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What is RAI?

Basics about the RAI token and its mechanisms.
Written by Nikola Milinkovic
Updated 1 week ago

RAI is an ETH-backed stablecoin with a managed float regime. RAI is actually one of the first stablecoins. What most people call "stablecoins" are actually pegged coins. Pegged coins are oscillating around a specific value (usually pegged to fiat coins such as USD, EUR etc).

RAI, on the other hand, is not pegged to anything. The system behind RAI only cares about the market price getting as close as possible to the redemption price. The redemption price will almost always float (thus, it won't be pegged) in order to compel system participants to bring the market price toward it.

The RAI-USD exchange rate is determined by supply and demand while the protocol that issues RAI tries to stabilize its price by constantly de or revaluing it. The supply and demand mechanic plays out between two parties: SAFE users (those who generate RAI with their ETH) and RAI holders (those who hold, speculate on or use RAI in other protocols and apps).

The long term price trajectory of RAI is determined by the demand for ETH leverage. RAI tends to appreciate if Safe users deleverage and/or RAI users long and it depreciates in case Safe users leverage and/or RAI users short.

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