TORAI, the first DeFi system powered by algorithmic stablecoins
Abstract: TORAI is building its own DeFi system based on its own algorithmic stable currency system, and is further expanding its ecosystem by derivation of more financial products, bringing more profitable choices to investors. This will also be one of the development directions of the algorithmic stablecoin sector in the post-DeFi era.
Although the early algorithmic stablecoins represented by AMPL, ESD and Basis have given us a further understanding of this sector, they are prone to fall into a “death spiral” due to their own mechanism problems: even the most successful algorithmic stablecoins on Terra have performed extremely well, but are also facing the threat of a “death spiral”.
As the industry has been exploring the field of algorithmic stablecoins, Frax has launched a partial mortgage algorithmic stablecoin model, which is attracting attention. However, Frax currently only focuses on the algorithmic stablecoin sector. TORAI, which is similar to Frax’s algorithmic stable currency system, is building a DeFi ecosystem based on this, and further expanding application scenarios in the fields of liquid investment portfolios, lending and derivatives. This article will introduce the TORAI system and use it as an example to study the application potential of algorithmic stablecoins in the DeFi field.
TORAI, a DeFi protocol based on algorithmic stablecoins
A brief introduction to TORAI
TORAI is a modular DeFi protocol based on algorithmic stablecoins. It includes an algorithmic stablecoin module, a bond module, a trading module (DEX, liquidity pool, etc.) and an arbitrage module. The TORAI protocol further ensures the decentralization of the ecology through the elasticity generated by the algorithm, and is based on a stable currency-based bond protocol based on a reliable algorithm to further support the algorithmic stable currency system.
The original intention of the TORAI protocol is not only to focus on the algorithmic stablecoin sector, but to allow more investors to obtain arbitrage opportunities and choices based on the algorithmic stablecoin system, and to improve their ability to make profits, while promoting the use of algorithmic stablecoins in the market. Derivatives, loans and other financial products have expanded, which has allowed more people to see the value and potential of TORAI.
Several categories of assets will be included in TORAI:
1. The algorithmic stable currency RUSD, which is usually minted from stablecoins such as USDT and DAI + TRA, and regardless of the market price, the system will peg the price of RUSD as 1 USD.
2. The bond asset RBOND (it contains RUSD and is purchased by it)
3. Governance Token TRA
In addition, TORAI’s trading module is highly open, allowing anyone to create capital pools and liquidity pools in DEX. After the aforementioned assets are created and given liquidity, they will be able to obtain trading support.
The core of the TORAI algorithmic stable currency system is the minting and redemption of RUSD
TORAI’s algorithmic stable coin system is similar to Frax’s semi-pegged mechanism. It is usually minted from two assets. One asset is USDT, DAI, USDC, etc. USD stable currency, and the other is a stable currency such as USDT, DAI, USDC, etc. Called XToken, this asset is usually the governance token TRA in TORAI, and they usually control the ratio through the staking rate.
When investors redeem RUSD, you will also get USDT+TRA equivalent to 1 USD according to the pledge rate. Whether we mint or redeem RUSD, no matter what the market price is, the system will regard the price of one RUSD as 1 USD, so with the fluctuation of the actual RUSD market, it generates arbitrage space for investors.
In this system, when the market value of RUSD is greater than 1 USD, more people will tend to mint RUSD and burn TRA, and the obtained RUSD will be traded in DEX for profit. When the price of RUSD is lower than 1 USD, more people will tend to go to DEX to buy RUSD, and redeem the assets in it according to the value of RUSD 1 USD, and make further profits. At this time, TORAI will further pass the reserve fund of the ecosystem (from the bond sector, see below) to buy back and burn TRA.
Therefore, with the continuous fluctuation of the price of RUSD, there will be continuous arbitrage, so that the price of RUSD will continue to tend to 1 USD. In this model, no matter how the price of TRA changes, RUSD will have a value base, of course, as long as TRA has sufficient liquidity.
TORAI’s trading module
As a DeFi protocol, TORAI is fully prepared to provide liquidity for assets. TORAI itself has built an AMM DEX, based on which anyone will be able to build a capital pool and set up transactions. Not only can RUSD be traded with existing mainstream currencies, it will also be able to be traded with other algorithmic stablecoins, altcoins, etc. In addition to that, the DEX itself has the characteristics of lower slippage and transaction fees than the industry, which is another advantage.
At the same time, any fund holder will also be able to become an LP, where they can gain incentives by providing liquidity. This will further increase the transaction rate and circulation rate of RUSD.
The TORAI system will provide further application scenarios for many external projects, such as formulating some derivatives through the production of RUSD, and lending applications to hedge risks and improve the utilization of funds. Compared with the single-dimensional algorithmic stablecoin system brought by Frax, TORAI builds a multi-dimensional algorithmic stablecoin ecosystem.
TORAI’s bond system
Based on RUSD, TORAI has built a decentralized bond system with derivative features, namely the bond module, where users will be able to further purchase bond assets RBOND through RUSD. As a bond, RBOND will be able to obtain stable interest when held. The number of RBOND issued, purchase and redemption prices will depend on factors such as RUSD, TRA and the interest rate of the product itself.
The RBOND product is an important application scenario of RUSD. The purchase of RBOND requires payment of RUSD. The TORAI community will divide the RUSD used to purchase RBOND into two parts. One part is used to buy back TRA and burn it to further promote the deflation of TRA, and the other part uses As a reserve to maintain the stability of RUSD, for example, when the price of RUSD is lower than 1 USD, the market will release TRA tokens, and the reserve funds are used to repurchase and burn TRA to further reduce the circulation of TRA in the market.
