offer RAI denominated cover for Yield Bearing Tokens, particularly for pegged coins.
Note: the initial intent was to write a proposal about diversifying the Community Fund with RAI and subsequently lend RAI in Aave or the upcoming Curve RAI-3Pool. After discussing with the community on Discord, I decided to lead with this proposal which can currently bring a more tangible benefit to the Mutual.