Discussion on potential Reflexer token swap and partnership

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Objective of discussion

I want to kick this discussion off to see if there’s interest in the pooltogether community to:

1). Do an effective token swap of POOL for FLX
2). Add RAI as a governance pool

I won’t talk about any details of pricing/details in this thread. This is just a tentative feeler to see if the interest is there. I did chat with the reflexer guys, Stefan and Guillaume, in their public discord and both seemed open and interested to exploring a possible tokenswap that could also excel their current integration.

Who are Reflexer

Reflexer is an iteration of Maker’s protocol (RAI = DAI, FLX = MKR) that will minimise the governance FLX holders have over the protocol (compared to Maker) and only has a single decentralised asset in ETH as a collateral asset in the system. In this way, it mimics more of what SAI was in the Maker protocol before DAI was released and SAI disbanded. It acts differently to DAI in that it does not have a peg to the dollar; rather it’s price is designed to fluctuate in a narrow range in the short term. I will admit that I have not read up enough on the theory behind how the value could change over long periods of time, but nonetheless it is a new, innovative and possibly a very needed component of the ecosystem if stablecoin regulation becomes arduous in the future.

Method of the Tokenswap

It has already been demonstrated via the badger PTIP that another protocol’s treasury asset can be swapped into pooltogether’s treasury via the use of the 5% reserve rate that was applied. That PTIP was a good proof of concept of this ability. I propose that we could take FLX into our treasury over a long period of time using this method, either 100% or other as desired, in exchange for sending POOL to the Reflexer’s treasury and making the RAI pool a governance pool in pooltogether.

Treasury Diversification

This also acts as a treasury diversification whereby pooltogether will share in Reflexer’s success or failure and vice versa.

Is this tokenswap and introducing RAI as a governance pool something worth pursuing?
  • Yes
  • No
  • Maybe

0 voters

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I really like this idea as both protocols seemed aligned in having a stablecoin that is decentralized and both will be great building blocks in Ethereum. RAI could use help in bootstrapping lending markets and I think that RAI gives Pooltegether a very censorship resistant stablecoin that isn’t tied to a specific currency. This may become more evident and important depending on regulatory headwinds. (for example the Stable Act).

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Supportive of this idea in general.

I think this would be mutually beneficial as I believe the Rai team is looking for use cases for the stablecoin which right now are a bit limited.

One thing to note is that the Rai prize pool is using CREAM as a yield source. Although CREAM is a fork of Compound I don’t think it is as secure due to how many assets they support and their track record not being as good. I’d still support doing this but just wanted to flag it.

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I agree with this. Hopefully will have integration with an AAVE or other “major” lending market.

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Hey everyone, Stefan from Reflexer here :wave:

First off, thank you for considering this idea, we’d be more than happy to work on making it happen!

What other money markets do you support right now? Maybe we can find an alternative to Cream.

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Right now the protocol supports:

Compound, Aave, Fuse, CREAM, and yearn is in audit.

Of those I would consider Compound and Aave the highest standards in terms of security.

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A Compound integration will certainly come later although we have an integration with Fuse. Would that be an option?

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Fuse is an option, not sure what security profile of Fuse is vs. CREAM. I’d need to research that.

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@Leighton @stefan , I understand both of you talked and wanted me to propose a structure to start with. I will try to lay out a base here that we can work off.

It’s probably not going to be easy to come to a fair price. We will just have to try to come to something that is reasonable. One party is probably going to be doing significantly better with the trade 1 year out and further, but we can only do our best with the information we have right now.

Below are some stats comparing the two valuations for people to consider:

Screenshot 2021-05-25 at 15.59.36

Screenshot 2021-05-25 at 15.20.52

If you pick a random day in the past month you’d get very different valuations for both protocols however you measure it. FLX has a higher relative emission to it’s circulating supply than POOL does which might reflect why FLX hasn’t recovered towards it’s May average as POOL has. POOL does have a higher relative emission to its total supply however; and its float is over 3 times that of FLX.

