Introducing Ring Protocol

One Ring to rule them all,
One Ring to find them,
One Ring to bring them all, and in the darkness bind them…

A native decentralized stablecoin has long been the crown jewels of the decentralized finance (Defi) world with many attempts. However, similar to the impossible trinity of a public blockchain, decentralization, scalability, and security have become the impossible trinity for stablecoins where most predecessors can only struggle to cover two. Here we propose Ring Protocol with its governance token RING, a decentralized pegged asset protocol that strikes a balance in the impossible trinity of stablecoin. The Ring Protocol proposes a decentralized solution that is also scalable, fair, and backed by existing stable assets. The first pegged asset is RUSD, a stablecoin backed by a basket of most liquid assets, including USDT, USDC, and DAI. RUSD introduces a unified stablecoin interface for the DeFi ecosystem, enables a flexible, cost-efficient way to swap between them. The Ring protocol will become the “One Ring to bring them all and bind them”. With the core mechanism that combines collateral with liquidity and market-making, RUSD addresses the pain points of most other stablecoins, providing compelling reasons to hold and use it.

The birth of Bitcoin has started a new era of human history and created a new world of Crypto. Although the original vision of bitcoin, as titled in the famous white paper, is “A Peer-to-Peer Electronic Cash System,”; it has grown from a toy of geeks to speculative asset with wild price action, and then to a store of value, and on its way becoming the hardest asset and collateral that carry values across time and space. Still growing strong with a bright future, bitcoin has deviated (or pivoted as we always say in SV) from its original idea of being a currency where you can buy a cup of coffee to become something more grand and heavy like Gold; the vacancy needs to be filled, many including us, believe it is a stable coin.

Stablecoin is the bridge between the world of Crypto created by bitcoin and our day-to-day world of fiat currency. Initially only used a trading pair currency(USDT), its idea of it is so intuitive and natural, it has explosively gained mass adoption. Along with it, an explosion of all different kinds of stable coins also started, which roughly falls into the three categories.

Centralized — Secure and Scalable but centralized risk

There is a centralized version like USDT by Tether, USDC by Circle, TUSD by Trust Token, where you send centralized entity money through a bank and in exchange of a token. You can also (hopefully) redeem the token for money. They try to be secure(solvent) and scalable (can keep printing if needed), but the centralized nature poses a significant risk of the regulation (USDC), or lack thereof (USDT). Also, enormous resources are wasted to maintain the burden of proof with expensive auditing or lawsuit (wink wink).‌

Over-collateralized — Secure and Decentralized but not scalable

‌Native blockchain stablecoin like DAI from MakerDao or sUSD from Synthetix, completely decoupled from the messiness of legacy financial system by using Crypto like ETH as collateral and issue stable coin as debt. However, they need a high collateral ratio to maintain value and a liquidation process that is both risky to the user and the protocol because it heavily depends on Price Oracle that is prone to manipulation through flash-loan. The protocol like DAI has suffered from such an attack multiple times. What’s more, the high collateral ratio is a headwind to capital efficiency, limiting the protocol’s scalability.‌

Algorithmic — Scalable and Decentralized but not secure, stable, or fair‌

In an attempt to scale, we have seen an emergency of algorithmic stablecoins that doesn’t require any collateral and can scale fast indefinitely with everything on-chain and fully distributed. They achieve this by either rebasing (e.g. AMPL) or Seigniorage (Basis Cash, ESD, FRAX). The rebasing model like AMPL dynamically adjusts the supply by directly altering user balance to respond to price change. Even though it can hold its peg relatively better than other models, its unintuitive nature becomes a usability issue and becomes more of a money game by itself. Seigniorage model like Basis Cash separates the pegged coin and shareholder token to provide a similar model like how fiat works. However, its zero collateral nature can spiral the downfall when below peg and destroy people’s confidence to hold and use it. More importantly, the expansion and newly issued tokens heavily favor the shareholder. The unfairness of distribution and non-collateral nature further discourage new users from adopting; Indeed, stablecoin adoption is the key to its success. FRAX tries to mimic the fractional reserve of the modern banking system to provide some valued support with collateral but still uses Seigniorage with the unfair distribution.‌

A recent protocol like Fei uses direct incentive/penalty as a core mechanism to stabilize the price and engage in market activity as a liquidity provider. However, they still missed the core issue: why would users hold and use such their stable token?

Source: https://ringlabs.medium.com/introducing-ring-protocol-709d6eedd79b?source=rss——-8—————–cryptocurrency