High-Level Description
Last updated
Last updated
A utilizer proposes a new investment opportunity programmed to a newInstrument contract. A newInstrument could be any investable assets such as loans, DeFi strategies, structured products, etc. Each Vault is connected and exposed to multiple Instruments , and whether capital can be supplied to each Instrument from a Vault will be determined by an underwriting module.
The module primarily involves two parties; managers who are skilled at assessing risks and want a levered exposure to the proposed Instrument , and Vault investors(passive LPs) who want protection from exposure to Instrument . The summation of these two market forces determines whether the crowd thinks the new Instrument has a favorable risk-reward profile. If so, an Instrument is approved and capital can be provided to the new Instrument from its parent Vault or LPs.
Put differently, participants long or short tokenized junior tranches of the instrument that is being assessed, and the resulting price in this prediction market determines whether the instrument should be supplied or not. The higher this resulting price, the larger the first loss protection buffer for the Vault.
The generality of the system stems from a key insight; an investor would have to predict how much returns(in percentage terms) an asset would deliver prior to making the investment. This holds true regardless of the nature of the asset being invested.
Under some lens, it can be viewed as a yield aggregator(integration with other protocols) that underwrites and structures risks(of different strategies across DeFi) for the LPs.
However, RAMM is capable of generating its own yield source via in-house written instruments only possible with an underwriting module, such as a lending pool that accepts any kind of collateral or credit conditions, or a custom creditline, or mortgage instruments.
Instrument Cycle
All Instruments within the protocol follow the following cycle
The description of each step is outlined in the Phases section
