[NIP-25] Onboard RDNT as a Collateral Asset on Notional V3

[NIP] Notional Improvement Proposal
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Title: Onboard RDNT as a Collateral Asset on Notional V3
Author(s): Anthias.xyz Team
Submission Date: 17 October 2023

Summary

The following is a proposal to onboard RDNT as a collateral currency option on Notional V3. The Anthias team thinks RDNT would prove valuable for the Notional community as a collateral asset and thus would like the community to consider & discuss onboarding RDNT as a collateral type.

Resources

Minimum requirements for consideration checklist

Application

1. Provide a brief overview of the proposed asset and its underlying project.

  • RDNT is the governance token for Radiant Capital, the Arbitrum and BNB-based lending + borrowing platform. RDNT is used to govern the protocol and as an incentive for Radiant users.

2. How is the asset currently used (staking, collateral on other lending protocols, etc.)? Provide relevant activity KPIs.

  • RDNT is currently used by holders in a locking mechanism on the Radiant platform in order to gain access to boosted emissions. By locking RDNT, users gain access to lending and borrowing RDNT emissions.

3. Detail why you believe the project should be added to Notional either as a collateral asset or as a tradable asset and the potential benefits of doing so. Explain why you think the demand for this asset is sufficient to list it on Notional.

  • Radiant currently has the seventh largest lending market TVL at just over $570M at the time of this posting. Its native governance token, also based on Arbitrum, meets the requirements outlined in the Collateral Asset Onboarding framework created by the Notional core team. It is for these reasons that the Anthias team thinks the Notional community should consider onboarding RDNT as a collateral type for Notional V3.

4. Provide information regarding the organization behind the project.

5. Provide information regarding past hacks or major bugs and how the team addressed them.

  • No hacks/exploits of Radiant directly were found by our team. If the community knows of others since the protocol’s launch, please feel free to provide information.

6. Provide an overview of the token’s market data.

  1. Market Cap: $68,051,741

  2. 24H Volume: $9,775,980

  3. RDNT Volatility (RDNT price compared to ETH over past 12 months)

  • RDNT has a volatility of 5.30% over the past 90 days, according to CoinCodex.
  • Chart via CoinCodex
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  1. RDNT DEX Liquidity (DEX Guru): RDNT has over $19M of DEX liquidity at the time of posting this proposal according to DEX Guru: DexGuru

  2. RDNT DEX Slippage: RDNT slippage for a 1M USDC swap is currently about 7.83%.

  3. Provide an overview of the token emission schedule and major holders.

  • The exact monthly emission rate is calculated as 20,000,000 / 1.0568 ^ n, where n is the number of months since Radiant v2 launch. Read here for a full breakdown of the RDNT emissions schedule.

Conclusion

The Anthias team would like to gauge sentiment and hear thoughts from the Notional community with regards to onboarding RDNT as a collateral type to Notional V3. Please share thoughts/questions in the comments of this forum post, and feel free to reach out to 0xBroze (@0xBroze on Discord or @OxBroze on Telegram) with any questions.

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About Anthias

Anthias is a risk management organization that also builds tools for easily monitoring liquidation risk for DeFi borrowing/lending markets. The Anthias team has shipped multiple grants for Euler, Aave, Compound, and more. We also recently posted the collateral asset onboarding proposals for cbETH, GMX, and ARB on Notional V3.

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Date of analysis: 2023-10-18

Summary

Following up on the @Anthias.xyz proposal, we assessed the risk implications of listing a Prime RDNT market on Notional’s Arbitrum deployment. If the DAO is in favor of listing RDNT then we suggest listing the asset with an initial supply cap of $250K (~1,250,000 RDNT), a liquidation discount of 8%, and an implied minimum collateral ratio of 170% vs stablecoins. Our asset onboarding review highlighted no significant technical issues to list the asset. We welcome community feedback before this proposal is formalized into a Notional Improvement Proposal (NIP) and goes to a formal governance vote.

Asset Overview

  • Asset symbol: RDNT
  • Underlying Protocol Name: Radiant Capital
  • Historical daily volume (avg. last 30 days): $14M (CEX and DEX)
  • DEX liquidity: $43M
  • Market cap: $68M
  • FDV: $210M
  • Total supply: 1B RDNT tokens

Economic Risk Assessment

Asset ownership & DeFi presence

RDNT is currently held by 94K wallets on Arbitrum. The top 100 wallets own 96% of the supply. 21% of the token supply is held in the Radiant Reserve Multisig contract, 18% is held in Balancer and 11.5% is held in Radiant’s DAO treasury.

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Let’s note that the current circulating supply is about 32% of the total RDNT supply. Half of the circulating supply is held in the Balancer 80/20 RDNT/WETH pool. The largest LP in that pool controls 91.5% of the pool. The sum of Aura LPs compose the second largest LP in the 80/20 pool with 6.1% ownership.

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RDNT is not listed as a collateral asset on Compound V3 or Aave V3.

