Last Updated: September 1, 2023
Raft is an immutable and decentralized lending protocol where users can take out USD-denominated loans against their $ETH derivative collaterals. In doing so, users will be able to borrow $R, a stablecoin that is hard-pegged to a price floor of 1 USD and that is overcollateralized. The protocol’s mechanism is designed to always retain a value of 1 USD for 1 unit of R.
In order to use Raft and borrow $R, the user must deposit collateral. Each Ethereum address is allowed to maintain only 1 open position.
Raft enhances the user experience by also allowing users to both deposit and withdraw the collateral token itself. When non-$wstETH assets are deposited, Raft will do the conversion in the background.
Users can make deposits in the following tokens to be used as collateral:
*The actual collateral asset is $wstETH, which is simply the wrapped version of $stETH to make it DeFi compatible. The original design of $stETH follows a rebasing model where the number of units increases as Staking rewards accrue. This is an impediment for DeFi composability since the Staking rewards would accrue on the wallet or contract holding the original principal. For instance, if $stETH was deposited to a liquidity pool, the rewards would accrue to the pool, rather than to the actual shares of each LP in that pool. To solve this problem $stETH is wrapped into $wstETH in order to keep track of an exchange rate over time. This way, instead of Staking rewards being accrued daily, the rewards are realized when $stETH is unwrapped.
Users can choose to withdraw the following tokens:
As an example; if the fee rate is 0.25% and the user borrows 10,000 $R, they will be charged a fee of 25 R. The total debt will be 10,225 $R (1,000 + 25) $R after adding the borrowing fee.
The borrowing rate is capped at 5% in order to prevent potential market manipulations that start with huge redemption flows which, in turn, increase the base rate.
Without a cap, the base rate could potentially escalate significantly (especially in a bootstrapping phase in which the $R supply is still relatively small) and increase the debt burden on current position holders whose collateral ratio would deteriorate due to the increase in the cost of debt.
The redemption functionality was disabled with the introduction of the Pegkeeper Module.
$R redemptions enable $R holders to redeem it for the equivalent amount of $wstETH collateral from the protocol’s borrowers at any time. This collateral ensures the backing of $R for a face value of 1 USD worth of $wstETH per $R unit. When a user redeems $R, the protocol uses it to pay off a portion of every existing position’s debt. The amount of debt to be repaid is split proportionally among all other positions based on collateral amounts. This way, positions with higher collateral amounts will have a larger share of debt paid off. This ensures that the protocol can maintain its desired level of overcollateralization and that the distribution of the debt paid off is fair across all users.
The redemption spread was set to 100% with the introduction of the Pegkeeper Module.
The Pegkeeper Module (PM) was introduced on August 1, 2023.
The PM aims to stabilize the price of $R at exactly $1, and will replace the redemption system’s role in price stability.
Raft has yet to release the complete details or implementation of the Pegkeeper Module.
Loan repayments improve the collateral ratio of a user’s position and increase the amount of collateral available for withdrawal.
Liquidations ensure that each unit of $R is always backed by at least 1 USD worth of $wstETH. Liquidation payments are made by liquidators who pay off a borrower’s $R debt that is under the Minimum Collateralization Ratio. In return for this service, liquidators are compensated with a liquidation reward, and the insolvent borrower’s $wstETH collateral.
An account becomes eligible for liquidation when the position’s collateral falls below the Minimum Collateralization Ratio (i.e, 100% < Position’s collateral < 120%).
The liquidation process starts when the liquidator calls the smart contract responsible for performing the liquidation. When this happens, the liquidator proceeds to pay off the borrower’s total debt and, in return, receives the matching collateral and the liquidation reward.
In case the liquidator does not have enough $R in their wallet, they may use a Flash Loan or Raft’s Flash Mint module.
The liquidation reward and the protocol fee are in place in order to encourage users to support the protocol and help it remain overcollateralized. Similarly, this mechanism discourages borrowers from putting the protocol at risk by letting their positions be liquidated.
