Radiant Capital: Fragmented Liquidity Consolidation for Cross-chain Lending & Borrowing

TL;DR

• Radiant Capital is a decentralized lending and borrowing protocol operating on multiple chains, enabling users to deposit any major asset and borrow supported assets across chains. Radiant’s cross-chain operation is built on Layer Zero and Stargate, allowing lending, borrowing, liquidity mining, and omnichain services.
• Radiant has achieved milestones like top TVL of the lending protocols on Arbitrum and the Launch of Radiant V2. The current roadmap includes Cross-Chain liquidations function, abstracted repayments, collateral expansion, and deployment on more chains.
• The RDNT token has a total supply of one billion, with allocations for incentives, the team, reserves, contributors, treasury & LP, and liquidity providers. All tokens will be fully unlocked by July 2027.
• Radiant has experienced significant growth in earnings and trading volume, indicating increasing demand. Radiant is a leader in the Arbitrum chain with high TVL and a significant user base. Radiant has surpassed Aave and Compound in 90-day revenues and outperforms in user engagement, cumulative user base (216,831), and trading volume ($740.7 million) in May.
• Probability-weighted DCF valuation estimates RDNT’s value at $168.14 million by December 2023, with a price of $0.37 per token. The comprehensive analysis yields a price range of $0.45 to $0.67, considering P/TVL, P/E, P/S ratios, and weighted DCF. The actual token price depends on market conditions and performance.
• Recommendations for Radiant include further integration of omnichain solutions, optimizing user experiences, diversifying collateral types, expanding business lines, and integrating with other DeFi protocols to create a comprehensive financial ecosystem.

1. Protocol Overview

Radiant Capital is a decentralized cross-chain borrowing and lending protocol built on LayerZero. It aims to create an omnichain money market where users can deposit any major asset on any major chain and borrow various supported assets across multiple chains, thus eliminating the need for silos of liquidity.

Unlike most crypto lending platforms, Radiant Capital does not require users to select a specific chain to work on or be limited to using that chain’s specific token. Instead, Radiant Capital functions across most major blockchains, making it easier for users to borrow assets and generate a return by contributing their capital for lending purposes. Radiant Capital produces a real yield through its protocol fees and related activities. Investors can deposit their assets and receive a return for locking, vesting, and lending their additional assets via the platform. Through a borrowing mechanism, users can use their assets as collateral to boost their liquidity.

Overall, Radiant Capital offers a more flexible and inclusive approach to decentralized borrowing and lending, making it easier for users to access liquidity across multiple chains while also earning a return on their assets. As Radiant Capital continues to develop and expand its capabilities, it has the potential to become a leading player in the cross-chain money market space.

2. Teams & Funding Status

2.1 Team

Radiant Capital has a team of 14, formerly from Morgan Stanley, Apple, and Google, who have been in DeFi since the early days of summer 2020, and many of them in crypto since 2015.

2.2 Funding

The initial founders and developers of Radiant Capital wholly funded the project’s development. There was no private sale, IDO, or VC involvement, which aligns with the ethos of decentralization with no bias.

3. Roadmap and K-line Chart

3.1 Historical Events and Price Trends

Significant events and announcements can trigger fluctuations in the price and the total value locked (TVL) of a decentralized lending protocol like Radiant Capital. As we can see from the graph, on August 2, 2022, after the team announced their intention to control inflation, both TVL and the price of RDNT rose significantly. Conversely, when issues such as statistical data loading errors and UI display issues occurred, user confidence may have dropped, leading to a decrease in the price of RDNT and TVL. On January 16, 2023, the team announced Radiant v2 would release in the future, which was seen as positive by the public; the coin price began to rise while the TVL doubled. When Radiant v2 was officially launched on March 19, 2023, the conversion of the version led to a temporary decrease in TVL. However, TVL recovered quickly within a few days as the v2 version stabilized. On March 28th, Radiant v2 expanded to BNB Chain and this expansion brought a huge amount of traffic, causing TVL to rise rapidly within a few days.

This inspires us that it is crucial to keep an eye on the various factors that can impact the price and TVL of a decentralized protocol, including significant events and announcements, changes in user sentiment, and the overall market conditions.

