What is Raft?
Raft is a lending and borrowing protocol which allows users to collateralize Liquid Staking Tokens (LSTs) to mint and borrow stablecoin R. Raft aims to establish a DeFi ecosystem on Ethereum, enabling users to effectively manage and optimize their capital in a secure and stable environment.
To mint and borrow stablecoin R, users will collateralize supported Liquid Staking Tokens (LSTs) stETH, wstETH, and rETH. Then, users can use stablecoin R to provide liquidity on other protocols such as Uniswap, Balancer, etc. to earn more profits.
Raft’s flagship product is stablecoin R backed by LSTs collateral and pegged 1:1 to USD. What makes stablecoin R apart from stablecoins of other lending protocols is its innovative approach to stabilize, enhance capital efficiency, and flexible fee structures. The heart of stablecoin R’s stability is the unique combination of Hard Peg and Soft Peg mechanisms. These two mechanisms combined to ensure stablecoin R is always pegged to the US dollar, providing a stable price in the range of $1-1.2.
Hard Peg depends on arbitrage to maintain a stable price in the range of $1-1.10. This mechanism is governed by two key features: Redemption and Over-Collateralization.
- Redemption: allows stablecoin R holders to exchange it for wstETH (wrapped stETH) at a value equivalent to 1 USD. Whenever users redeem their R tokens, they are burned by the smart contract. Hence, the circulating supply of R will decrease, contributing to the increase in value of R. This ensures that even if R drops below $1, users still can redeem R, helping stabilize the value.
- Over-Collateralization: allows users to mortgage their wstETH to mint stablecoin R. Users can sell R on the open market where its price may surge beyond $1.2 threshold and make a profit through arbitrage. By increasing supply, the protocol also counterbalances situations on which the price of R could rise above $1.2, thereby supporting the stabilization of R’s value.
Soft Peg relies on incentivizing users to act based on “the expectation that the peg will be kept in the future.” This approach grants users the freedom to employ strategic tactics to predict and capitalize on the future price movements of R.
How it works
Users deposit supported LSTs as collateral to mint and borrow stablecoin R. Users can borrow a minimum of 3,000 R with a collateral rate of at least 120% for every R token borrowed. This ensures that users can afford to repay the loan and maintains the stability of the protocol. Once users borrow R, they have to pay loan interest and loan fees.
Returning the borrowed stablecoin R is a simple process and the number of R tokens used in these repayment methods will be burned. There are three methods of repaying the borrowed R including:
Repayment: Borrowers can repay their borrowed R tokens in Raft and receive their collateral LSD token. Users can make partial or full repayments but must ensure that the balance does not fall below the minimum requirement. This method encourages responsible borrowing and timely repayment.
Redemption: Holders of R tokens can participate in the market and acquire another borrower’s collateral LSD. This allows for greater flexibility in the ecosystem, as tokens can change hands while maintaining stability.
Liquidation: Liquidation is to ensure that each R is always backed by collateral worth at least 1 USD. In case of default, a Liquidator pays off the borrower’s debt with R tokens at the Minimum Mortgage Rate (MCR) and receives the collateral LSD token along with the Liquidation Bonus from the previous borrower. This process helps maintain the liquidity and health of the overall economy.
Raft allows users to mint and borrow stablecoin R by opening a position with each wallet address representing a position. Users must stake LSTs supported by the protocol with a minimum collateral ratio of 120%. The borrowing process entails certain requirements, including a minimum loan amount of 3,000 R.
Besides, users have to bear a borrowing fee paid in R tokens, which is calculated based on the borrowed amount and rate. This fee is also influenced by the frequency of redeeming R tokens in the protocol.
The feature allows users to convert R to wstETH with a conversion rate of 1:1 to USD. There are 2 components involved in the redemption process: Redeemers and Redemption Providers (RPs).
Redeemers: People who seek to convert R tokens into wstETH. Raft incorporates a spread mechanism with rates ranging from 0.25% to 100% to minimize risks for Redeemers. Redeemers are subject to a Redeem Fee, calculated based on Redeem value and rate.
Redemption Providers (RPs): People offer wstETH to facilitate redemptions. RPs can earn a fee based on a percentage of the total fee.
This feature allows users to mint up to 10% of the total supply of R tokens without making any initial payments. However, they have to pay back R tokens in the same transaction with a mint fee of 0.5%. This rate is initially fixed at 0.5% but it will be adjusted up to 5% based on the effective utilization of R tokens.
Allows users to enhance capital ratio for each trade, enabling higher profits from smaller investments through custom margin ratios. However, users should be cautious because the leverage feature will increase the risk of losses, especially during periods of strong market fluctuations. To maintain stability, Raft sets maximum leverage at 6%.
The role of the Liquidator is crucial in ensuring that each R stablecoin maintains its value with a collateral LST, equivalent to $1. Users can participate as Liquidator, setting a Minter’s debt and receiving wstETH equivalent to the liquidated amount. Raft incentivizes users to become Liquidators to earn additional profits through liquidation rewards.
Raft supports developers through its Frontend Operators feature, providing a toolkit that facilitates seamless integration with user DApps. Frontend Operators gain marketing support through promotional campaigns, helping them maximize their potential rewards and contributions to the project.
The Oracle system consists of two wrapped contracts 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.
To maintain decentralization, Raft provides users with the opportunity to participate in the governance forum and allows them to actively contribute to the governance of the protocol.
Raft is backed by famous investment funds in the crypto market such as Wintermute, Jump Crypto, Lemniscap, etc.
Raft is partnering with several DeFi platforms such as Uniswap, Balancer, and Maverick Protocol.