Reflexer Monetary Policy Change

I have morphed my view over a time that token inflation is actually really accretive to protocol value if done “right”. You can farm through incentivized rates…or lower c-ratio…or inflationary rewards. The nice thing about inflation, is that it is easier to target certain behaviors with the incentives. But in some ways, the system works like this in a crash anyway. ETH crashes, margin call on vaults. If they blow passed the stop sign, mint more FLX. Difference here is that it is possible to nudge before a crash and avoid the inflation when it does the least good.

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Why not reduce the rewards distributed instead to give the protocol longer?

IMO, one of the big problems the protocol currently has is it’s not only paying for users to provide liquidity, it also is paying users to open vaults. You have designed your liquidity mining campaign to be very expensive. Ballparking, If you want to seed 100 ETH and 76,666 RAI you also need to have *250-300 ETH locked in a vault. Roughly, 3/5ths of the LP reward is designated towards opening vaults. Most of the liquidity mining reward isn’t even distributed towards providing liquidity. There are users that take out vaults to go long the market so what is the sense in incentivising vault creation when the capital requirements are so high?

(I know you need to do both at the same time to qualify, that is besides the point though, it should just be allocated towards liquidity providers and seperately you could provide a small incentive for vault creators.)


We allocated to LPs only and it made no sense, the system was crashing because the market was bidding RAI up.

Only incentivizing mints is an econ no-op. Paying people to sit around brings no value to RAI.

Minting must be there, of course no one wants to mint because “capital efficiency” but the point of RAI is to mint it.

Decreasing rewards now instead of increasing won’t help at all with any integrations/adoption.


What do you think about this as a simple ‘Why RAI?’ explainer?

  1. It works. RAI has remained stable in the face of every system shock it has encountered—the very definition of stability
  2. 100% Crypto-native. RAI functions completely independent of US Federal Reserve Monetary Policy
  3. Minimum Viable Governance. Designed from the ground up to achieve as little human intervention as possible to ensure social scalability and no slaves to the protocol
  4. DAI relies on centralized governance with increasing reliance on centralized assets that compound its governance attack vector and lives in a perpetual state of regulatory uncertainty. RAI only gets stronger the longer it exists
  5. RAI is the only stablecoin that has solved negative rates—a key missing piece among DeFi primitives
  6. The Money God Controller ensures everyone knows the rules and has the exact same expectations of what to do and what will happen

But wouldn’t this have dissipated over time? How was it dangerous to the system? Isn’t the system designed to naturally fluctuate? The current price is below the launch price so it appears there’s at least been overcompensation for this.

Good point, but was there not other solutions than the one imposed? You could have applied it as only applicable to maker vault refinances for example.

The market for FLX is so thin right now it’s ultra sensitive to new coins coming to market. I was paying 4% slippage to buy 20 FLX not too long ago. If you half the price it doesn’t matter if you double the supply coming to market it will be the same APY when you’re paying for integrations.

This really is a nuclear option imo, like last resort. On the one hand you’re telling the community it’s either this or bust. What did the investors / early backers say? Why don’t they take haircuts with their allocations if the situation is so dire? The investors got a nice buy in price already no doubt, retail investors buying from the market have been buying it above $500. Just speaking as one of them.

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It doesn’t dissipate, the market will of course want to max rewards and capital efficiency so it will bid up the price.

We discussed this on Discord and did multiple experiements in February and March until we got to a strat that is market neutral. LP only will just make RAI devalue for no reason.

The market for FLX is now growing and I mentioned in this proposal that 35% of the inflation would go to maintain liquidity for FLX.

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not to mention double LP rewards

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The more people that bought RAI in order to seed the pool the less FLX rewards future bidders that then seeded were getting, hence the bidding pressure should dissipate over time. If you have done modelling of this fair enough, doesn’t make sense to me but you have thought about it more and I am probably missing something.

I do think it is odd that we’re in this situation however. The initial distribution when I saw it I did think it was strange and I guess this is all starting to make sense now; there are players that were given too much of the token quite clearly in the background. Comparatively other protocols have >50% of the tokens allocated to their treasuries so if this is an attempt to fix that the segment of retail investors buying since launch are the ones getting caught in the crossfire unfortunately.

Ok, despite my criticism I want this project to succeed as it is a very important part of the future ecosystem. I’m just a bit bummed that I didn’t know this before building my bag.

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The proposal looks similar in several aspects with the mechanics of Liquity and I think they made a lot of things right. I support it.

As a newcomer without much information I feel most of the 1MM supply was distributed among a couple of insiders. This is a turn-off to expand the community. On the other hand, I’d be very cautious and move slow to create consensus in order to avoid pissing off early investors.

the Why RAI? reasons are very important too. The narrative is too focused only on the ideological reasons but not so much on the economic incentives.
It’s crucial to build a narrative around the profitability of holding RAI in the long term (for months at least). The incentives must be higher than the value/predictability provided by the schelling point of the US dollar.

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Hi all, this discussion will be delayed because of two reasons:

  • We’re in the process of slowly reducing emissions
  • We’d like to ideally cut one year of high inflation and replace it with low terminal inflation that can be turned off later on

Discussion will be reopened in end of Q4 2021/beginning of Q1 2022.