Underlying protocol KPIs

Radiant Capital is a lending protocol on BSC and Arbitrum with a total market size of $557M (supply). $364M of that is on Arbitrum. The protocol’s TVL is currently $257M.

Token

The RDNT token is the governance token of RDNT capital. RDNT token holders can vote on DAO votes. Only users with locked liquidity tokens are eligible to receive RDNT emissions.

RDNT is an OFT-20 token using Layer Zero Labs’ omnichain fungible token (OFT) interoperability solution to enable native, cross-chain token transfers.

RDNT Liquidity mining emissions can be instantly claimed for the total amount on the condition that they are zapped into locked dLP tokens by pairing the claimed RDNT with wstETH/BNB.

Alternatively, emissions may be vested for three months. Vesting RDNT may be claimed early for an exit penalty to receive 10-75% of rewards, decaying linearly during the three-month vesting period. This penalty fee is then distributed 90% to the Radiant DAO reserve, and the remaining 10% is sent to the Radiant Starfleet Treasury.

The initial token allocation is as follow:

The RDNT token unlock schedule is as follows:

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Historical volatility

RDNT historical price vs ETH

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Historical volatility analysis

RDNT

Time period Volatility (last 90 days) Annualized Volatility (last year) Annualized vol. (last year) Source
1h 0.74% 68.92% 0.79% 73.51% Chainlink
1d 3.43% 65.61% 4.71% 89.94% Chainlink

ETH

Time period Volatility (last 90 days) Annualized Volatility (last year) Annualized vol. (last year) Source
1h 0.37% 34.53% 0.43% 40.47% Chainlink
1d 1.72% 32.87% 2.07% 39.57% Chainlink

Historical maximum drawdown analysis

RDNT

Time period Max drawdown (last 90 days) Max drawdown (last year) Max drawup (last 90 days) Max drawup (last year)
1 hour -9.70% -9.70% 8.12% 8.12%
1 day -14.43% -14.87% 10.23% 15.71%

ETH

Time period Max drawdown (last 90 days) Max drawdown (last year) Max drawup (last 90 days) Max drawup (last year)
1 hour -5.38% -5.72% 4.96% 4.96%
1 day -10.44% -10.44% 7.07% 7.07%

RDNT has historically been more volatile than ETH. It also had more pronounced drawdowns than ETH’s over the last 90 days making the asset more risky. RDNT is also subject to smart contract and governance risks.

Therefore, we propose a 170% minimum RDNT/USDC collateral ratio. This would protect the protocol against the worst historical maximum drawdown over a 1 day period. This implies that the protocol would have still been overcollateralized if risky accounts were not being liquidated for a period of 24 hours.

Asset liquidity

RDNT to USDC slippage analysis:

Expected slippage Trade size
0.5% $8K
1.0% $50K
2.0% $165K
3.0% $300K
4.0% $460K
5.0% $600K
6.0% $750k

RDNT is listed on both Uniswap V3 and Balancer. A $165K trade from RDNT to USDC will lead to approximately 2% slippage.

On-chain liquidity breakdown (on Arbitrum):

DEX RDNT liquidity Non RDNT liquidity
Balancer $34.5M $8.5M
Uniswap V3 $0.9M $0.4M
Total $35.4M $8.9M

We propose setting the RDNT supply cap at $250K to gauge demand from the market and to mitigate the protocol’s initial exposure to RDNT. If demand for the token is elevated the DAO could increase the supply cap at a later date.

Other notable risks

Radiant is subject to smart contract risks. It is also subject to cross-chain risks as it operates across multiple chains and asset bridging is possible.

The RDNT token ownership is also very concentrated which could potentially lead to rapid price decreases in its value.

These idiosyncratic risks can be somewhat mitigated by a lower exchange rate haircut (higher minimum collateral ratio).

Security Assessment

As mentioned by @anthias in the initial post, Radiant underwent security audits from auditors like Peck SHield and Zokyo.

Implementation Review

No specific integration challenges have been identified.

Proposed Risk Parameters

Based on the different analyses presented above, we propose listing RDNT with the parameters presented in this spreadsheet. Based on RDNT’s historical volatility profile, we propose to list the asset with exchange rate haircut and buffer parameters that imply a minimum collateral ratio of 170% for USDC borrowers. Based on current on-chain liquidity we propose to list the asset with a 8% liquidation discount. We think a 8% discount is sufficient to allow liquidators to liquidate RDNT profitably under historical market conditions. Finally, we propose to list the asset with an initial supply cap of $250K (1,250,000 RDNT).

We propose listing Prime RDNT with the following interest rate curve. The proposed interest rate models imply a 7.0% borrow interest rate and 4.1% supply interest rate at the target utilization rate.

Resources

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I was a bit hesitant to vote in favor of this proposal at the onset. With a small enough proposed supply cap to start (250k) and the more conservative collateral parameters, however, listing a more exogenous collateral like RDNT is a great step for Notional and coincides really well with the Arbitrum ecosystem.

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