1. With the RAI protocol, is there a point that the redemption rate drops to zero to encourage reduction in supply and it is still not enough. You mentioned -ve interest rates as the incentive?
2. I note the price of RAI has trended downwards over the last few months. What's to explain that. Is that just it following the price of eth? If so aren't you just being indirectly exposed to eth which defeats the whole process of a stable coin which is to keep its price stable
For the first one yes, negative redemption rates are quite common for RAI, the current rate is something like -10% meaning the redemption price is set to go down by 10% over the next year.
Rates are the main factor for price as they directly affect future value, but ultimately RAI is backed by ETH and one of the main demand drivers is obtaining ETH leverage, so there is some indirect exposure. The system greatly dampens volatility though, and if you zoom out on the RAI chart you'll see it doesn't much correlate to ETH price.
Enjoyed the read. A couple of questions
1. With the RAI protocol, is there a point that the redemption rate drops to zero to encourage reduction in supply and it is still not enough. You mentioned -ve interest rates as the incentive?
2. I note the price of RAI has trended downwards over the last few months. What's to explain that. Is that just it following the price of eth? If so aren't you just being indirectly exposed to eth which defeats the whole process of a stable coin which is to keep its price stable
Appreciate the good questions.
For the first one yes, negative redemption rates are quite common for RAI, the current rate is something like -10% meaning the redemption price is set to go down by 10% over the next year.
Rates are the main factor for price as they directly affect future value, but ultimately RAI is backed by ETH and one of the main demand drivers is obtaining ETH leverage, so there is some indirect exposure. The system greatly dampens volatility though, and if you zoom out on the RAI chart you'll see it doesn't much correlate to ETH price.