Myso’s close cousin: Ruler Protocol

At Myso we recently learned about a close cousin of ours, called Ruler Protocol. Just like Newton and Leibniz had both worked on calculus, turns out that Ruler and we at Myso had both independently worked on liquidationless DeFi borrowing! However, we hope that this overlapping interest for the same kind of problem won’t cause a new Newton-Leibniz calculus controversy. 😅 Instead, we rather want to applaud and salute the brilliant minds behind the project for their fantastic work, kudos! 👏 (note: no, we’re not a spin-off of Ruler and no, we’re not affiliated with any of the core devs there)

So, given Ruler’s amazing work it was all the more surprising to learn that all of the devs had abandoned the project, which ultimately caused the project to shut down in September this year. Apparently, the main reasons for this were disagreements in the team and personal reasons, with some of the core devs even taking an indefinite leave from DeFi.

We feel this is a great loss for the DeFi community and hope they will return some day. Notwithstanding, the community traction that Ruler had generated so far confirms our conviction that liquidationless borrowing is a problem worthwhile solving and something the community really cares about.

Basic Ruler Design

While Ruler and we at Myso have worked on the same problem, both of us have taken a different approach to solving it. To better understand these differences, let’s quickly recap the basic design idea behind Ruler.

With Ruler, borrowers deposit their collateral in a pool and in return receive 2 tokens, i.e., a (i) “rrToken”, and (ii) a “rcToken (see https://docs.rulerprotocol.com/).

The rrToken can be summarized as a “repay-and-reclaim-collateral” token, i.e., a holder can use it to get back his previously pledged collateral by transferring it together with a corresponding repayment amount to the pool.

On the other hand, a rcToken can be described as a “collect-potential-repayment” token, which essentially entitles the holder to receive a pro-rata share of the (potential future) repayments made by borrowers.

Ruler’s design idea is to have a market for the rcToken, where borrowers can sell them for another currency, e.g., for DAI. This essentially allows users to receive short-term funding (e.g., DAI) against their previously pledged collateral. A market for rcToken and DAI can be created in form of a DEX pool, e.g., on SushiSwap. However, the exact nature of the market is out-of-scope of the Ruler protocol itself.

Comparing Ruler and Myso Design

So how does this translate into the Myso design? Basically, the rrToken corresponds to the call option embedded in a zero-liquidation loan, and the rcToken corresponds to a LP share token:

• rrToken: a rrToken holder in Ruler is comparable to a borrower in Myso, who receives an ERC721 that allows him to reclaim his collateral for a pre-agreed repayment amount.
• rcToken: a rcToken holder in Ruler is comparable to a LP share (ERC20) holder in Myso, who receives a pro-rata share in the (potential future) repayments done by borrowers (if a borrower chooses to do so).

However, while the token elements in Ruler and Myso can be somewhat mapped to one another, there are also a few important differences between both projects worth highlighting:

• Two liquidity pools & transactions: Ruler’s design requires 2 liquidity pools, i.e, one liquidity pool for depositing collateral and another one for rcToken trading. This means that a borrower effectively also needs to do 2 transactions, i.e., (i) pledge collateral in one pool, and then (ii) sell rcToken in another pool. In contrast, with Myso both steps are done in one.
• Market for rcTokens: Ruler “outsources” the tricky part of constructing a market for rcTokens, and doesn’t provide any details on how such a market can function. In particular, there isn’t any theoretical foundation on what it is that borrowers are effectively giving away when they’re swapping rcTokens for DAI, and there’s no rationale on how a market equilibrium could look like. In contrast, Myso derives an AMM mechanism (based on the put-call-parity) and provides a rationale why borrowers can swap their collateral for a combination of a call option and some cash amount (see whitepaper).
• Constant repayment amounts: Ruler uses a constant minting ratio when issuing rTokens to users. This essentially means that for each Ruler pool the ratio between the collateral amount pledged by borrowers and the target repayment amount is constant. In other words, the borrowable amount per pledged collateral is constant, which obviously doesn’t work in case the collateral price drops “sufficiently”, and hence requires Ruler pools to be deactivated in these instances (see here). This is different with Myso, where the repayment amount of each loan (= the strike price of the call option) isn’t constant, but instead is floating and is dynamically adjusted based on current market demand.

Closing Remarks

We think there are a lot of cool aspects of the Ruler design, and curious to think about adapting parts where it makes sense. At the same time we also think Myso’s zero-liquidation loans are novel and different to what has already been done at Ruler. 💡

For those who were disappointed about what happend at Ruler, we hope that Myso may serve as a silver lining and potentially reignate excitement about liquidationless borrowing in DeFi, and we definitely invite all Ruler frens to join us!😺

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