3.2 Completed Milestones

3.3 2023 Roadmap

3.4 Version Roadmap

3.5 Commercial and Business Development Progress

4. Business sectors and Radiant Code Implementation

Radiant Capital’s cross-chain operation uses the stable router interface of Stargate. The platform is built on Layer Zero. Radiant Capital allows its users to deposit their assets from major blockchains and for other users to borrow those assets without the use of a middleman. Those who contribute funds to the platform can generate an attractive yield.

The Radiant Lending Market supports a variety of assets on both the Arbitrum chain and Binance Smart Chain (BSC). On Arbitrum, users can access stablecoins such as DAI, USDC, and USDT, as well as mainstream cryptocurrencies like ETH, WBTC, and WSTETH. Additionally, the alt Layer 2 token ARB is also available. On Binance Smart Chain, the supported assets include stablecoins BUSD, USDC, and USDT, alongside mainstream cryptocurrencies ETH and BTCB. The alt Layer 2 token on BSC is BNB. These assets enable users to participate in borrowing, lending, and trading activities within the Radiant Lending Market ecosystem on these chains.

Radiant UI

Two rates are provided in the market, the top red one refers to the natural market lending/borrowing APY to/ from users in terms of underlying assets. And the lower purple one is APR which refers to the native utility token $RDNT emissions to users who interact and provide liquidity to the platform. The high borrow rate is currently compensated by high $RDNT rewards which attract lots of users.

4.1 Business Sectors

4.1.1 Lending & Borrowing

Lending(Deposit): Deposit on Radiant lending pool, earn the interest rate and gain additional value through $RDNT yield. The deposits can be used as collateral, and a depositor can withdraw their assets to specified chains. rTokens are interest-bearing tokens, e.g. rUSDC, minted and burned upon deposit and withdrawal. All interest collected is distributed to rTokens holders directly by continuously increasing their wallet balance.

Borrowing: Radiant adds utility to users through borrowing. Users who do not want to sell their assets can borrow against their assets to obtain additional liquidity. Borrowers are responsible for paying loan fees and interest to Radiant DAO and liquidity providers. Borrowers whose health factor is below one will cause liquidation calls.

Liquidation: Radiant has a liquidation procedure to guarantee that the debt of the borrower never falls below the collateral value. When borrowers’ health factors fall to 1 or below, they are liquidated. The overall penalty for liquidation is 15%.

Loop & Lock: The loop & lock function enables users who keep a health factor >1.11 to increase their collateral value by automating the deposit and borrow cycle multiple times. It also automatically borrows eth to zap into a locked dLP position to maintain a 5% dLP requirement for activating RDNT emission. 1-Click Loop offers users a simpler way to add liquidity over time and achieve a higher yield with up to 5 times leverages.

4.1.2 Liquidity Mining

Radiant Capital investors can draw revenue from both locking and vesting their RDNT tokens. dLPs (Dynamic Liquidity Providers) are RDNT liquidity-providing tokens. Radiant allows users to simply use the zap function to provide liquidity.

Two forms of pairs are available:

• Arbitrum: Balancer 80/20 composition (80% RDNT & 20% ETH)
• BSC: Pancakeswap 50/50 (50% RDNT & 50% BNB)

Locked dLPs are distributed claimable platform revenue through rTokens (interest-bearing tokens) which could be withdrawn or used as collaterals. dLP’s share in the utility of Platform Fees captures borrowers paying loan interest, flash loans, and liquidation fees.

Users must lock at least 5% of their RDNT relative to the size of deposits in USD terms to qualify to earn RDNT emission on borrows and deposits. The vesting period has recently been bumped up from 28 days to 90 days. However, it is structured with a declining fee scale for early exits, where users can receive 10% to 75% of all emissions. $RDNT emissions incentivize ecosystem participants to provide utility to the platform as dynamic liquidity providers (dLP).

4.1.3 Cross-chain Bridge

RDNT OFT Bridge: $RDNT, an OFT-20, is Radiant’s native utility token. Layer Zero Labs’ omnichain fungible token (OFT) interoperability solution enables native, cross-chain token transfers. Omnifungible tokens allow for composability across multiple blockchains–no more fragmented liquidity, smart contract or finality risk, or wrapped tokens with considerable custody risk.

