Redstone Oracles - Redemption based vs Market based Oracle price feed for stablecoins

hi everyone Matt from Redstone here I lead BD for Redstone which is an oracle provider and as an oracle we specialize in one thing mainly which is yield bearing collateral for Lending markets stable coins being a great example of that type of collateral now pricing Stables because they are a correlated asset in the framework that I'm just going to present in a second is non-trivial and I I know this is contradictory or this is not really logical because the price is is one or most of the times it's one and that's exactly the problem with pricing correlated assets such as Stables against USD so I'll just dive deep into that in a second but before that um let me try to do a quick recap on what price is and it what flavors it comes so there is two main variations of price that lending markets now use the first one is a pure market price and this is the most fair and unopinionated way way to price any asset because it's it's basically what the market tells you the asset is worth so pure market price we usually use slippage based pricing or liquidity based pricing as opposed to the volume based U model that is present in trfi and used by some of our competitors as well and the simple reason for that is that if you use onchain training venues such as um liquidity pools for extracting the prices it's fairly easy to skew them with volume you can do wash trading and it's fairly easy to try to skew the Oracle so that's why we use liquidity but no matter which model you choose you still need quite a lot of liquidity to be kept on chain at all times which gets expensive and it does not give you any strong guarantees against short-term deegs or short-term volatility spikes they can always happen even if you've got quite a lot of liquidity on so that's the pure market price and on the other side of the spectrum you've got the pure contract ratio what a contract ratio in that specific framework is is basically um the assets that you want to price versus the base asset for the collateral asset in the contract so to give you something tangible here for Stak eth from Lio that would be the amount of outstanding Stak eth against the eth that's locked in Lido's contract now lending markets can also use that type of price for um indicating the underlying fundamental value of the asset they would like to use and some of them do pretty much in the same way as they would use um pure market price now there's also hybrid variations we do that um just to make sure that when there is a rupt asset for example that the asset iser does not have to invest a lot into maintaining liquidity for two assets such as USD from ethena and S USD from ethena which is the non- rebasing version they can only invest in liquidity for USD and we just take the contract ratio just to make it available for Lending markets but that is just a caveat in general what you have to remember is that there is too main flavors of price one of them is Market based one of them is contract based now when it comes to correlated assets these are all the assets uh or asset pairs for which the price is close to fixed value such as one or one plus yield if we are talking about a yield bearing stable coin or yield bearing asset in general these are all the Stables are priced in USD all the lsts priced in eth lrts priced in eth Bitcoin LSD is priced in Bitcoin so the price is it almost never changes and that's the main problem with it because it changes the Dynamics and the expected value of actually using a market price which is the standard way of pricing uh normal assets so uncorrelated Assets Now how do we price a correlated asset then well if we try to do it with the standard market price um there is benefits and drawbacks to that the main benefit is that if the asset goes to zero you are going to know about this as a protocol you are going to be able to liquidate the collateral and avoid B debt now the probability of such a scenario is fairly low it's it's probably close to zero um but the probability of the negative scenario that I've got on the against side of this slide is is way higher and that is short-term depex of the of the price of the collateral assets so the general expected value of this whole setup for a market price is usually negative and that's the main problem and this was well demonstrated by some of the decs that happened in the past such as the Easy E dpeg here you can see the the display of the price by Chain Ling and N during the time of the dpeg so for everybody that was using the market price back then they avoided B debt they could sell the collateral but at the same time users got upset because they they got liquidated the price got back to one in like an hour so so that was a shortterm deviation from one but still if you use the market price that is what happens you just get liquidated now using contract Ratio or pure contract ratio is not ideal either because yes you are resilient against short-term deegs but at the same time you need to trust the asset issuer first because um the contract ratio is often self-reported so if they wanted they could misreport it have inflated collateral and extract the protocol and also um there could be delays with that contract specifically the contract can go down it can revert errors and whatnot so you really have to be very careful with trusting them with a pure contract Rao um such as in this in this setup now none of those um setups is perfect so if we were to create a solution that would work well for all of the possible scenarios it would look something like this so we would have the stability of the contract ratio so we are not resilient we we are resilient to short-term deegs but at the same time we would have the sensitivity and credibility of a market price and if we were to do a setup like this um here are the conditions that we would like to have satisfied so first the price can never go above a certain cup which usually is defined by the base asset plus yield and second if things go really sou if the asset goes to zero we at least want to know about this as a lending Market just to be able to at least pause the lending and borrowing activity on a given Market over the past couple of months we've seen great developments on that front especially in the a ecosystem um so the framework proposed by bgd which is one of the mo the biggest contributors to a it focuses on making sure that we don't have the inflated collateral problem which is people just don't come in and exploit the protocol so they have set up cups on how high the price can go for certain cor correlated assets and that is something that we believe is a great step in the right direction but at the same time when it comes to how we approach this specific problem yes we are using caps as well but at the same time we are also adding the market price component so not only adding adding the contract price but also the market price component to check for discrepancies if there is a big discrepancy between the market price and the contract price what you have to do as a protocol is just pause lending and borrowing we also offer snapshots for the contract ratio so that everybody can hold the asset issuer accountable so that it's not possible to exploit the protocol just by misreporting the contract ratio now there is many many more developments happening on that front on the correlated asset side of things one of which being using twop so time weighted averages as opposed to spot price for the market price component and that is just a teaser we believe this could be or has the potential to be the Supreme price for Lending markets in the longer term um just putting that out there but the general M message here is that if you are working on a lending Market if pricing correlated assets is something close to your heart well we might just have have a solution for you so be sure to hit us up and just uh let's shut more about this thank you so much for your time [Applause]