If the borrowers end up self-repaying or topping up their collateral, then they will not be charged any liquidation penalty.
LiquidationProtocolFee = ExcessCollateral – LiquidatorReward
The liquidation reward compensates liquidators for the risk they take on during the liquidation process. This is a dynamic percentage of the excess collateral based on the total debt, and its rates are set according to the table below:
| Total debt (R) | Liquidator reward rate |
| 3,000 R | 100% |
| 100,000 R | 100% |
| 1,000,000 R | 100% |
For values between the key total debt amounts listed, the liquidator reward rate is linearly interpolated between their corresponding liquidator reward rates:
The actual Liquidator Reward is simply the excess collateral multiplied by the above liquidator reward rate.
LiquidatorReward = ExcessCollateral * LiquidatorRewardRate
The liquidator reward rate was set to a flat 100% across the board on June 13, 2023.
Assuming a borrower has a debt position of 10,000 $R against 5 $wstETH collateral when $wstETH is trading at 2,180 $R.
The position is trading at 2,180 * 5 / 10,000 = 1.09 = 109% collateralization, which is below the 120% liquidation threshold.
A liquidator can step in and repay 10,000 R. In return, the liquidator will get the following $wstETH:
In total, the liquidator will get 4.587 + 0.4 = 4.987 $wstETH
In case the liquidator does not have enough $R tokens, they may use Flash Loan or Flash Mint.
A position below the minimum collateral ratio can be liquidated using the following procedures:
Raft offers a flash mint module that allows users to mint up to 10% of the total outstanding $R supply in one go with the condition that they will pay it back in the same transaction with a 0.01% flash mint rate. Users can use Raft’s Smart Contracts to operate directly without the need to rely on a separate money market or liquidity pool to flash R.
There is a 0.01% flash mint fee that is subject to change between 0% and 5%.
Flash mint transactions require lower gas fees than flash loans, which is particularly notable in low-liquidity conditions or when the costs from gas fees are high.
Flash mints play an important role during liquidations. Liquidators can flash mint $R tokens to repay a borrower’s debt and subsequently use the received collateral to swap back into $R and repay the flash mint, all within a single transaction.
Flash mint calculator: https://docs.google.com/spreadsheets/d/1AzKbpQz1LTtdPNQ8CjhQJeM4DOQSVmGtDT8Tp_VYUg8/edit?usp=sharing
The flash mint module can also be used to obtain leverage on $wstETH.
In order to open a $wstETH leverage position through the flash mint module the following steps are taken.
In order to deleverage a $wstETH position in order to close all debts through a flash mint the following steps are taken.
Users can also use flash mints to adjust their positions to any other leverage level of their preference.
Redistributions ensure the stability and security of the platform by serving as the last line of defense in the unlikely scenario that liquidators fail to step in and liquidate all under-collateralized positions. During redistribution, the losses incurred by an undercollateralized position are fairly distributed among all positions in order to reduce the risk of systemic failure.
An account becomes eligible for redistribution when the position’s collateral falls below or equals 100% (i.e. position’s collateral <= 100%).
When a borrower’s Collateralization Ratio falls to 100% or below, a redistributor may trigger a redistribution, which entitles them to earn a redistributor reward. The remaining collateral and debt of the affected position will be proportionally split among other positions based on their collateral amounts, with higher collateral amounts receiving a larger share. Once the redistribution is complete, the under-collateralized position will be closed.
The redistributor is responsible for invoking the contract that will initiate the redistribution process. Due to the potential presence of high gas costs in the network, the protocol provides an incentive to the redistributor.
The redistributor reward rate is a dynamic percentage of the total collateral, where its rates are set according to the table below.
| Total collateral | Redistributor reward rate |
| 3,000 R | 3% |
| 100,000 R | 1.25% |
| 1,000,000 R | 0.5% |
For values between the key total collateral amounts listed, the redistributor reward rate is linearly interpolated between their corresponding redistributor reward rates.
The actual redistributor reward is the product of the total collateral and the redistributor reward rate.
