i’m yusa, etherean and defi enjoyer.
It came to my attention that the R price reached a new all-time-low today, currently trading at $0.987.
I would love to take out a R loan right now. But R trading below $0.99 introduces another 1% fee on top of 0.5% protocol fees.
According to the docs, the Redemption Spread is set to 0.5%. Probably my understanding is not correct on this, but I assumed that redemptions become economically viable at $0.995 with a 0.5% redemption spread.
I’ve also noticed that the Raft App - Generate R stablecoin against your liquid staking tokens states a 1.5% redemption fee. How is the redemption fee calculated and how is it related to the redemption spread?
At what R price do redemptions become economically viable?
The 1.5% redemption fee is the sum of a base rate (which is currently 0%) + 0.5% redemption spread + 1% oracle price deviation (for stETH).
Hence, redemptions become profitable if the price is lower than $ 0.985. You can read it in the official docs here
My understanding is that the team is aware of R trading below the parity and they have said last week they would have tightened redemption fees to 1.25% after having launched OSL.
In general, both R competitors (eUSD and GRAI) are trading off-peg so I see it as something embedded in the redemptions-based design. LUSD has traded off-peg for months too.
Thanks a lot for the explanation.
Since the oracle price deviation is the biggest contributor to the redemption fee, I would like to know how the oracle price deviation is derived. Is it set by the Oracle? And if so, how is it determined?
What does OSL stand for?
Where can I monitor redemptions?
Hi @yusa let me jump in here with some answers.
The oracle price deviation is set by Chainlink as an off-chain indicative metric. It means that the price of stETH needs to move at least 1% for Chainlink to push a new price on-chain (in addition, they also push an hourly “heartbeat” with the current price).
This can result in a scenario where Chainlink’s on-chain price is 0.99% below or above the current market price. The implication of this is that we cannot tighten the redemption fee more than 1% because, as a result of doing so, redemptions would sometimes generate a profit for the redeemer, even if R trades at $1.
Tightening the fee beyond 1% would require us to replace the Chainlink oracle with a different one. We are working with other providers including Redstone and Pyth for alternative solutions.
We are also working on other methods of improving the peg of R, including giving yield to R holders equal to the yield of sDAI to make it trade on or around $1.
OSL stands for One-Step Leverage. You can find more info on the website!
thanks for explaining the chainlink oracle details. Maybe one could start a Chainlink governance proposal to reduce oracle price deviation to 0.5% for stETH to push LSDfi adoption.
Have you also looked into the Uniswap v3 oracle service? The idea of using on-chain liquidity to generate oracle prices seems quite elegant to me, but maybe there are some concerns with the Uniswap v3 oracle I am not aware of.
Of course, paying the DSR to R holders would obviously help adoption-wise. May I ask how excactly you would like to achieve this?