Radiant is an omni-chain money market which aims to mitigate liquidity fragmentation across major chains. It aims to be the source for cross-chain liquidity across all of DeFi, and it’s mainly operating on Arbitrum, Ethereum Mainnet and BNB Chain, with the first one dominating in terms of usage and net deposits.
The protocol’s cross-chain feature comes from developing the infrastructure on top of LayerZero, with v1 leveraging Stargate’s stable router interface.
Thanks to this, users can deposit assets on one chain and borrow other supported assets across multiple chains. A borrower, for instance, can repay its loan and decide to withdraw the funds (Chain A) on a different chain (B).
The principal functioning of Radiant Capital is similar to that of the big lending protocols like Aave and Compound, but with the difference that Radiant is trying to unify the cross-chain liquidity through the use of LayerZero infrastructure. In addition what makes it different from other lending protocols is its incentive system built atop.
The protocol mainly features two categories of users:
In fact, the Radiant DAO adds its native token, $RDNT, to the ecosystem.
“By interacting and providing utility to the platform, users can capture the added value from the communities’ engagement through the native utility token $RDNT from borrowers and platform fees”
Radiant V2 was launched in March 2023 and the major changes were above all elaborated around the incentive and token design.
About the token ($RDNT), the team has decided to migrate it from the ERC-20 standard to the OFT-20 format. The OFT-20 (omnichain fungible token) represents a token standard developed by LayerZero Labs, which allows fungible tokens to be transferred across multiple EVM and non-EVM blockchains without the need of wrapping, liquidity pools or middle-chains, and it also enables cross-chain fee sharing.
Although having migrated to an OFT standard, $RDNT still has a few use cases. In the future however, the interoperability of $RDNT, could lead to the creation of cross-chain strategies or opportunities for it.
Let’s now see its new Token Allocation
RDNT has a total supply of 1,000,000,000 tokens:
About Emissions, the monthly emission rate is calculated as
20,000,000 / 1.0568 ^ n, where n is the number of months since v2 launch.
As you can see the latest emission will be in July 2027. This is because the Radiant team, considering the previous runway of 24 months, decided to adjust the fee allocation schedule, and extend the emission for RDNT Lockers from 2 years to 5 years.
dLPs earn an APY% on their assets (natural market rates), plus fees from borrowing interest, flash loans, and liquidations. In fact, 7,5% of the liquidation penalty (total liquidation penalty: 15%) goes to Radiant Growth Fund, which can route those funds toward incentive initiatives.
dLP unlocks $RDNT emissions on deposits & borrows, shares in platform fees (in the form of blue-chip assets such as ETH, BTC or Stablecoins), and since you are receiving RDNT you also get voting power.
V2 has indeed modified the distribution of fees to reward dLPs more:
To earn rewards from dLPing, dLP tokens must be locked. Radiant sets a locking period of 3 months by default, but it’s possible to choose other options, specifically 1, 3, 6 and 12 months. dLPs must be re-locked after maturity to continue receiving platform fees.
Each locking option gives different multipliers:
Before locking, you may create liquidity tokens or zap into dLP, or the Loop&Lock feature (automated processes).
Radiant currently offers 3 locked liquidity pools:
If you manually created the liquidity tokens, you then have to select the amount of dLP tokens to lock, and the lock length.
In order to receive RDNT emission and become a dLP, a minimum 5% ratio between your Total Deposit Value and Total dLP (locked LP token) value must be maintained at all times to remain eligible.
If User 1 deposits $1000 USDC into the Radiant market but has $0 of dLP tokens locked, the user won’t be eligible for $RDNT emissions.
if User 2 puts $1000 USDC into Radiant and has $50 worth of RDNT/BNB dLP locked, this user will be eligible for $RDNT emissions.
After dLPs are locked, the $RDNT earned must undergo a 90-day vesting (to obtain 100% of emissions), but it is possible to exit early by incurring in a linearly decreasing penalty starting at 90% to 25% over the period.
The penalty is then distributed 90% to the Radiant DAO reserve, and the remaining 10% to the Radiant Starfleet Treasury.
Radiant has recently deployed its dApp on Ethereum Mainnet (RFP-19), offering dLPs a new pool in order to create liquidity, or the Balancer 80/20 weighted pool.
The protocol launched on November 1st 2023 and since that date, it has reached a market size of $118.85M (at the time of writing).