RedistributorReward = TotalCollateral * RedistributorRewardRate
For instance, when the total collateral is 10,000:
Meaning that the liquidator will receive 2.87% of the total collateral, i.e. 287 R.
Assuming a position with 10,000 $R in debt and 5 $wstETH collateral when $wstETH is trading at 2,000 $R.
The position is trading at 2,000 * 5 / 10,000 = 1 = 100% collateralization, which indicates that the position is up for redistribution.
A redistributor will trigger a redistribution by calling the respective contract. In return, the redistributor will collect 0.1435 $wstETH (5 * 2.87%), equivalent to 287 $R.
The remaining 10,000 $R in debt and 4.86 (5 * 97.13%) $wstETH collateral are split 22% / 33% / 44% into positions B, C, and D respectively. 22% is calculated as 20 / ( 20 + 30 + 40). Hence, after the redistribution, the debt and collateral of all remaining positions will have increased, lowering their collateral ratio.
| Position | Debt | Collateral | Collateral ratio | Collateral weight | Debt change | Collateral change | New debt | New collateral | New collateral ratio |
| A | 10,000 | 4.86 | 97.2% | -100% | -10,000 | -4.86 | 0 | 0 | 0% |
| B | 30,000 | 20 | 133% | 22% | 2,222 | 1.08 | 32,222 | 21.08 | 131% |
| C | 40,000 | 30 | 150% | 33% | 3,333 | 1.62 | 43,333 | 31.62 | 146% |
| D | 50,000 | 40 | 160% | 44% | 4,444 | 2.16 | 54,444 | 42.16 | 155% |
All debt is quoted in $R and all collateral is quoted in $wstETH
In order to avoid single points of failures, Raft’s architecture accounts for two oracles: a primary Oracle, and a secondary Oracle. Both of these contracts can be upgraded by the team who are responsible for providing protocol contracts with the price of $stETH. If an anomaly in the reported price is detected, the system will fall back onto the secondary Oracle or last good price as the source of truth. Abnormal conditions can occur under 3 scenarios:
Depending on the abnormal conditions that are detected, a fallback mechanism will be used:
Raft endorses decentralization not only through the use of immutable Smart Contracts, but also by relying on decentralized frontend user interfaces. Frontend Operators can construct separate frontend interfaces to allow users to interact with the underlying contracts, with the goal of improving the overall user experience. Alternatively, Frontend Operators can also integrate Raft into their personal applications, effectively introducing their user base to the Raft ecosystem and obtaining rewards for their efforts.
Frontend operators can apply for grants in order to receive economic compensation for their contributions to the Raft ecosystem.
This approach strengthens the censorship-resistance of the protocol and ensures that frontend interfaces are resilient to shutdown attempts by centralized parties. Additionally, Raft encourages all frontend operators to deploy their frontends on IPFS (InterPlanetary File System).
One-Step Leverage (OSL) was introduced on July 14, 2023.
OSL is a novel feature utilizing Flash Mint, allowing users to leverage up to 6x in a single step, boosting their potential earnings from liquid Staking derivatives (LSDs). Users will be able to open, close or adjust their leverage accordingly.
The steps to generate LSD leverage through Flash Mint are the following:
The steps to generate deleverage LSD to close all debts through Flash Mint are as follows:
It is important to mention that the change in the R price in dollar terms could affect the amount of capital required to close the position. In particular, if the R price in dollar terms has increased since the Position was opened, more collateral will be required to repay the loan.
Adjust One-Step Leverage allows user to change the Position to any other leverage (within maximum limits) via Raft’s Flash Mint mechanism.
The steps to generate LSD leverage through Flash Mint are the following:
$R follows the design principles implemented in CDPs such as $SAI (Single Collateral DAI) and $LUSD. However, Raft attempts to improve upon the original model by offering increased capital efficiency, flexible fees, more efficient and instant liquidations, and a more robust incentives system that strengthens the peg.
