📺 AMA with Stefan Ionescu of Reflexer Labs

hey bankless nation welcome to this community ask me anything we have the founder of rye from reflexer labs um created a really interesting stablecoin or is it a crypto dollar we will get into the terms and definitions in this community asking anything the first time around we had some technical difficulty with the live stream so hope you're hanging in there if not this recording will be available on youtube and of course as always on the podcast get your questions in on youtube we will put them in queue and uh try to fit them into the

show david you ready for this absolutely this is a really cool project and i think really in the spirit of this week because uh this is this is coinbase week and this is uh the week that crypto breaks into the nasdaq uh and we are slowly infiltrating the rest of the world pulling them into the world of crypto and then once you're in the world of crypto we have this brand new project uh called reflexer and rye which is a a self-sovereign stable coin uh not a not a crypto dollar but a stable coin and so

we're really pioneering in all different directions and once you come into the fold we have this system that allows you to be self-sovereign without having to rely on the fed uh and have without having to rely on banks uh and so i think this is uh uh while you know coinbase is making a big splash on the legacy markets we have uh me on the other side of things on the when you go into the rabbit hole we have these tools that can allow you to just completely remove yourself so these bridges from the legacy world into uh you know completely self-sovereign finance are getting really really strong and the end

destination is also getting really really strong and that end destination to me is something like this project that we're going to talk about today which is reflexer and rye yes so we are doing this because these types of algorithmic stable coins are a big deal but what's an even bigger deal is that this is a self-sovereign completely bankless attempt at some sort of stability asset stability mechanism for crypto that means it's purely crypto native no meat space dependency it is truly in code we trust and therefore

hits very much the the bankless thesis of creating a a self-sovereign independent global money system for the world it's still an experiment but as david said we are deep down the rabbit hole so we are trying to figure out what this experiment might yield and what others like it might yield one quick disclaimer i love the vision for this project so much i am actually an investor and i i hope that this project is successful but if not reflexer and rye

some other project like it it really fits the the spirit of going bankless and why we're doing it david anything else to add before we get in with stefan and dive into the community ask me anything yeah amin solomoni who's been uh working with the reflexer team coined this term money gods uh and the money god comes from um just the fact that we can build something that is out of our control and it in fact controls us and this is why bitcoin is so powerful right bitcoin is not something that can be

steered by any one or few humans uh it is something that just exists and either we can accept that and integrate with it or we can fight it but generally people who fight bitcoin lose now the ethereum app player i think allows that same sort of money godness right like we can build applications that control us that we cannot control and i think that's really a big through line that we're gonna have with this conversation with stefan and overall the through line for why the ethereum app layer is so cool and so to me it's really really exciting to see

app applications like reflex or like rye come into existence that really resonate with the the money god ethos or money god thesis about why crypto is so cool all right guys before we get into this conversation with stefan that i know you're going to enjoy we want to thank the sponsors that made this episode possible metamask is your go-to wallet for the bankless journey if you're going bankless you need metamask period browser and mobile get them both this is

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thank you uniswap for sponsoring bankless all right everyone we are tuning in to this ask me anything with stefan unesco he is on the founding team of reflexer labs he's also a brilliant engineer this is the team behind the asset called rye which is going to be the topic of today's community ask me anything of course as usual get your questions in on youtube we will answer those but the first section is for david and i to actually uh ask some questions we get to

be greedy uh and stefan it's it's great to have you welcome to bankless my pleasure to be here thank you for having me do you know i i really want to start with the the high level for folks here uh stefan um and a high level i guess the question is is sort of open-ended what problem do you think rye is solving right so rai is trying to solve some shortcomings in the kind of usual mechanisms that you see around creating pet coins as they call them or crypto dollars as the bankers nation

calls them uh it's it's mainly the fact that you need like we saw kind of a problem with die lost during 2020 during black thursday where they kind of struggled to keep die close to the peg dye went way above the peg at some point and they had to do something to bring it back uh and the thing that could they could have done was to de-peg die so not have it picked anything and managed to impose negative interest rates on their holders so kind of anyone

