This post is meant as a brief introduction to the concept of lender of first resort and how it can help the RAI protocol.
The lender of first resort is a staking pool where anyone can deposit FLX. In case the RAI protocol is underwater (or better said, it has bad debt that could not be covered by collateral auctions), the staking pool would start to auction FLX in exchange for RAI that is then used to erase bad debt. In case there is no or little FLX left in the pool, the protocol would then start to mint new new FLX (the debt auction mechanism that is already implemented).
In exchange for taking the risk to protect the protocol, lenders of first resort can be rewarded with:
- More FLX
- A portion of the stability fees that the system accrues
Initially, the plan is to only offer more FLX for stakers, as the RAI protocol is still in its infancy and does not accrue enough fees to sustain itself (e.g pay for oracles, controller updates), fill the surplus buffer and on top of this reward the staking pool.
Staking Pool Parameters
The initial plan is to offer 2% of the genesis FLX supply (20K FLX) over one year to stakers. This is, of course, unsustainable over the long run although it is a meaningful amount as to encourage people to protect the system in its early stages.
Aside from the reward amount, it’s important to note that people will not be able to exit the pool whenever they want. A staker would need to request an exit and wait a specific amount of time before they can withdraw their FLX from the pool. The delay is necessary so that people do not exit right before their FLX gets auctioned off. The proposed delay right now is one week, although we’re open to other ideas!
The lender of first resort implementation can be followed here. The code is just starting to take shape and, given that it’s an extremely important and highly sensitive piece of infrastructure, it will need thorough testing, audits as well as a Kovan test before it can be deployed in production.
Given this as well as the fact that we’re currently implementing saviours for RAI minters, we expect to release the lender of first resort pool in 2-3 months from now.
- What do you think about the lender of first resort? Should we continue to pursue this?
- Are the proposed params for the pool optimal?