$R is the first USD stablecoin backed solely by $stETH, which is a capital-efficient and censorship-resistant collateral asset by which Raft will attempt to prevent failures of the past such as the USDC depeg. As a matter of fact, the USDC depeg was caused by its dependence on collateral held by banks. Similarly, DAI suffered the same fate because more than half of its collateral is made of USDC.
R is designed from first principles to belong to a category of non-fiat backed stablecoins and which are fully backed by uncensorable and decentralized crypto assets like $stETH. This way, each unit can be instantly redeemable without the intervention of any intermediary or third-party.
The timing of the protocol launch was heavily influenced by the proximity to Ethereum’s Shanghai/Capella upgrade on April 12. At the time, there was a total of 17.8M $ETH (~$32B) deposited on Ethereum’s PoS chain which could not be withdrawn (~15% of the circulating supply). The success of the upgrade enabled withdrawals and any uplifted any prior liquidity constraints that had been present in the past.
Raft’s core team estimates an increase in the number of users who will stake their $ETH, earning an average yield between 4-6%.
Lido Staking APR: https://dune.com/queries/570874/1464690
At the time of the Shanghai upgrade, even though only 15% of the total $ETH circulating supply was staked in the PoS network, close to 95% of the staked $ETH on Liquid Staking Derivatives was dominated by 3 players: Lido, Coinbase, and Rocket Pool.
Some of the reasons that led to the dominance of Lido include:
There is no official roadmap published yet, but some of the soft targets includes:
Raft is built by Tempus, a venture DAO backed by investors such as GSR, Lemniscap, Wintermute, and Jump among others.
The team includes:
Since the release of Single-Collateral DAI in 2017, the adoption of decentralized stablecoins has increased significantly. $R is an attempt to improve the design principles behind consolidated CDP models such as SAI (Single Collateral DAI) and LUSD. Most CDP-based borrowing frameworks (this is not the case for Liquity) apply variable borrowing rates in order to encourage or discourage borrowing. With this model, borrowers don’t grapple with the cost right away. In actuality, the interest paid by borrowers is not the net outcome of their own debt, but of the debt incurred by other borrowers. Because of this and the need for governance, Raft has opted out of this model and has chosen to build a decentralized and direct feedback system built on one-off fees.
Nowadays, centralized and fiat-backed stablecoins still remain the most dominant in terms of adoption. However, users need to trust a centralized issuer to have a banking infrastructure that is capable of backing every unit of stablecoin. This centralization creates a single point of failure and can make the stablecoin vulnerable to issues such as regulatory crackdowns or bank failures. Similarly, stablecoins like USDC and USDT suffer from lack of transparency, counterparty risk and limited accessibility.
Recent events such as DAI’s depegging from USDC have highlighted the need for a more decentralized stablecoin that relies less on centralized entities and carries less regulatory risk. Therefore, Raft falls back on Lido’s $stETH as the most capital-efficient and decentralized asset to back the $R stablecoin.
The stablecoin trilemma is a concept that refers to the difficulty in achieving three key properties of a stablecoin simultaneously: stability, decentralization, and scalability.
Raft attempts to solve for the trilemma with the issuance of $R, a stablecoin that is backed by a yield-bearing collateral asset, $stETH, and whose minting and redemption relies on immutable Smart Contracts whose logic is transparent and can be audited by anyone. While its governance-minimized approach makes it highly decentralized and the use of $stETH instead of $ETH is a big improvement in terms of capital efficiency, $R still requires excess collateral in order to be minted.
Every unit of $R in circulation is backed by excess collateral, meaning the value of the collateral is higher than the value of debt being taken. Thanks to the combination of a hard and a soft peg mechanism, $R can be used as a unit of account across DeFi, meeting similar functions to money.
In DeFi, a large percentage of the $stETH circulating supply is often deposited in protocols like Aave (v2 and v3) or Maker (Vault A and Vault B) in order to leverage up on $stETH collateral. However, these platforms have the problem that users are forced to manually repeat the borrowing and re-depositing cycle multiple times (looping) in order to achieve a significantly leveraged position. This is not only time-consuming, but also very inefficient in terms of gas costs, and high borrowing fees which leads to a poor user experience and introduces complicated math that opaques the user’s liquidation threshold.
