Understand Ratio in one article, a stable currency protocol that can unleash the potential of LP Token

On February 28, Ratio Finance, a new stablecoin protocol based on Solana, completed the public sale of its governance token RATIO on the crowdfunding platform Republic. A total of 960 investors participated in this round of public offering of Ratio Finance, and the total amount of funds raised. amounted to $3.06 million.

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Before this round of public offering, Ratio Finance had just completed a $2.5 million private financing led by Republic Labs, and earlier in July last year, Ratio Finance had also invested $2.25 million in the previous round of financing. Including Solana, Raydium, ArkStream Capital, Rarestone Capital, Alameda Research, CMS, Divergence Ventures, New Form, and more.

In terms of positioning, Ratio Finance is a decentralized over-collateralized stablecoin, but unlike stablecoin protocols such as MakerDAO (DAI), the collateral assets supported by Ratio Finance are not specific tokens, but Solana The liquidity certificate tokens of some leading DEXs (such as Raydium) in the ecosystem, which are often referred to as LP Tokens.

DeFi has achieved rapid development in the past two years. Defi Llama data shows that as of March 1, the total value of funds (TVL) locked in DeFi protocols on top of major ecosystems has reached 208.5 billion US dollars, of which Solana above. The TVL figure was $7.3 billion.

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Looking back at the development of DeFi, the emergence of automatic market-making (AMM) decentralized exchanges (DEX) is undoubtedly the most impressive one. The constant product model of AMM allows users to participate in market making and earn profits by simply adding equivalent assets on both sides of the trading pair. Compared with the traditional order book model, the AMM model has lower market making thresholds and more management requirements. The expected income is more intuitive, which effectively solves the liquidity expansion problem of DEX, which greatly promotes the development of the entire DeFi system.

When liquidity providers (LPs) participate in market making through AMM DEX, in order to determine the specific share of their liquidity positions in the pool, DEX often returns a certain amount of liquidity certificate tokens (LP Token) to LPs, and when the When LPs need to withdraw liquidity from the DEX one day in the future, they also need to take out a corresponding amount of LP Token as a withdrawal certificate. This means that although LP Token is not a specific token, it has value in itself, and its value is supported by the combination of tokens locked in the DEX liquidity pool.

With the continuous development of AMM DEX in major ecosystems, the total value of assets in the form of LP Tokens is also rising. However, the normal state of these LP Tokens is to lie in the wallet of LPs and "sleep out". The reason is that there are not many new protocols in the market that serve this asset class, outside of DEX. , it is difficult to find other usage scenarios for these LP Tokens, especially in emerging ecosystems such as Solana.

The protagonist of this article, Ratio Finance, is such a new stable currency protocol that serves the Solana ecological LP Token and expands the usage scenarios for these assets. Specifically, Ratio Finance allows users to mortgage the LP Tokens of mainstream DEXs such as Raydium and Solfarm within the protocol, and lend the stable currency USDr. These USDr can be arbitrarily used by users, such as investing in a project they are optimistic about, or changing to other stable coins to continue pairing mining. When users want to raise their own mortgaged LP Tokens, they only need to return the corresponding amount of USDr.

It is worth mentioning that Ratio Finance itself has designed a mechanism for automatic debt repayment of LP Token income. Over time, the USDr debt lent by users will gradually decrease with the accumulation of LP Token profits. In theory, as long as the user saves enough time, it cannot be ruled out that one day in the future, there will be no need to repay any USDr debt at all.