Vitalik Buterin successfully shorted stablecoin RAI

Ethereum founder Vitalik Buterin has just closed a short position in stablecoin RAI after 7 months with a profit of 92,000 USD.

Vitalik Buterin successfully shorted stablecoin RAI
Vitalik Buterin successfully shorted stablecoin RAI

According to on-chain data, Vitalik Buterin opened a position in May-June 2022 by borrowing 400,000 RAI and selling it for 1.2 million DAI – another stablecoin.

The Ethereum founder closed his position on January 22, selling 1.13 million USD worth of DAI and Ether to RAI. From on-chain data analytics, after repaying the initial RAI loan, Vitalik made a profit of $92,000.

RAI is a stablecoin built by Reflexer Labs and backed solely by Ether. Users who want to mint RAI will have to lock their Ether as collateral and pay a 2% fee.

RAI is not a stablecoin pegged to 1 USD and uses algorithms to ensure exchange rate stability. However, this mechanism was not effective when within 1 year, the price fluctuated slightly and fell from 3.07 USD to 2.79 USD.

Although Vitalik’s profit in this position is not huge, the move is still noticeable as it points to flaws in RAI’s design.

Reflexer Labs co-founder Ameen Soleimani also used an example from Vitalik’s own trading position to confirm that RAI’s current design model is problematic.

Soleimani said RAI holders do not enjoy any staking benefits for the amount of Ether locked up as collateral. This is an opportunity cost. As a result, the redemption rate (RAI) that keeps the RAI stable is often negative. This means that the algorithm that keeps RAI stable will cause this coin to continuously decrease in price.

The founder also suggested that the workaround is to add stETH to the list of collateral assets. This is a liquid staking token with a continuously accrued return for the holder. If this proposal is implemented, the amount of collateral for RAI will always increase over time, making RAI holders more profitable and thereby minimizing the opportunity cost of not participating in ETH staking.

>> See more: DeFi Discussion ep.80: What do we prepare for the NEW YEAR?

Another notable detail is that the founding team canceled the key when deploying the RAI project. Unlike many Ethereum projects, which have an admin key, allowing the team to upgrade the protocol, RAI decided to “decentralize” its platform. Soleimani then had to admit responsibility for the project’s “ungovernance” design.

Ameen Soleimani also said that the only way to add stETH to the collateral list is to restart the project from scratch.

Synthetic Kyptos

Stay in the Loop

Get the daily email from CryptoNews that makes reading the news actually enjoyable. Join our mailing list to stay in the loop to stay informed, for free.

Latest stories

- Advertisement - spot_img