Arbitrum is still leading with $353.10M, and BNB Chain follows with $173.68M, so Mainnet market size is the least, but market size is not the only parameter to look at.
In fact, we can see how Mainnet has already been capable of paying around 10% of fees BNB Chain paid since its launch.
Another thing worth exposing is the value of dLP locked. Mainnet sees 7.60M dLP locked with a capitalization of $10.31M (80% RDNT), versus 1.47M for BNB Chain with a value of $24.95M (the dLP liquidity is made by 50% RDNT and 50% BNB) and 40M for Arbitrum with $55.25M (80% RDNT).
Looking at dLP locks is important to understand the capital locked into the platform, therefore the time commitment of users and their positions, and the following amount of incentives paid to dLPs. As a consequence, dLP unlocks should have a look too, because they can have impacts on Net APYs.
Now, in less than two months Radiant TVL on Mainnet has touched a high of $83M, and it’s now at $68M. The deployment has therefore been rather successful, as shown by the economic activity that accounts for $19.86k in total daily platform fees, surpassing this way BNB Chain ($17.29k), but staying under the dominance of Arbitrum ($48.13k).
Finally, even though we have seen TVL is declining, this is true also for the other two chains.
Net deposits’ value on Ethereum has been similar to BNB Chain one.
Also, recently fees on Ethereum were 2x fees on BNB Chain, and in some days also equal to Arbitrum ones.
In fact, revenue on mainnet has been generally higher than BNB Chain and sometimes near to the Arbitrum one.
The high APR, supported by the proposal RFP-25, should bring back TVL to higher levels, potentially overcoming BNB Chain’s one.
Ultimately, Ethereum has got yes a nice launch, but the bootstrap has also been possible due to token incentives, which are currently still increasing.
Let’s take then a look at the yield Radiant V2 currently offers on Mainnet
Radiant currently offers these APRs:
Now, by comparing them with the ones on Arbitrum, we can notice how Mainnet APRs are way higher (more than 2x the APRs on Arbitrum).
This comes out for multiple reasons. First one is that activity on Ethereum, as we have seen earlier, is good. In fact, if borrowers are paying more and more fees, this is reflected into the APR.
This is easily findable by looking at the utilization rate of the asset. If we take $ETH for example, its utilization rate on Mainnet is 82.5%, while on Arbitrum is 60.3%, and on BNB Chain is 44.8%, which in fact shows a lower APR.
Utilization rate higher = High Interest Rates.
Secondly, as mentioned above, the Mainnet deployment is followed by a bootstrap strategy, which increases token incentives, that means higher APRs.
Higher token incentives can be found by looking at the max APR on locked dLP (12-month lock).
The APR on Mainnet is 2x higher than Arbitrum and BNB Chain one.
Going on, as the dLP lock APR is higher, the max loop APR will be higher as well.
The protocol offers really high yield for dLPs on Mainnet.
So a question arises: where is such yield deriving from, and is it sustainable?
We have seen that dLPs receive 60% of protocol fees + $RDNT emissions based on lock length multiplier and amount of dLPs, and in addition this entire process can be looped.
So, at the moment, Mainnet features higher APR mainly because of the reason that
the new deployment leads to higher incentives to bootstrap it. Higher incentives leads in turn to more utilization, which increases the rates for borrowers, and this generates more fees to distribute to dLP lockers, who also unlock RDNT emissions.
This clearly cannot be sustainable over a long period of time, as borrowers with those high rates will be disincentivized to continue borrowing and APR decreases. Also, a full exploitation of emissions will see many loopers being liquidated as health factor decreases.
So APR will eventually decrease, but since there’s a good amount of dLP locked at the moment, this will prevent a heavy price decrease and therefore a possible death spiral (Lower APR + emissions devalued from RDNT price going down + Impermanent Loss) of APR in the short term.
In fact, although the V2 mitigated the inflation problem of $RDNT, the medium-to-long term effects still have to be analyzed.
In addition, since dLP are liquidity tokens, they are subject to impermanent loss, and since there is RDNT vesting in the formula, this could also drop in price and eventually result in a lower value yield.
By looking at the Balancer 80/20 pool (80% RDNT, 20% WETH) on Mainnet, we can see for example that yesterday (12/13//2023) IL APY was 7.48%, resulting in a Net APY of — 4.94%.
However, the 30d average IL APY was 0.620%.
