HAI Times — Rolling with stability
HAI is an over-collateralized, CDP-minted stablecoin that brings a fresh approach to the stablecoin landscape. As an over-collateralized, CDP-minted stablecoin, HAI leverages a PID controller for stability, much like its predecessor, RAI. But HAI takes it a step further by incorporating a diverse collateral base, including liquid staking derivatives and other DeFi-native tokens. Built on Optimism, HAI offers faster and cheaper transactions, enhancing the user experience.
In this article, we will delve deeper into the HAI Protocol, exploring its unique features and operational mechanics.
HAI story — Blazing a trail in DeFi
Originating from RAI, a fork of DAI, HAI aims to overcome the limitations of RAI’s single-collateral model. RAI with a floating peg and negative interest rates, relies solely on ETH as collateral. This creates challenges, especially with the advent of ETH 2.0 and liquid staking derivatives, leading to opportunity costs for users. As LSDs have become reliable, their interchangeability with other LSDs and Ether itself has increased their demand for collateralization. Their growing popularity in DeFi already highlights this trend.
To address these issues, HAI expands its collateral base to include ETH, RAI, staked ETH derivatives, and other valuable assets on Optimism. The diversification helps mitigate the drawbacks of RAI’s single-collateral framework and fosters more positive equilibrium redemption rates for HAI.
HAI Protocol is developed by DeFi Wonderland with support from SpankChain and Number Group. It offers enhanced governance features and a multi-collateral approach, making it more versatile and aligned with the needs of DeFi today. HAI’s mission is to grow the ecosystem of open-source, controlled peg stablecoins and broaden the understanding of their benefits in the DeFi space.
Innovating with Control-Theory
HAI uses control-theory (a concept first used on-chain by Reflexer Finance) to dynamically adjust the price of HAI. This approach is different from traditional stablecoins like DAI, which faced issues maintaining the peg to the USD due to market forces and protocol limitations.
DAI responded to these issues by accepting new types of collateral like USDC, which brought additional risks because USDC is centralized and can be blacklisted.
Reflexer Finance introduced a Proportional-Integral-Derivative (PID) controller to adjust the price of their token, RAI, without introducing centralized collateral. This method helps maintain stability through unique incentives.
HAI builds on this by offering a free-floating decentralized stablecoin, providing users with a reliable and stable option amid the volatile cryptocurrency market. It also serves as an attractive method for gaining leveraged exposure on staked ETH and other native Optimism collateral.
Additionally, HAI’s deployment on Optimism brings numerous advantages. Users can open Vaults, mint HAI, and conduct transactions at significantly lower gas costs compared to Mainnet. This efficiency makes HAI accessible and cost-effective for a broader range of users, enhancing its appeal.
Stability Mechanism
Users deposit various assets into special accounts called Vaults to mint HAI. Acceptable collateral includes OP, WETH, tBTC, VELO, wstETH etc. These assets remain the property of the user and are not mixed with other Vaults. By locking assets in a Vault, users can mint HAI.
Unlike USDC or USDT, which are hard pegged to the U.S. Dollar, HAI uses a floating peg. This peg is determined by the PI controller through the system’s redemption price.
Here’s how it works:
- When MP > RP: The PI controller sets a negative interest rate, which devalues the redemption price of HAI over time. This makes HAI debt cheaper, incentivizing Vault owners to mint and sell more HAI. This increase in supply helps bring the market price back down towards the redemption price.
- When MP < RP: The system sets a positive interest rate, raising the redemption price over time. This allows users to buy HAI at a market discount and repay their debt at a lower cost, decreasing the supply and pushing the market price up towards the redemption price.
These smart incentives ensure that the market price of HAI cannot deviate too far from the redemption price for too long, maintaining stability and trust in the system.
Token Tokes: HAI and KITE in the Mix
HAI: This is the primary stablecoin within the HAI Protocol, minted entirely by users. Its value is backed by a greater amount of locked collateral. The price of HAI is influenced by both the externally determined Market Price and the programmatically determined Redemption Price.
KITE: Serves as the governance token, granting holders voting rights on critical system changes and protocol development decisions, such as collateral type adjustments. Additionally, KITE tokens play a pivotal role in various auction mechanisms within the protocol, ensuring community involvement and decentralized governance.
Baked Bidding
HAI uses several types of auctions to manage its operations and maintain system stability:
- Collateral Auction House: Users deposit collateral in Vaults to mint HAI, ensuring that each HAI is backed by a larger value of the collateral. When a Vault becomes undercollateralized, the protocol seizes and sells the collateral to cover the debt. The collateral is auctioned off in exchange for HAI.
- Debt Auction House: If there is bad debt that can’t be managed through normal means, the protocol mints new KITE tokens and auctions them off in exchange for HAI. This helps balance the protocol’s finances.
- Surplus Auction House: Stability fees collected from users are used to cover operational costs and build a buffer. Once this buffer is full, any extra HAI is auctioned off for KITE tokens, which are then burned to reduce the circulating supply of KITE.
Final Hit
HAI presents a novel approach to stability and governance in DeFi. Utilizing Optimism, HAI provides a cost-effective and scalable platform. Take that hit!
Official links
Website: https://letsgethai.com/
Discord: https://discord.gg/W9cKcN9zzV