who held die was subject to a negative rate that was draining value from them and that would have made them sell and bring dye back to the target price score of the peg as they call it so we're basically trying to solve problems that are kind of more technical in nature um in in the coin or stable coin area as i recall staphon this was actually contemplated in some of the discussions in the original uh die design actually um i figured it's called t

tf rm something like that some sort of target reference rate okay target great feedback yeah so like what's interesting to me is uh dave and i have made this comment almost on every episode it feels like but like the the the what we're seeing is every experiment in krypto and in d5 that can be tried will be tried right and so dye went in its own direction on a number of fronts they went multi-collateral they went a bit more governance driven in terms of their stability design rather than algorithmic

and they don't have the ability to do these negative rates and so is rye sort of a reaction to that is it sort of taking some of these concepts and the the road that was not traveled by dye and implementing them it is on the one hand i wanted to build this simply to show that the initial maker team was right and that it is possible to have an asset that's stable and yet not picked anything and it is possible to have negative rates in crypto so it was more like curiosity for me to see if it can be done and how and

then see how people might use that so and i kind of knew about maker because i prior to kind of starting to talk with the mean who's in our founding team and you know getting to know him and nikolai who also used to work at maker i kind of studied maker for about six months i just did kind of research on stable coins and i knew about the purple paper and i knew that they didn't implement the rfm before the other i think problem that at least in my mind this solves so you're taking this in a different direction maybe looking to get a better stability

mechanism out of it but like the big crypto vision right is to have a money system that can operate independently of meat space and what is meat space right meat space is obviously you know commercial banking but it's also meat spaces is central banking meat space is also nation state uh governments i know amin in his in his article that david you referenced um calls this an independent state global reserve asset and unit of account independent of the state this has been part of the

crypto vision and we have independent monetary units in the form of bitcoin in the form of ether today but these units are not stable can you talk about the um i guess your thoughts on that is that part of what rai is trying to solve as well yeah that's the idea so we shouldn't like crypto in general i don't think crypto should fully depend on the dollar or specifically on any monetary policy that's external from the chain so we should have a unit of

account that's just that just depends on it just lives on a blockchain and you can just trust it and it's stable and you can transact with it so that's kind of the idea like not depend on the feds to dictate what happens to what i hold so yeah it's pretty it's pretty much kind of the original crypto vision in a way so stefan i want to take people to school a little bit here because um you know someone made the comment i saw on on twitter it's like uh you have to be full-time into define crypto to actually like understand what's going on

and i feel like that's especially true of sectors that are um like doing a tremendous amount of innovation so new projects are coming out in sort of the the crypto dollar stable coin sector uh all of the time and it's very difficult for people to come up with you've got these new acronyms like mfay and you know um fracks and what like what is all of this stuff so let's take people to school i want some kind of an orientation here uh to help ground the rest of this conversation so

i think of a few buckets as far as i'm going to generically call them stable coins though i know david wants to have a semantic discussion about what staple coin actually is we'll get to that um but let's let's uh start with the first bucket and i think that's important and this is stable coins that are on the one hand dollar pegged versus stable coins on the other hand that are not pegged to the dollar as a unit of account can you talk us through that so which side does rye fall on

versus other projects and why so as far as i know rye is the only stable asset for now that's not pegged anything so it's not paid to the dollar it's not paid to euro or rather anything it just has like starting price starts at like let's say we started at 3.14 that was like pi was our initial target and from that point like rye and the system behind it uh reprices itself so it changes the target it changes kind of the peg where rye should always come

down or up to or it should always come back to um and just to be clear uh you guys picked 3.14 because you needed a number to start and you guys just picked pi because why not and there's no and so the only reason why you picked pi was because you need a number but there's no formal relationship between rye and pi moving forward it just was the starting number and now it's in the past and now it doesn't matter anymore yeah pretty much so we could have started at 100 bucks one thousand ten thousand it