For disclosure I am liquidity mining both and have bought both from market, but my POOL position is considerably bigger. My personal thoughts on both project valuations are as follows:

FLX

I wouldn’t mark FLX lower than a 250mm MC right now. I take reference from MakerDAO’s historic marketcap for this reference and infer that Reflexer is an innovative iteration of Maker and in some people’s eyes, what Maker should have been.

POOL

I wouldn’t mark POOL lower than 200mm MC right now. It has a float over 3 times that of FLX and just coming out of the most aggressive 14 week yield farming phase that saw 5% of the total supply come to market. It’s market is more mature with more liquidity and with the liquidity rewards getting cut in half I suspect over the next few weeks POOL’s price will appreciate based on the reduced selling pressure coming to the market.

Taking into account one other aspect; POOL is going to make RAI a governance pool in which case it means pooltogether is going to be providing a POOL drip to RAI depositors. Should this be factored into the price? Maybe, maybe not.

Overall, I think a rate of 1 FLX = 15 POOL and pooltogether makes RAI a governance pool indefinitely. This effectively marks Reflexer at 300mm fully diluted and pooltogether at 200mm fully diluted. I don’t think that is far off what is reasonable right now. The pool drip for RAI should probably be in excess of UNI/COMP, but less than USDC and DAI to start off with. Maybe having it in the pooltogether treasury will incentivise us over time to support RAI over DAI, but for starters I propose a drip reward of 100 POOL/day. And finally, what is a suitable amount for the tokenswap? pooltogether currently has 5,037,113.89 POOL in it’s treasury. Maybe taking a (1-2)% stake in Reflexer is appropriate, pending Reflexer have that amount available to swap?

Lots to digest there. Would welcome input from more community members about these key points. Not saying I have this right by any means, but I think it’s my most reasonable guess for what seems fair right now.

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UNI and COMP have 16 and 11 Million $ deposited respectively. We would need about a tenth that amount in deposits to earn a similar amount of interest at current market rates (1.1-1.6 million$). According to Reflexers website there are approximately 13 million RAI outstanding at approximately three dollars a piece. to reach 1.1-1.6 million $ deposited that would be approximately 2.5% of outstanding RAI. that seems like a large percentage to be directed here. Therefore, I think that 50 POOL/Day is a better number.

I do not understand how you intend to use the reserve rate function to make the swap. If we made RAI a governance pool then the reserve we earn would be in RAI not FLX. Wouldn’t it just have to be Reflexer sending us FLX tokens OTC in exchange for the POOL distribution to the RAI pool?

I propose we receive 1,000 FLX Tokens in Exchange for 10,000 POOL distributed to the RAI governance pool over a period of 200 Days. Also governance takes a 5% reserver rate from the RAI pool. this is a tenth of a percent of total supply of each protocol.

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I don’t think RAI should be compared against risk assets like UNI and COMP, it is basically a stablecoin. As such I think we should consider assigning it a different POOL/day rate.

Doing the direct swap is fine too and probably easier. I also thought why am I not proposing that instead when writing it. I was caught up basing it off how our Badger integration works. But you are right, it is a RAI pool, not FLX pool. So that is the key difference.

Is this the tokenswap you’re referring to or a swap for the drip we would allocate for making RAI a governance pool? I don’t think there’s any point doing the swap if the size is that small. I thought we would just use the POOL we have reserved for new pool formations to integrate RAI as a governance POOL and then do the tokenswap at some rate. You are proposing 1 FLX = 10 POOL. We will have to see what Stefan thinks, but I think that might be a bit of a reach given the price ratio chart I posted above.

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Fuse is a fork of Compound that has relatively few changes, from what I understand.

The only major difference structurally is that they use their own fork of Uniswap as price oracles.

My preference would be Fuse; we’ve been chatting with the team and they are very collaborative.

