This post is meant as a quick overview of how RAI might detach from its current USD denomination into something that’s not fiat related.
Before we start, I’d like to mention that the USD denomination is still necessary for now. Many people are still confused when they look at RAI and making it even harder to understand by denominating in an exotic index doesn’t help.
At the moment, RAI’s redemption price is about $3.03. The liquidation ratio for a RAI position is 140% (or 1.4). Assuming the ETH price is $3000, the actual price pushed into the system is 3000 / 1.4 / 3.03 = 707.213. This calculation does two things:
- It applies changes in the redemption price uniformly across all RAI minters
- It ensures that the system can quickly check whether the value of a minter’s debt exceeds the value of the ETH they deposited divided by 1.4 (takes the liquidation ratio into account)
If we want to change RAI’s denomination, we have to swap the ETH feed from ETH/USD to ETH/INDEX. INDEX can be anything we want from bricks to a custom CPI. Once we do this change, we start to denominate all collateral in the system in INDEX and thus RAI inherits this denomination.
To minimize RAI market price disruption, the change should be done in a way where the new RAI redemption price value is close to the old USD denominated one (in terms of dollars). We can visualize the change as follows:
- Let’s assume the new denomination we want is XAU and that 1 USD = 0.0005710894 XAU. The current redemption price of $3.03 is equal to 0.001730400882 XAU. In this scenario, we can also say that one unit of value in the RAI protocol is equal to 0.0005710894 XAU and the redemption price is equal to 3.03 of these units. I’ll call one of these units a UNIT
- We find an ETH/UNIT oracle and determine the ETH price in terms of one unit of value in the RAI protocol. Assuming 1 ETH = 3000 USD, 1 ETH is also equal to approximately 3000 UNITs
- Similarly, we should create a RAI/UNIT oracle that we can use to feed data in the controller
- In one transaction, we change the ETH/USD and RAI/USD oracles to ETH/UNIT and RAI/UNIT
The question now is: is it possible to change RAI’s denomination post ungovernance (August 2022)? Given that we should leave governance for the ETH and RAI market price oracles, the answer is a clear yes.