Going on with the yield sustainability, despite the runway extension, the protocol could keep the traction mainly in the short term, since many farmers mine rewards and yield will start decreasing, bringing the natural rates down, and therefore less borrowers willing to loop into the platform.
Furthermore, a constant analysis of dLP unlock dates is crucial to understand whether users are keeping locking and vesting or not.
Now, the yield situation can be extended by the new proposal (RFP-25) which has passed, and asks for an “Equitable Utilization of Strategic ARB Reserve for Incentives Across Mainnet and Arbitrum”, specifically 502,204 ARB will be dedicated to incentivize long-term dLP locks on Mainnet.
But yield is going to decrease anyway, because emissions will decrease, and so dLP locked. And this, as also noted by @Foxy_xyz on X, reveals a case in which you can become the yield.
This is because Radiant extracts the majority of value from borrow fees and if dLP amounts become equal to the borrow ones, then you will farm yourself.
As highlighted by data, Radiant on Mainnet showed signs of staying between Arbitrum and BNB Chain in terms of market size, revenue and dLP locked. It is probable that in the medium term, this condition will still be the same. Radiant’s main market is on Arbitrum, and recently Radiant’s STIP incentive proposal was approved by the Arbitrum DAO, so dLPs on Arbitrum can qualify for the airdrop.
And as you can see — since November 6th 2023, when the STIP airdrop has been approved — the locks increased substantially compared to withdrawals.
In addition to this, don’t forget that the RFP-25 proposal has allocated other 502,204 ARB to Aribtrum as well, and also, that the majority of partnerships are on Arbitrum.
So, it’s likely that Ethereum will still remain under the dominance of the Arbitrum market in the medium term, but it’s also likely that Mainnet will surpass (already surpassed in some parameters) BNB Chain in market size.
About Radiant Capital in general, due to the V1 liquidity mining, the Arbitrum ecosystem success (and recently the V2 and the Mainnet deployment) and the innovation brought by LayerZero, has been capable of reaching a good positioning in terms of TVL in the ecosystem, and having a successful cold start.
The yield it’s currently offering is high, but it’s interesting to see how they will try to keep it at a good level and to prevent further mercenary liquidity in the medium-to-long term.
The new dLP system makes it more difficult to emit incentives and promotes a longer participation, since users have to deposit additional liquidity (that must stay over 5% of the total value deposited), lock it, and then decide whether to reach RDNT vesting maturity or exit early.
But there are some concerns like the “mining yourself” one, the risks related to dLPing such as Impermanent Loss and exposure to RDNT price action, the limited use cases of $RDNT, and also the fact that Radiant lending business is not innovating (like Morpho for instance), but it’s mainly based on Aave infra solutions (except for LayerZero).
For this last reason, Radiant Roadmap tries to push on its main mission, or being an omni-chain money market. But the roadmap looks too generic, there are no specific milestones to be reached, and no present milestone mention tokenomics or token design, or further utility for $RDNT.
An adjustment to the emission schedule has been made, but the tokenomics is still improvable.
In fact, at the moment competition could attack Radiant. More incentives could provoke a vampire attack toward the protocol, or other big protocols could develop better cross-chain solutions (Aave for example has introduced “Portals”).
The protocol is currently a good player in the lending market, but it should concentrate its efforts to gain an edge, not to be left behind by competition, in terms of tokenomics but also infrastructure.
Radiant could take advantage of the momentum, consisting of having won an Arbitrum Grant, having been approved again by Arbitrum for the “Arbitrum Foundation’s Short Term Incentives Program”, and having launched on Mainnet, to elaborate more on a specific roadmap/plan.
Finally, having analyzed the yield situation of Radiant on Mainnet, it should not be taken as any financial advice. This analysis reports data, comments on it, and tries to extrapolate a point of view open to criticism, and other different points of view.
“Do your own research” is therefore strongly encouraged.
Disclaimer: This article, including insights on Radiant Capital v2 and other DeFi strategies, is for informational purposes only and should not be considered as financial advice, investment recommendations, or an endorsement of any particular investment or strategy. The cryptocurrency and DeFi markets are highly volatile and unpredictable. Past performance is not indicative of future results. The author makes no representations or warranties regarding the accuracy, completeness, or timeliness of the information provided. Readers should conduct their own research and consult with independent financial advisors before making any investment decisions. By using this information, you agree that the author is not liable for any losses or damages arising from your investment choices.
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