RAMP DEFI places itself at the leading edge of a rapidly evolving decentralized finance industry, which attempts to not only replace existing traditional financial components with decentralized equivalents but also provide highly lucrative investment strategies. Before jumping into the nitty-gritty of RAMP DEFI and their value proposition, it would be helpful to review the history of this space.
Decentralized finance (DeFi) encapsulates decentralized lending and borrowing, stable coins, exchanges, derivatives, margin trading and insurance. In 2015, MakerDAO enabled customers to lock their ETH as collateral and generate the DAI stable coin, in their Oasis borrowing and lending platform. Meanwhile, decentralized exchanges such as EtherDelta and decentralized liquidity pools such as 0xProtocol gave rise to a new, trustless standard for trading. Since then, other sectors of traditional finance have been decentralized such as margin trading (dy/dx, Fulcrum), derivatives (Synthetix), insurance (Nexus Mutual) and Oracles (Chainlink). Many of which have provided lucrative investments from both price speculation and the interest generated for participating in these services with collateral.
Then came yield farming - a way to increase the yield of all the aforementioned DeFi components dramatically through various investment strategies. Essentially, yield farming creates a highly leveraged return on investment through the compounding effect of a cascade of borrowing and lending using different DeFi protocols, rapidly switching to find the strategy that produces the highest Annualized Percentage Yield (APY).
RAMP DEFI is developing the next building block of the DeFi machine by providing a seamless liquidity “on/off ramp” for users with liquidity locked into staking arrangements on Ethereum and other blockchains. RAMP DEFI is focused on developing a suite of products that act as the "building blocks" to power the RAMP ecosystem and cross-chain liquidity transfer. The diagram below shows the use case for rUSD and eUSD, the stable coins generated from staked capital on the non-ERC20 blockchains and fiat-backed capital on the ERC20 blockchains, respectively.
With an ambitious and complex protocol like RAMP DEFI, we could write an essay on the mathematical equations and intricacies of the processes and put you to sleep, or we could simply explain the standout features of RAMP DEFI over the competition. Fortunately, we went with the latter, so without further ado, these are the reasons we’re bullish on RAMP DEFI:
1. Idle assets become productive assets
The most interesting feature of RAMP DEFI to us, is its ability to turn idle assets into productive assets. What do we mean by that? Let’s focus on the vision for RAMP DEFI. Ramp lets you deposit an asset, for the purposes of this example we will use Tezos (XTZ), which at the time of the writing is just above $2. When you deposit 5000 XTZ, you are providing Ramp with ~$10k of collateral. In return, Ramp will let you borrow a maximum of 50% of that, which is $5k. The amount borrowed in turn, is referred to as your loan to collateral ratio. In our example the loan was $5k and the collateral provided was 2x of the loan. RAMP DEFI looks at it as a $5k loan with $10k collateral, which is a loan to collateralization ratio of 200%. The breakdown to this can be remembered as loan / collateral, ie. 5000 / 10000 = 2 or 200%. However, due to crypto’s daily price fluctuation, the system needs a way to protect itself from minting more dollars than it can back with capital. If the system could print unlimited dollars, then the dollars it prints become worthless so RAMP DEFI assures against this.
2. Keeping the protocol safe
To prevent the system from becoming insolvent, RAMP DEFI needs a way to sell your collateral at a point in time where the collateral is worth more than the loan given. It does this through a liquidation process when the collateralization ratio dips too low. With RAMP DEFI, the liquidation starts at 120% loan to collateral. Alternatively, it may be easier to remember it as “loan + 20%” is the point that all of your collateral is at risk. The protocol needs a buyer available as soon as possible before the collateral loses more value. In alternative systems, they hold an auction process to sell the collateral at a discount as a way to attract buyers. In those systems, it's possible for the price of the collateral they are selling to be worth less than the loan. You can’t be an effective bank if you give out loans worth $10,000 and only have $9,000 worth of collateral. They accomplish this by selling the collateral at a discount to the universal pool. Again, using the same example, they will sell the $6,000 worth of collateral, to cover the $5,000 loan. This is a net win for those in the universal pool, as they benefit from such a huge discount on the loaned crypto.
While we are on the topic of how RAMP DEFI keeps the protocol safe, let’s discuss their built-in governance. This governance lets the token holders create proposals and have the team work on new features or modify existing ones, which is common among DeFi projects. The real difference is very subtle. RAMP DEFI includes an additional layer on top of their governance where the team can veto any malicious proposals that might have gotten passed. Imagine a proposal for burning the entire remaining allocation for protocol reserves and partnerships, which are equal to 20% of the entire supply. Then due to this success, a proposal is then made to burn the teams remaining vested tokens. This puts the team in a real pickle, because if governance plays out as intended, they will lose everything, including the ability to pay the team. Having a veto option available to stop malicious proposals is an important thing to consider.
3. Zero interest on loans
Most loan protocols charge an interest rate on your loan, for example, Maker currently charges 2%. RAMP DEFI is built around a 0% interest rate for loans with the only fee being a stake-farm fee applied on the staking rewards of the native chain of the staked assets and not on the assets under management.
4. The Nitty-Gritty!
RAMP DEFI just has too many features to cover in this article, like rMint, rStake and rPool which we touched on briefly above. rSwap is an interesting feature because cross chain swaps are starting to gain mainstream attention in DeFi. Starting with SushiSwap going cross chain between Ethereum and Solana and SashimiSwap going cross chain between Ethereum and Aelf. However, just like Uniswap, rSwap needs users to deposit coins and tokens too. Thus when users deposit their tokens in rSwap, they get a percentage of the trade fees and any under collateralized loans will be liquidated automatically into this pool. This is an amazing deal for those providing liquidity in rSwap. As users default on their loans, the pool will benefit from automatically buying the collateral at a discount, which in turn is spread amongst all of the users in the pool as a reward. Imagine someone defaulting on 5,000 XTZ worth of collateral and then the pool buying these 5,000 XTZ worth $6,000 for the price of $5,000. It's an amazing deal and one that keeps both the ecosystem users happy and the protocol healthy.
The whitepaper for RAMP DEFI lists several competitors in a loose sense, but a few of them do not have the ability to do cross chain DeFi. As such, we believe that they are not a true competitor unless they are also able to provide service across multiple chains. So far we have found MANTRADAO and KAVA to be the only true competitors offering a similar cross chain stablecoin. However, there are many compelling reasons to use rUSD as well as resources to incentivize customers to use the protocol and interact with it for as long as possible.
It is always difficult to determine where on the profitability scale will a new protocol end up. But from our perspective, when a protocol like RAMP DEFI has very few competitors and they provide an in demand service it becomes much easier to gain market share and become the leader. RAMP DEFI has a real shot at this because one of the major value points is hidden away in the universal liquidity pool. Instantly having an ‘always on buyer’ of collateral means that the protocol is always going to get the highest price for the assets it's selling which helps to keep it solvent and running smoothly.