[Exclusive Interview] Meet Jeong, CEO & Co-Founder of RAMM Protocol
Today we have the pleasure of having Jeong here with us to talk about the RAMM protocol. Throughout the interview, Jeong will walk us through what is the vision around RAMM protocol, what makes it different from other existing DeFi players, and how it is helping to shape the future of the financial industry. Let’s dive in!
[SurferInvestor] Could you please summarise briefly what RAMM Protocol is about?
[Jeong] Whenever you think about making investments, you need to assess its risk-return profile before deciding to do so. However, we can’t really expect people to be do this. Normally, the solution is allowing their money to be managed by a centralized entity like banks. In DeFi, this assessment task is also still mostly handled by protocol developers, yet another centralized entity. RAMM is a platform that decentralizes the underwriting of any investable asset to a set of decentralized managers. Benefits of decentralization in underwriting is not restricted to adhering to the crypto ethos, more on why can be found in our docs!
[SurferInvestor] Could you please introduce yourself as a founder? What is your background? What makes you the right team for the project?
[Jeong] Right now it’s just me and my co-founder. We are both engineers, with backgrounds in math, machine learning, ZK technology, and electrical engineering. I’ve previously worked as a lead engineer in an ML startup, and my cofounder was a ZK engineer at an L1 organization. We are the right team as we truly believe that the system we are building would make capital markets more efficient. Also, I have been building profitable arbitrage bots in 2021 both on CEXs and DEXes for a quant finance company. For people who have strong technical & mathematical backgrounds, finance comes naturally.
[SurferInvestor] Could you please define “underwriting” in simple words?
[Jeong] Underwriting basically refers to the task of determining the risk vs return of an endeavor. For example, in a borrow-lending context, the lender is underwriting the task of lending to the borrower by assessing his creditworthiness or collateral liquidity. For the given borrower’s credit/collateral, and the proposed interest rate, is it worth it lending to the borrower?
[SurferInvestor] How did you come up with the idea of RAMM Protocol?
[Jeong] I’ve noticed there is a similar pattern behind most financial crises. During times of excess liquidity, there is some form of poor risk management in aggregate. When market sentiment shifts and liquidity flows out from the market, the consequences reveal themselves. Borrowers can’t repay, asset prices start falling, insurance sellers are defaulting and can’t pay out, etc and people lose a lot of money. We recently encountered a credit bubble bust in CeFi recently! I believe that the main cause behind such bad risk management is incentive misalignment between the managers and the LPs; managers aren’t really incentivized to act in the best interest of suppliers, but instead, sell as many investments as they can to be competitive. So I wanted to create a mechanism that would prevent such systemic failures.
[SurferInvestor] What item in the roadmap gets you the most excited?
[Jeong] We have these applications that can be derived from the base underwriting module that we call Instruments. Basically, an instrument in RAMM is any logic where liquidity demand meets supply.
[Jeong] We are very excited about the “Managed LendingPool” where the collateral or conditions required for the borrower to borrow from this lending pool is assessed by the managers. The managers will determine whether the interest rate curve of the pool is rewarding enough for the risk (liquidity) of the collateral or the conditions. Borrowers who meet these conditions or own these collaterals can borrow from the pool instantly.
[Jeong] Passive investors will be able to earn a high yield from the accrued interest, without having to actively think about whether the lending pool will stay solvent.
[Jeong] We are also excited about the “Individual Creditline”, which is a lending product when the collateral/conditions are not in one of the lending pools or the amount to borrow is significant. A borrower will propose how much to borrow and an interest rate and the managers will gauge the creditworthiness/collateral worthiness to decide whether to lend and how much to lend with what interest.
[SurferInvestor] I like the credit line idea, it reminds me of the undercollateralized protocol coming to the market. The market seems a bit busy already. What new element do you bring to the table?
[Jeong] The main moat for uncollateralized lending would be ShortZCB and LongZCB. Investors can buy credit default swaps(shortZCB) if they can’t withdraw and want to hedge default risk or buy anti-credit default swaps(longZCB) if they want to increase exposure to the borrower’s yield. Both are traded via the AMM.
[SurferInvestor] How will RAMM earn money? Will there be a token or a revenue share model?
[Jeong] Yes, we plan to launch a token that captures 80% of the fees generated by the protocol.
[SurferInvestor] Why should I use rAMM Protocol as a passive investor? Why is it more attractive than just being an LP for example?
[Jeong] We had the benefits as a passive investor as a priority when designing the protocol:
Incentives are aligned between the managers and the LPs since the managers are taking up a leveraged bet on the instrument’s success.
It also means that the manager’s provided collateral will be used as the first loss capital. Think of it as an insurance buffer when things go wrong.
Investors can very granularly customize their portfolios in accordance with their risk levels.
Passive investors are invested in a vault that is invested into two “n” instruments but they do not like one of them, yet still want to be exposed to the rest. While they are invested in this vault, they could buy shortZCB, a token that pays out positively when the instrument makes a loss, to hedge their portfolio.
Passive investors are invested in a vault that is invested in two “n” instruments, but if they really like one of them and want to be more exposed to it. They can buy longZCB tokens to be more exposed to the said instrument. LongZCB is a token that managers buy. It pays out positively when the instrument makes a profit.
Instruments in RAMM are by nature higher risk higher return and are non-trivial to determine risk profiles. Think uncollateralized lending or options strategies. They have high yields, but it’s hard to judge whether they will actually pay out. The idea is that the managers filter out some of the risk factors (and provide insurance) while keeping the return variable constant. At the end of the day, the most important aspect of a yield source is high risk-adjusted return, and we plan to be the source of that kind of yield.
[SurferInvestor] In an ideal world, how would rAMM Protocol look in 5 years?
[Jeong] I have this vision of an automated bank and a public good. A liquidity utilizer proposes an arbitrary instrument, decentralized managers assess its risk, and the vault invests in it if approved. Everything works permissionlessly, all incentives are aligned, and there are 0 operational expenses.
[SurferInvestor] For people who wanna jump in, how to get started?
[Jeong] You guys can come into our Discord for any questions. We are actively trying to recruit first-generation managers! Just fill out the signup form. We plan to reward those who actively participate in the community and in the incentivized testnet phase. If you want to contribute in some way, feel free to dm me (Jeong#4896) on Discord. Also, don’t forget to follow us on Twitter and have a look at our documentation.
We wanted to thank Jeong for his time today and also for going into detail on how RAMM works. Clearly aligning incentives for various DeFi participants. We wish him and the team fo RAMM all the best for the next steps!