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I’m in support of a collaboration with Reflexer; I really like their PID-controlled approach and the fact they want to eliminate utility from the FLX governance token over time.

There are two ideas being discussed here:

  1. Creating a RAI governance pool
  2. Diversifying our treasury with FLX tokens

I believe they should be considered separately, as the first is a partnership and the second is treasury management.

Creating a Rai Pool

I wholly support a Rai governance pool! I think Rai is a brilliant concept. It’s just a matter of deciding what is a good exchange of value, and what can we accomplish with our existing tools?

In my mind:

  1. PoolTogether creates a Rai pool and covers the cost of management (rewarding, front end upgrades, subgraphs etc).
  2. Reflexer provides FLX as APR for the Rai Pool holders. Rai holders will naturally want FLX.

Diversifying our Treasury with FLX

Reflexer has declared that the utility of FLX will eventually be phased out. This gives me pause as to whether we should diversify in that direction, but I would love to hear more from @stefan about what he sees happening with the token.

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Agree with what you’ve suggested, although I think they can be intertwined in that; if we take FLX onto our books and Reflexer take POOL onto their books, we are incentivised to promote the RAI pool and Reflexer are incentivised to send users over to pooltogether. I think there is synergy between 1) and 2) provided the tokensewap size represents a meaningful commitment.

I think there is also scope to take RAI in as a governance pool that is drip fed POOL regardless. We have allocated for additional pools and I can’t think of a better candidate for that than RAI.

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I think there is also scope to take RAI in as a governance pool that is drip fed POOL regardless. We have allocated for additional pools and I can’t think of a better candidate for that than RAI.

I agree! It’s a solid, decentralized stablecoin so a gov pool is a no-brainer. I do think dripping another protocol’s token would set an amazing precedent as a marketing tool, but we have plenty of POOL to give away still.

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Generally agree on the potential that RAI’s mechanism has and would be quite supportive of a governance pool. Maybe one factor I’d like to consider imposing is a potential upper cap on the size of the RAI pool in order to test out the yield appropriate yield source before relaxing the same. Additionally - it makes a lot of sense for Reflexer to also incentivise people to provide FLX exposure given the exposure they have to floating redemption rates (and the potential for people to pull out/in of the pool) and potentially rewarding long-term holders with FLX in order to compensate for the opportunity cost; POOL rewards may serve as a secondary mechanism to boost the same, and could have similar drip as seen in other pools.

On the point around FLX holdings in treasury - it would be good to understand the key reasons behind this accumulation beyond diversification. In some sense, RAI’s growth is bounded by ETH growth for now - and while things stand as they are win the markets, it might be helpful to contrast this, say with, increased exposure to ETH. I’m fully inclined to agree with @Brendan that Pooltogether should be responsible for creating the RAI pool and have Reflexer bear some of the APR costs for RAI holders, but punt the diversification point to a later time/a separate thread.

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I just came across this tweet from Reflexer:

They talk about the 7 ways users can earn FLX using other protocols. I think it would actually make a lot of sense to drip FLX.

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A lot of great discussion! Thanks for writing this up @ageless I’m glad we are considering these types of partnerships.

I like this proposal, I think Reflexer and POOL are uniquely well suited for a partnership because:

  • Reflexer wants more use cases for holding and using Rai, this incentives them to grow a large prize pool
  • PoolTogether wants to support more asset types and decentralized stablecoins are a super important asset type to support.

To @Brendan’s point. We could separate the two things out (the creation of the prize pool and the treasury swap) but I do think there are marketing and incentive alignment advantages from doing them both together.

It does seem that since Reflexer is sponsoring lending markets, it’s reasonable for them to assume they would be interested in sponsoring a prize pool. Or if we do sponsor it with POOL I think that should be considered in any value exchange. (i.e. if we give $100,000 of POOL tokens + $100,000 of POOL token drips to depositors then PoolTogether should receive $200,000 of FLX tokens).

I’d love to see @stefan way in on his interest and also long term plans for the FLX token.

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