When users redeem RBOND, they need to burn RBOND and generate new RUSD.
The stablecoin itself of the early algorithmic stablecoin has no actual demand support, and is basically based on a zero-sum game. The RBOND bond scenario will further stimulate the rigid demand scenario of RUSD in the early stage, especially when more and more users mint RUSD based on the governance token TRA and purchase RBOND, the destruction of TRA and RUSD will empower RBOND layer by layer, realizing the value cycle. RBOND products are expected to further improve investors’ capital utilization and hedge potential risks brought by the market.
TORAI is a DAO autonomous community. The community governance based on tokens refers to the ve(3,3) model, that is, the governance token TRA or RUSD needs to be pledged to obtain the governance token $veTRA. $veTRA itself only represents a right to participate in governance, it cannot be used for transactions, holders of $veTRA can participate in the voting decision of the community, and the voting weight will depend on the coin age of said staking $veTRA.
And the holder of $veTRA will also receive dividends from transaction fees, service fees, etc. The advantage of the $veTRA governance model is that it further restricts the circulation of RUSD and TRA (especially the currency age mechanism), increases their demand (especially when stimulated by incentives), and can become a way to feedback TRA in value.
The Value Logic of TORAI Ecosystem
Growth factor for TVL
The TORAI ecosystem is based on an algorithmic stable currency system, and has built a layered value growth mechanism. It builds a large number of application scenarios for RUSD by creating a large number of earning opportunities for users, and stimulates investors’ purchase demand for RBOND.
● RUSD scene angle
1. Arbitrage opportunities brought by RUSD price fluctuations
As mentioned above, when the TORAI ecosystem is in operation, a large number of users will enter the ecosystem to maintain the stability of the RUSD value through arbitrage. In TORAI’s DEX, it will drive the trading volume of RUSD (regardless of the price of RUSD, trading RUSD is necessary). Whether it is RUSD/external stable currency pool (USDT, DAI, USDC, etc.) or RUSD/non-stable currency pool (BTC, ETH, etc.), there will be a large number of transactions, which will further promote the influx of external funds into TORAI. The arbitrage opportunities brought by RUSD will rapidly push up TVL in the short term and attract further attention from the DeFi arbitrage market.
2. Buying Demand of RBOND
RBOND will be able to bring investors higher profits than the existing DeFi sector, especially when the market is down (such as currently), more investors will tend to hold assets for a long time, and it is very important to improve the utilization rate of assets, which means that RBOND will have a lot of buying demand. Further obtaining RBOND by purchasing or minting RUSD will also generate rigid demand for RUSD and push up the overall TVL of the TORAI ecosystem.
TORAI will formulate corresponding incentive policies for RUSD. For example, trading RUSD can generate rewards, and pledge RUSD in the form of staking to obtain interest. It will also be a factor to stimulate the demand for RUSD, and it can play a positive role in the growth of TORAI ecosystem TVL effect.
RBOND’s demand perspective
RBOND brings users much higher interest income than the DeFi market, and will continue to form a rigid demand for purchases. The large-scale purchase of RBOND will also form a series of positive chain reactions to generate the potential energy to push up the ecosysteml TVL.
1. The purchase demand of RBOND further promotes the demand for minting and trading of RUSD, which means that in addition to the increase in demand for RUSD, the demand for TRA will also further increase, resulting in the rise of TRA and the demand potential for RUSD.
2. RBOND is circulated in the market in the form of an encrypted asset, which will also generate RBOND’s trading demand. In order to provide RBOND with liquidity incentives (RBOND/TRA, RBOND/RUSD), the market will also change RBOND, RUSD and TRA generate demand.
● The value of TRA deflation
Judging from the above-mentioned sectors, such as XToken’s TRA, it is not difficult to find that it will have a large number of demand scenarios, destruction scenarios, and gradually enter the extreme deflation cycle, which will promote the soaring value of TRA.
1. When the price of RUSD is less than 1 USD, after redemption of RUSD, TRA will be repurchased and burned by reserves to promote deflation.
2. When the price of RUSD is greater than 1 USD, the RUSD mints demand rises, TRA will form the purchase demand.
3. When a user buys RBOND, part of the paid RUSD will also be used to repurchase and burn TRA.
4. When a user buys RBOND, the demand for minting RUSD further forms the rigid demand for TRA, which increases the value.
5. For TRA-related trading pairs, provide liquidity to generate TRA demand and restrict circulation.
6. DAO governance generates $veTRA, allowing more TRA to lock up and reduce the circulation of TRA.
For the three assets of TRA, RUSD and RBOND, their value is progressive, and any mechanism is promoting the rigid demand of RUSD and TRA, and constantly destroying TRA. Therefore, TORAI’s TVL is expected to be pushed up rapidly in a short period of time, and TRA will continue to enter a deflationary cycle, and its value will continue to be concentrated with deflation.
In general, TORAI’s partial mortgage algorithm stable currency mechanism has built a relatively solid foundation for stabilizing the value of RUSD and avoiding falling into a “death spiral”. The ecosystem model allows the depth and stability of value to be progressively advanced through casting and destruction through layer-by-layer binding, especially the product segments at the end will be better empowered.
The existing stability system has formed a certain pattern, which has a certain development bottleneck for the algorithmic stablecoin itself, and the mechanism of the algorithmic stablecoin is more applied to DeFi to increase gains and reduce potential market risks. It will be an emerging trend in the development of algorithmic stablecoins.