doesn't really matter it works the same it's just maybe the human perception like you can start really high really really low it's just that i'm going to share a screenshot here and this is from the folks at missouri that sort of shows shows this in the context of the um the possibility trinity and uh and stable coins right so um what we have on um the right is kind of this uh non-pegged stable coin this is maybe where where rye fits uh and this um

this is different than all of the dollar pegged stable coins that exist today so there there are different really trade-offs here right um but this is similar to like uh you know a non-peg dollar staple coin is really similar to a currency of a sovereign nation right so like the the yen for instance it trades against the dollar but it is not in any way pegged to the dollar right and so they have to almost bootstrap that demand for a new unit of account any any

just comments in general on some of the trade-offs that you guys are making with the impossibility trinity and having something that is non-pegged to the dollar i would say the main advantage in a way is full discretion over setting your own monetary policy so the system can choose exactly what interest rates it wants it can choose exactly when it wants to attract capital or repel capital so you have more flexibility on in general exchange from your monetary policy as opposed to peck points so the peg coins though they've gone in

this direction because i think they've wanted to bootstrap their unit of account demand right because everybody uses the dollar we all know what the dollar is rye is an entirely different unit of account essentially and people aren't yet familiar with it is that some of the trade-off here that you don't you're not able to bootstrap and say yeah you know what one rye is worth because it's always like one dollar or flexes around that rate can you talk about that trade-off right that's a trade-off in terms of kind of integrating rye in the ecosystem

people don't yet kind of understand how can something be stable and float and i'm like well you can look at the euro how it floats against a dollar or as you said yen or any other currency so one for now it's kind of education is the hard part kind of telling people that this is stable without just referencing something external to it is the tough part all right guys so that's lesson one dollar pegged versus non-dollar pegged rye is non-dollar pegged let's talk about another bucket that i think in you know staple coins uh of in terms of

collateralized on the one side versus uncollateralized on the other what is collateralized versus uncollateralized and which is rye so like die it's over collateralized uh it's right right now the minimum c ratio collateralization ratio in rye is 145 percent that's for east so you can put e in the system and mint y until your position goes to that minimum collateralization ratio and below that

you get liquidated again exactly like you make or die um under collateralized stable coins are the ones that try to go below 100 backing with collateral or even to zero and they try to maintain stability with the different mechanisms that's not well now we lost both camera and audio one moment guys while we wait for stefan to come back maybe internet connection issue this

time we're not having good luck technically oh oh he's totally gone he's totally gone all right well so what he was saying is that uh rye is uh collateralized just like that and so it's very similar to a cdp mechanism uh so you submit ether and then you can mint rye but you can only mint a lesser value of rye than what you collateralize and i actually don't know those parameterization ratios at the top of my head um probably something around 150 ryan do you know

i don't know off the top of my head but you know 150 seems like the magic number for die and so i think a lot of like uh collateralized stable coins have sort of adopted that there we go uh stefan okay so we lost you real quick and so we were kind of filling in the gaps we talked about how rye is very similar to scdp where you stick in your eat you uh collateralize your eat and then you mint uh rye just like how you meant die uh but is there what's it is the uh what's the parameterization ratio for ether and and rye like is 150 what's that number

it's 145 percent so it's a bit lower than the one the usual one in maker can we talk about some of the trade-offs right so um collateralized the example of that is rye an example of that is die uncollateralized an example of that is maybe fey not sure what are some examples out there maybe empty set dollar maybe the original basis cash design would be examples of these things so what are the trade-offs on uh you know

collateralized versus uncollateralized it seems like you know one of the trade-offs has got to be well with collateralize you you've got something backing it at so there's like a bottom level of value that the thing can sync to and uncollateralize there's like nothing backing it but how do these trade-offs um appear to users so when you have something backing your bitcoin or stable queen people tend to trust that a bit more like we saw in practice that basis that doesn't really work like there's always a bank run people just sell that until it goes to

