Idea: Diversify the Aavegotchi Treasury with RAI and Farm on Aave

Author: Stefan Ionescu

Summary

Swap some of Aavegotchi’s treasury into the RAI stablecoin and use it to harvest rewards offered by Aave and Idle.

Background

RAI is a non-pegged stablecoin built by Reflexer. It currently getting adopted by DAOs and other DeFi protocols who want decentralized stable assets that also have the benefit of not being directly tied to fiat. At the moment of writing, there’s more than $15M worth of RAI that was market bought by different participants who want to hold it for the long run.

This proposal puts forward the idea of Aavegotchi diversifying its treasury with RAI and lending it on Aave or Idle. At the moment, Aave is offering stkAAVE rewards for RAI lenders and Idle offers IDLE rewards on top of the Aave ones. This would allow Aavegotchi to access a new income stream for the DAO as well as keep decentralized assets in the treasury.

I’d also love to hear about other ideas you have to take advantage of RAI’s integrations!

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Sounds interesting. Could you expand on how exactly RAI stays stable without a peg and what kind of risk your approach carries. Also what’s the approx. yield if we’d deposit it on Aave right now?

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Regarding the Aave yield, currently it’s 4.5% (pure yield + stkAAVE) but it fluctuates between 3-10%. If you lend on Aave using Idle, currently you get about 6.269% + stkAAVE rewards.

The mechanism behind RAI is a bit complicated and was supposed to be used in DAI a long time ago. Here’s a way to think about it.

RAI has 2 types of actors: minters and holders. This is very similar to DAI where you put ETH in the protocol and mint DAI.

Instead of having a fixed target price (peg), RAI’s target is always fluctuating. It does this using a funding rate (a term borrowed from perpetuals). Basically, if the RAI market price on Uniswap is below the current target price, the funding rate is positive and this makes the RAI target go up. A positive funding rate means that value is transferred from RAI minters to RAI holders. This is because each RAI borrowed by minters becomes more expensive inside the protocol (because target go up) and more expensive debt costs more to repay.

The opposite thing happens when the RAI price on Uniswap is above the current RAI target price. In this case the funding rate is negative, meaning that RAI holders lose value (they expect the RAI market price to fall and go to the target) and RAI minters can enjoy cheaper debt (the value of one unit of RAI debt becomes cheaper).

This game of moving the target price and changing the incentives of minters and holders makes RAI stable.

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Clear explanation, thanks.

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I’m all for this, as it’s a great idea that I’m actively trying to adopt in other DAOs I work with.

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Wanted to mention there’s now more than $23M worth of RAI in DAOs and backing other protocols and we have more requests from other projects who want to hold RAI for the long term.

There’s certainly more and more demand and we’d love to continue the discussion and see if RAI can help!

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