10 times in 1 month, a comprehensive understanding of the operational logic of DeFi smart investment advisor Rari Capital | DeFi Catcher

This article is an original piece by Chain Catcher, authored by Loners Liu.

From the explosive popularity of YFI last year and the recent surge in total trading volume of 1inch, aggregators have become an important part of the entire DeFi world. According to incomplete statistics, the aggregators currently available on the market can be mainly divided into the following categories:

• Trading aggregators, such as 1inch Exchange, Matcha, Meta Mask, etc.;
• Wallet-integrated aggregators, such as Meta Mask Swap, ParaSwap, Insta Dapp, etc.;
• Yield aggregators, such as YFI, YFII, Rari Capital, etc.;
• Stablecoin aggregation protocols, like mStable;
• Asset management platforms, such as Zapper Finance, Zapion, Debank, etc.

However, whether it is trading aggregation or yield aggregation, the fundamental needs of users boil down to either saving money or making money. The complex financial and mathematical algorithms behind them are generally difficult for the average person to understand. As the entire cryptocurrency market continues to improve, more and more new products are emerging. Recklessly participating in order to obtain high yields may lead to certain financial risks, and ordinary users often engage in emotional trading and are still slowly building their understanding of the entire market. At this time, using machines and algorithms to assist users in trading can better facilitate asset management.

In this issue of the DeFi Catcher program, Chain Catcher introduces the DeFi smart investment advisory protocol Rari Capital, whose governance token RGT has increased nearly tenfold in the past month, with a current circulating market value of approximately $36.74 million and a locked amount of about $11 million.

1. Introduction to Rari Capital

Rari Capital is a project that provides solutions for users under different risk strategies using liquidity mining strategies. Previously, it mainly focused on stablecoin DeFi smart investment advisory services. Rari transfers this liquidity to other DeFi protocols and Layer 2 projects. In addition to DeFi lending, the system will also integrate various different DeFi investment strategies, including but not limited to market making, arbitrage, decentralized insurance, etc. The project also launched a DeFi Robo-Advisor service, which can automatically monitor DeFi protocols and reallocate funds based on potential through algorithmic operations.

It is reported that the main members of the Rari Capital team, Jack Lipstone and Jai Bhavnani, co-founded Ambo in 2018, which was later acquired by MyCrypto. Another key member, David Lucid, was the Chief Technology Officer (CTO) of CRAFT Scooter.

Unlike typical yield aggregators, Rari has three funds: the stable pool, the yield pool, and the ETH pool. The stable pool and yield pool focus on a series of stablecoin swaps for arbitrage (through 0x trading), while the ETH pool optimizes yields from Ethereum. It earns returns by lending on various DeFi protocols (such as Compound, dYdX, KeeperDAO, mStable, yEarn, and Aave) or through mining rewards based on the protocols.

2. Introduction to the Three Funds

The Rari Stable Pool only invests in DeFi protocols that have undergone contract audits, allowing users to deposit ETH or any ERC20 token, which will mint RSPT tokens (synthetic stablecoins). All ERC20 tokens will first be swapped for USDC through 0x (which may incur some slippage), and then deposited in Compound, Aave, or dYdX as USDC, or provide liquidity in mStable to earn returns. The current floating annual yield is 16.9%.

The Rari Yield Pool aims to achieve maximum returns by using leveraged options and other tools, and will also participate in some unaudited DeFi protocols (which may carry certain principal loss risks). Similar to the stable pool, it allows users to deposit ETH or any ERC20 token, which will mint RYPT tokens. It will automatically adjust the ratios of various stablecoins through algorithms to find the highest yield strategies, including: depositing Dai, USDC, and USDT in Compound; depositing Dai, USDC, TUSD, USDT, sUSD, and BUSD in Aave; depositing DAI and USDC in dYdX; providing liquidity in mStable; and earning returns by providing liquidity on different platforms like Curve, CREAM, and dForce through Yearn. The current floating annual yield is 13.66%.

The Rari ETH Pool also allows users to deposit ETH or any ERC20 token, which will mint REPT tokens, earning liquidation profits through KeeperDAO while ensuring that the price of Ethereum remains within a certain range, as well as earning returns by depositing ETH in Compound, Aave, and dYdX. The current floating annual yield is 0.33%.

After the yield matures, users can use RSPT, RYPT, and REPT to obtain interest and other income. Meanwhile, all three pools require a 9.5% yield management fee, and the Stable and Yield pools will also charge an additional 0.5% withdrawal fee.

3. The Value of the Platform Token RGT and Related Governance

As mentioned above, the process of users withdrawing yields requires a management fee and a withdrawal fee. Holding RGT allows users to receive discounts on these fees. The specific rules are shown in the table below, where the discount on fees is mainly related to the ratio of the deposited amount to RGT.

Various aspects of Rari Capital will be controlled by a governance mechanism, including the Rari treasury. RGT holders can also participate in setting relevant parameters or creating proposals that benefit the Rari protocol, and can maintain and improve these proposals.

In addition, Rari Capital has established a set of standards for evaluating strategies and protocols, inspired by DeFi Score. For example, in the lending protocol field, evaluations will mainly consider smart contract risks (audit history), financial risks (collateral ratios, liquidity, asset risks), and concentration risks (such as protocol management, oracle, team background). Community members can also review relevant strategies on public forms and participate in governance.

According to official notification records, the total supply of its governance token RGT is 10 million, of which 87.5% is allocated to users who store in the funds pool. It will be fully distributed through liquidity mining within 60 days after launch, while the remaining 12.5% of the tokens are reserved for the team (linear release). Users who withdraw RGT within 60 days after mining will need to pay an additional handling fee, which decreases linearly over time (33%-0%).

Currently, the main reason why yield aggregators like Rari can attract users is that they can cover the gas fees incurred during the mining process with a higher amount of capital. However, since aggregators typically involve multiple protocols, investors should also consider the risks associated with these protocols, such as the Yield Pool's participation in some unaudited protocols.