almost zero so it doesn't really work you need something kind of instill credibility to other people otherwise it doesn't work okay as long as we are taking folks to school then we've covered to collateralize under uncollateralized dollar pegged versus non-dollar pegged um rye is non-dollar pegged collateralized let's talk about this this other area that i think is important which is uh govern stability versus something that's more algorithmic and what i mean by that

is uh you know the stability mechanism that the like interest rates for a cdp in maker are determined by maker governance those that own the mkr holder that's not the case with rye rise maybe more algorithmic stability on that side of the spectrum these are my own terms but you tell me like how what's what's wry and what is how do you minimize governance how is that different yeah so rye is a bit different compared

to die because we also have stability fees for every collateral type that's in the system but in our case stability fees are more or less fixed or bounded they kind of price the risk that an asset brings to the protocol so for example we can price kind of the risk for ether at two percent interest per year so when you open a position you need to pay kind of two percent interest per year to keep it open um we have something else that's used to for stability to actually stabilize rye and that lever is called the redemption

rate that thing is a number on in a smart contract that every second is multiplied by the current moving peg that ri has and it results in a new moving peg for rye so if the if the moving pack for rye right now is let's say three dollars that number in one second from now that number will be multiplied by that current peg and it will result in a new peg and that's how the redemption rate uh changes the

moving peg that ry has and by changing the peg it it kind of imposes either a negative or a positive interest rate on holders because the idea is that when the moving peg goes up we have a positive interest rate so you kind of burn something by holding y and when there's a negative interest rate you lose value by holding y so this minimizes governance and why is governance minimization important for self-sovereign money

we at reflexer generally believe that human discretion will be the main thing that will make an asset unstable in the future so human discretion in general means that anyone can come they can impose their will on the majority of the people and they can say i want this thing to work like x even if it's suboptimal so we think that the ideal way to build this stable asset is to just put the system in charge with an algorithm in charge and let it work

yeah in a way this is a this is a very austrian idea it's a very like like bitcoiner idea it's a very hayek idea of like you know there should be these these private money systems that try all of these various experiments and the best one will uh will win out this is why it drives me crazy by the way when you have somebody who's maybe a bitcoin maximalist who's who says things like you know um ether and ethereum based money systems that's all fiat right like that's not

austrian at all like hard money fixed supply is the only way to go i'm like ethereum's trying a massive amount of austrian hard money experiments that don't have human discretion like go look at rye um which brings me to maybe in our education series here to get grounding the last bucket here which is trusted versus trustless stable coins and i think this is a this is an important one because in order to be on the more trustless side of the spectrum and guys

it is a spectrum here there's nothing that humanity has ever created or can create that is a hundred percent trustless um but the more trustless it is the more self-sovereign a money system can become if you believe in the protocol sync thesis as david and i do then more trusted systems will sink to the bottom of this but like trust can come about in the form of governance as we just talked about but also in the form of what collateral assets are are backing the system and this is what's

kind of interesting here's another uh chart from asari um i think david i see some of your handiwork in here from from some triangles you put out on bankless um at one point but so what we have here is a comparison of of money systems right um you've got the reserve asset at the bottom and if we look at old analog systems uh that used to be based on gold and then dollars were really collateralized at one point in time before we went off the gold standard by that gold as a reserve

store value asset and then kind of banking was built on top of that this is similar to what rye is doing ether as i understand it is the collateral for this and why ether maybe you'll tell us but i think it's probably because it is the most trustless collateral source found on ethereum and then you could build a more stable currency on top of that collateral resource and then of course we have defy that can be built on top of this and and tap into this can you talk about that

am i right that ether is the uh the form of collateral and can you talk about why ether that's right so the main reason why we picked east uh it is because it's simple it's the most restless asset on ethereum and it's also simple to governance minimize the protocol in general when you just have ether like you don't have external trust assumptions like usdc for example or rap vtc so you don't need to kind of fear that some other party can just take your cloud hole and the system