To solve this problem, Raft introduces a “one-step leverage” feature that makes leveraging $stETH a much more seamless and gas-efficient user experience. This is achieved with Raft’s flash mint module.
This process takes place in Raft with just one click. The user just needs to select the amount of leverage and slippage and click “Execute”.
The benefits of this process stand out from its simplicity and capital efficiency, allowing users to get access to leverage cheaply and with just one click.
The following table summarizes how Raft compares to other CDP models where users can borrow a stablecoin such as Liquity and MakerDAO:
It is worth noting that, unlike Liquity, Raft will not follow a dual token model at launch. For instance, Liquity utilizes two incentive mechanisms in order to remain solvent and stabilize the $LUSD peg:
Raft is also different from other CDP-based protocols because it only accepts one asset as collateral: $stETH.
Some protocols that are similar to Raft are MakerDAO, Liquity, Abracadabra, Angle, QiDAO, Reflexer …
Raft’s one-click leverage feature also allows users to get up to 11x leverage on their $stETH holdings (at the expense of a flash mint fee). While this level of leverage is also possible with Liquity, it still outperforms what users can get in other money markets or lending protocols when folding their positions. This is because users benefit from the increase in price of $stETH they hold as a result of leveraging on Raft along with the additional Staking rewards they receive which do not exist on Liquity or are reduced due to the lower leverage and high annual fees on other money markets like Aave and Maker.
Due to the reliance on $stETH collateral, Raft uses Ethereum mainnet as the primary deployment network.
Instead of selling their $stETH, users can use Raft to have access to liquid funds.
Similarly, users can uso the one-step leverage feature to access leverage on $stETH in a single atomic transaction:
Raft’s primary user base consists of $stETH token holders who want to borrow a stablecoin against their $stETH in a capital-efficient manner. Instead of selling their $stETH, they can use Raft to have access to liquid funds.
With Raft’s one-click leverage feature, users can get up to 11x leverage on their $stETH holdings at no cost.
(Minimum Collateral Ratio) / (Minimum Collateral Ratio – 100%) = 6
(120%) / (120%– 100%) = 6
Raft provides users with a capital efficient and decentralized way to take out loans against $stETH. There is a requisite of a minimum 120% collateral ratio that allows users to borrow in a USD-denominated stablecoin, $R, at a 0% interest rate and no minting fee. As a result, borrowers do not have to worry about constantly accruing debt. Besides, the core components of the Raft contracts are immutable and have no admin keys.
R is USD-denominated stablecoin backed by $stETH (Lido Staked Ether) with a combination of a hard peg and a soft peg.
The redemption functionality has been disabled with the introduction of the Pegkeeper Module.
The goal behind the soft peg mechanism is to incentivize peg stability through market dynamics. This way, the design of the stablecoin itself creates an incentive for users to step in and take certain actions based on the expectation that the peg will be kept in the future.
Knowing the expected behavior of an economic model in advance creates a more predictable system where the trust increases as a result of the participants’ own actions. For instance, the soft peg mechanism emphasizes that deviations from the peg are temporary and generate competition among market participants. This in turn reduces the duration of price fluctuations.
Raft seeks to improve liquidity conditions for the $R stablecoin by providing liquidity across numerous market pairs in a series of AMMs and centralized exchanges. Besides, in order to encourage users to contribute to R’s liquidity, they can deposit $R into liquidity pools alongside other assets and receive incentives in return.
The $RAFT token is meant to be the governance token for Raft, allowing holders to exercise their voting power over governance matters. It has not been launched yet but has been mentioned in this article published on June 12, 2023, and multiple times in Discord.
The Raft protocol is immutable and its core Smart Contracts cannot be upgraded. As a result, there is no centralized point of control over the protocol’s core mechanism. Besides, there is no way to pause the Smart Contracts. Consequently, Raft follows a governance-minimized approach in order to remain agile and user-focused while maintaining robust security.
