Raft is a DeFi protocol built on Ethereum that allows users to generate stablecoin R by depositing liquid staking tokens (LST) as collateral. Raft can be classified as a LSDfi project, similar to Lybra Finance.
Raft Finance’s highlights
R is an Ethereum USD stablecoin backed by LST tokens such as stETH (Lido Staked Ether) and rETH (Rocket Pool ETH). R aims to keep a tight and stable peg to the US dollar through a combination of both hard and soft peg mechanisms.
This concept relies on arbitrage opportunities to keep the stablecoin’s price aligned with its backing asset and always within the price band of $1 to $1.10. In the case of R, which is backed by the LSD token, two mechanisms are used to achieve that hard peg: redemption and over-collateralization.
With Redemption, the mechanism allows R holders to redeem it for the equivalent value in LSD collateral if R loses its $1 peg. When users redeem their R tokens, these tokens are burned by the smart contract, thereby reducing the circulating supply of R and helping the price of $R rise again.
With Over-collateralization, this mechanism creates an upper boundary for the price, which is 1.20 USD. Users can deposit LSD tokens when the price reaches $1.2, then mint 1 R, and sell it on the market for more than $1.2 to lock in a riskless profit when the R price exceeds this level.
Unlike hard peg, soft peg is based on the ability of a stablecoin to incentivize users to act on the expectation that the peg will be kept in the future. Prospective users could take advantage by borrowing and selling R on the open market in case the stablecoin trades above $1. Knowing the expected behavior of an economic system in advance creates a self-fulfilling mechanism that improves the trust in the system working as intended in the future.
Raft Finance’s products
Borrowing R requires users to create a position by depositing their LSD with a collateralization ratio of at least 120% for each R borrowed. The minimum amount of R that users must borrow is 3,000 tokens (or $3,000).
There are three methods of returning generating R:
- Repayment: Borrowers repay their debt using R and get their LSD collateral back.
- Redemption: R holders, who bought R on the open market, redeem R and get other Borrower’s LSD collateral in return.
- Liquidation: Liquidators pay off Borrowers R debt that is under the Minimum Collateralization Ratio (MCR) and get the LSD collateral plus a Liquidation Reward in return. R will then be burned to ensure the stability of the economy.
Flash Mint is a powerful tool that allows users to mint R up to 10% of the total R supply at once, provided that they will pay it back in the same transaction with 0.5% Fast Mint Rate. This rate initially is 0.5%, but can then be pushed up to 5% if the market operates efficiently.
Oracle system is designed to be adaptable and maintainable by a 3-out-of-5 multisig configuration. This structure allows the multisig participants to make necessary updates, such as replacing underperforming oracle services or swapping the roles of primary and secondary oracles, ensuring the system remains robust and reliable.
The total amount raised by Raft Finance is still unknown but we can see that the project has received the investment of leading investment funds such as Jump Crypto and Wintermute.