breaks um and it's also again easy to governance minimizer protocol so we can automate everything we just have one cloud rule type it's pretty easy to kind of put some smart contracts put some code in place make every all the parameters kind of change themselves and people just put ease in the system and it just works like that's where we want to get that's the point where we want to get why did maker go in the direction of multi-collateral versus you guys are remaining in the direction is almost part of the original dive the single collateral diet version which was just ether i mean i think one

of the reasons i've heard is so that they can have more economic bandwidth let's call it to to increase the supply of dye um can you talk about maybe some some trade-offs you guys are making there why they went in this direction um versus you that's right so kind of ease the kind of total market cap of east is kind of the max kind of value that rai can have i believe it's kind of the economic bandwidth that that's kind of limiting us and we took this decision

again because we want a governance minimizer protocol we want to have at least one of these protocols that just doesn't depend on humans even if it maybe remains a bit smaller than die or other systems we can use it and we don't need to trust like some other third party that and we don't need to think that the system breaks so we just want to have like one of these experiments that just works and it doesn't depend on anyone else so just to drive this point home uh rye rai has committed to not ever including any other collateral other than ether

into its collateral type because the introduction of other collateral would be would necessarily necessitate the requirement of actually voting that collateral in one and also trusting the issuer of that other asset when ethereum was born in the first block and also the next like 10 000 blocks there was only one asset and that one asset was ether there were no other assets other assets came to ethereum because humans issued those assets those assets can't be used as collateral

inside of rye because one it would have to be voted like human determined to be included and also it would be a trust mechanism on those other collateral so rai will only ever be collateralized by ether ever due to the nature of ether as the primary asset of ethereum yep that's right that's right so it's again this this system should be simple so we can governance minimize it and it should be trustless these are the goals we took this decision because we want to fulfill these two

the math here is pretty simple here guys too as far as like we've called ether a trustless source a a source of trustless economic bandwidth in in the past and so if ether's total market cap is like 1.45 trillion at some point in the future that means rye can at maximum be like close to a trillion it can't be beyond that because it's using ether as its source of collateral so that's kind of the constraint that you were talking about of course that's less of a

constraint if ether is 10 trillion 20 trillion 30 trillion dollars right uh so there's a little bit of a i guess a bull case assumption for people valuing trustless collateral and trustless economic bandwidth that is part of the uh the dye case here david i want you to maybe introduce kind of your question here because i saw you tweet this out a couple of weeks ago about the semantic definition and the difference between crypto dollars and stable coins because

crypto dollars is also a term the industry uses maybe you can explain that and introduce that right i saw i saw stefan tweet out um i think perhaps out of frustration frustration that people kept on calling ryan stab a stable coin when he was like no rye's not a stable coin uh because people when they when they say stable coins they're talking about on chain dollars right in my mind the right and this is this is just a semantics conversation this is like what words do we use to describe these things in my mind if we're going to use the term for things tokens that are

redeemable for a dollar or worth one dollar on ethereum we should call them dollars especially especially usdc let's just call those dollars because it's not like when i have dollars in my wells fargo bank account i call them wells fargo dollars even though that's what they are they are they are a claim on dollars that is provided to me by wells fargo usdc is a claim on dollars provided by circle usgc is just a dollar if we want to get more specific we can call it a crypto dollar stable coins don't have the term dollar in them uh and so stable coins to me uh as a word

are illustrative of a a coin a token that is stable and if if if it was a dollar we would call those a stable dollar coin or a crypto dollar or a dollar but i think a stable coin leaves room to for specifically something that is not a dollar because if it was a dollar we would just use the term dollar and so in my mind rye is actually the only stable coin on ethereum uh stefan how do you feel about this take that's pretty much correct again i'm generally when i try when i explain

something i'm trying not to fight people like they have like a certain framework that they use to think about things and i'm like okay you can use that framework i'm trying to build a new one that's kind of right a couple of years ago like even before die was released stable coin was meant to meant demean low volatility or dampened volatility compared to something compared to ether or compared to anything that you can think of so rye is kind of at least my knowledge the only stable coin for now on ethereum i think also importantly uh the calling