Raft’s governance-minimized approach offers the following advantages:
At the beginning, governance decisions will be enacted with a ⅗ multisig controlled by a combination of Raft and outside members. Moving forward, Raft will follow a progressive road towards decentralization. Nonetheless, the scope of governance is intentionally limited to 3 main areas.
While the $RAFT token has not been launched, an article published on June 12, 2023, has stated that voting will most likely be done via the $RAFT token, extending voting power to its holders on pivotal governance matters. These include:
The liquidity committee is responsible for managing and deploying incentives across different pools. By having a dedicated committee, the protocol can ensure that it can adapt to the ever-changing conditions of the markets and optimally allocate incentives that will foster liquidity and improve $R’s peg stability.
The actions of the liquidity committee do directly affect the hard peg mechanism of R. Instead, the focus is on providing ample liquidity to support the soft peg to $1, with the objective to allow users to confidently trade $R with minimal slippage or price impact.
The primary role of the committee is to assume the following responsibilities:
Initially, the liquidity committee consists of 3 members from Raft’s core team, which will form a multisig in order to allow for secure and collaborative decision-making. Over time, as the governance structure becomes more community-driven, the liquidity committee will seek to decentralize its operations.
The governance forum was created and announced in an article posted on June 12, 2023. It is part of the fully decentralized process that Raft aims to achieve.
The forum will serve as a space for Raft’s community to discuss proposals, voice their opinions, and actively participate in decision-making to shape Raft’s future.
There are major technical challenges associated with stablecoins. Regardless of the decentralized nature and censorship resistance of collateral assets, Raft’s core Smart Contracts are immutable, and the core logic cannot be changed after deployments. What’s more, the protocol relies on a governance-minimized approach to ensure that contract updates are safe and smooth, particularly for critical stablecoin parameters.
Raft’s codebase was not forked from another protocol and has been built from scratch. Since the protocol operates as a fully automated and algorithmic decentralized system, collateral assets are transferred from users to the protocol without the intervention of any person or legal entity. Because of that, users who interact with the protocol are subject to the rules set forth in Raft’s immutable Smart Contracts.
Raft has been audited by Trail of Bits and Hats Finance.
A bug bounty program was launched on Hats Finance on June 7 2023.
Raft is exposed to Oracle risk due to requisite for precise pricing and the liquidation logic implemented by its Smart Contracts. Oracle price feeds are used for assigning a value to outstanding loans and estimating which ones are in default. The manipulation of Oracle price feeds can force the protocol to liquidate loans that are not in default, thus causing a loss of customer funds.
The key parts of the protocol are immutable and their code logic cannot be upgraded or modified by any centralized entity. Nonetheless, the deployer still has admin rights to turn on protocol fees (which are initially hardcoded to certain parameters) if governance chooses to do so at a future date. These parameters will be initially set and monitored by the liquidity council,
Events like the depegging event experienced by $DAI and $USDC in March 2023 showcase the importance of diversifying $R’s liquidity sources as well as minimizing counterparty risk and single point of failures. By design, R only has exposure to stETH. Additionally, the liquidy committee takes into consideration the possibility of anchoring $R to decentralized assets like $ETH. This way, they can create a more resilient and diverse liquidity pool that provides more stability and reliability for its token holders.
Additionally, developers also face the challenge of having to manage the high gas costs of the Ethereum network. Raft also has exposure to market risk associated with the safety of liquidations, market volatility and cascading liquidations. Borrowers need the protocol to remain solvent, otherwise they will not be able to get their $ETH collateral back
Investors includes the following:
Version 0.0 | May. 16, 2023 – Initial Release
Version 1.0 | June. 8, 2023 – Updated roadmap and audit
Version 1.1 | September. 1, 2023 – Added Sections (Partnerships, One-Step Leverage, Pegkeeper Module, Hard peg), Updated Sections (Fees)
