Safety module


Rand implements a Safety Module (similar to AAVE) to create a last layer of security, which is also distributes a big part of the yield produced by the aggregator to all RND token holders.
Safety module overview
In case, the protocol experiences a Shortfall Event where we have a deficit of liquidity inside the protocol that does not allow us to offer as many prizes as we need to make the platform attractive. Or if any catastrophic event happens that forces us to need extra liquidity, the funds locked inside the safety module will be used to cover the Shortfall.
In order to make this module secure and attractive to the token holders, we are implementing a system of safety incentives for the stakeholders coming from the profit we produce with the yield aggregator and the trading fees on a DEX pool that will be announced very soon.
To contribute to the safety of the protocol and receive incentives, RND token holders will deposit their tokens into the Safety Module (SM). In return, they will receive a tokenized position that can be freely moved within the underlying network. The holder of the tokenized position can redeem their share from the safety module at any time, triggering a cooldown period of one week (which would be further extended by protocol governance).
Safety incentive rewards are subject to a cooldown period where tokens are unclaimable. The cooldown period is set to seven days. However, fees generated by the protocol are continuously allocated to the users participating in the module and can be withdrawn. Fees generated from the protocol are redistributed to the SI participants. The reward plan for the SI is designed to incentivize participants to contribute to the safety of the protocol in its early stages.
Every month, the x% of the profit that Rand makes on the private vaults and the y% of the public ones will be injected into the safety module to be later distributed among the stakeholders that had locked their RND tokens in it.
Users interact with the Safety Module by locking RND and/or DOT into the Safety Module contract. The interaction with the SM is facilitated by a UI that clearly explains the SM dynamics, its purpose within the Rand protocol, and the risks involved. Users will have the choice of locking RND directly or providing liquidity shares from the 80/20 RND/ETH DEX Pool.
The Rand Governance will retain the ability to update the weights in the DEX pair pool to better suit the protocol and staking needs as the market evolves.
The primary (Safety Module) and secondary (Recovery Issuance) safety mechanisms are reinforced with a built-in Backbone module. This module is a smart contract-based deposit pool to allow the Rand Community to deposit stable coins and ETH acting as a buy order for the RND token at a price agreed upon by the protocol governance in the case of a Shortfall Event, to act as a buyer of last resort.
Back-boners are incentivized to have liquidity in the Backbone, as x% of the yield produced by the aggregator is shared with them. In case of backbone buy back occurrence, the RND purchased by the backbone is distributed proportionally to backbone LPs, or they can directly deposit back their newly acquired RND in the staking module.

Shortfall Events

The main role of the Safety Module is to protect the protocol against unexpected loss of funds stemming from:
  • Smart contract risk: Risk of a bug, design flaw, or potential attack surfaces on the smart contract layer.
  • Liquidation risk: Risk of failure of an asset that is being used as collateral on leveraged yield strategy.
In case of loss of capital, Rand will take funds from the external insurance that will be covering most of the TVL. In case the external insurance is not capable of covering the entire deficit, the treasury will collateralize a loan with some of the funds that will then be repaid during the time. In the case this is still not enough, Rand will collateralize a loan or directly spend all the funds that are locked as Safety Module first cover.
If none of the above layers were enough to cover the shortfall, the SM will use up to 30% of the assets locked to cover the deficit. If the amount seized from the SM is not enough to cover the whole debt, an ad-hoc Rand issuance event is triggered called Recovery Issuance. The issued RND are used, together with the amount drawn from the SM, to cover the deficit.
The auction module oversees the market emission of the seized funds. The Auction module uses the funds coming from the safety module to collaterallize a loan to cover the loss. This loan will be repaid during the time with a proportion of the yield produced on the Yield Aggregator.
In case we are not able to cover all the Shortfall by collateralizing a loan the Issuance module will mint more RND tokens that will later be auctioned and sell them for DOT to all the BackBone module participants.

Shortfall Event and Governance

A Shortfall Event has certain governance implications. Users with locked liquidity in the Safety Module will still be able to vote on that matter using their tokenized version of their locked assets. Conceptually, RND holders participating in the SM will have to vote to safeguard the integrity of the protocol. Their choice to seize their own funds will need to take into account the long-term stability of the protocol and the future value of Rand.
This poses certain limitations on the amount of funds that can be seized in the case of a Shortfall Event. A percentage that is too high might create conflicting sentiment in the RND token holders participating in the SM, potentially compromising the long-term stability of the protocol. The protocol governance will always need to consider these implications whenever proposals discussing the SM funds management are submitted.
In the case the Issuance module needs to mint more tokens to cover the deficit, the Council will propose an emergency proposal where all the different stakeholders will need to approve the minting of more tokens.