Radiant-Stargate Bridge: Radiant Capital offers consumers borrow and bridge capability through Stargate router delivery. Bridges based on Layer Zero’s Delta (∆) algorithm enable original assets to be transferred across unified liquidity pools. Radiant V1 lets you deposit assets on the root chain (Arbitrum) and borrow assets from any EVM chain supported by Stargate Finance. Radiant V2 supports deposits on Arbitrum and BNB chains and can be borrowed to any EVM chain supported by Stargate Finance. Radiant is undergoing development testing and aims to provide full omnichain deposits and borrows in the near future.

4.2 Radiant Code Implementation

4.2.1 Main business logic implementation

The main features of Radiant apps are Zap (lock dLP) and Deposits/Borrows.

• Users zap dLP tokens into Balancer or Uniswap and earn corresponding staking rewards via MultiFeeDesitrbutions.sol.
• Users interact with lending pools such as deposit, borrow, withdraw, repay, flash loan, and liquidation called LendingPool.sol, which will burn/mint ATokens. The ChefIncentiveController.sol calculates users’ balances and rewards. MultiFeeDistribution.sol distributes rewards to the users.

Details of zapping and 1-click loop flows show below. If only one type of crypto asset is provided, it automatically borrows another asset to pair into uniswap or balancer pools.

Source: Radiant Capital

4.2.2 Cross-Chain implementation

Radiant connects with LayerZero, and takes use of Stargate’s dependable router interface so that users have the ability to deposit either token on Arbitrum and borrow it on the same chain, or borrow it and transfer it to another chain via a single interface.

LayerZero: LayerZero is an omnichain that enables disparate blockchain networks to communicate and seamlessly interoperate with one another. Radiant Capital intends to achieve its goal of developing a platform that is capable of supporting the fast and secure trading of a wide variety of digital assets by basing its money market on LayerZero.

Source: Blocktempo

LayerZero achieves cross-chain communication by deploying LayerZero Endpoints on different chains, facilitating message transfer through Relayers and Oracles. When a user application (UA) sends a message from Chain A to Chain B, it is routed through Chain A’s endpoint, which notifies the designated Oracle and Relayer. The Oracle sends the block header to Chain B’s endpoint, while the Relayer submits the transaction proof. Once validated on the destination chain, the message is forwarded to the intended address. In summary, the Oracle verifies the message on Chain A, while Relayers check the transaction proof, ensuring successful submission of messages from Chain A to Chain B when both the Oracle and Relayers have the same message.

Stargate: Stargate’s Bridges utilize a unified liquidity pool shared across chains, ensuring sufficient liquidity, preventing transaction reversion, and guaranteeing instant finality. The ∆algorithm serves as the backbone, automatically rebalancing liquidity pools to support ∆Bridges. For instance, when swapping USDT from Ethereum to USDC on Polygon, users deposit USDT into the single USDT liquidity pool on Ethereum and receive USDC from the single USDC liquidity pool on Polygon. The Delta Algorithm seamlessly rebalances both pools across chains to maintain equilibrium between deposited and withdrawn amounts. Notably, Stargate avoids maintaining separate liquidity pools per cross-chain connection by adopting a single, unified liquidity pool per asset for all supported chains.

Source: Consensys

Radiant Capital integration: Below is a simplified flowchart of how assets are borrowed and lent cross-chain via LayerZero and Stargate.

A user initiates borrows or deposits and interacts with the lending pool. While the asset is borrowed across chains, a StargateBorrow is called and reserves assets on Stargate’s unified liquidity pool. Stargate sends messages across chains via LayerZero Endpoints, and off-chain Oracle and Relayer validate the messages. A detailed flow chart shows below:

Source: Radiant Capital

5. Decentralized Lending Markets

5.1 DeFi Lending

Lending is a significant component of the decentralized finance (DeFi) space, with its Total Value Locked (TVL) ranking third after DEXes (Decentralized Exchanges) and Liquid Staking. The lending category is highly competitive, with over 200 protocols vying for market share. Currently, the top lending protocols include AAVE, JustLend, Compound, Venus, Morpho, and Radiant.

Radiant stands out as a leading player in both the Arbitrum and Binance Smart Chain (BSC) ecosystems. It entered the Arbitrum network last year and has already surpassed AAVE in terms of TVL on the Arbitrum chain. On the BSC chain, Radiant launched in March 2023 and quickly climbed to the third position in terms of TVL. These achievements highlight Radiant’s strong performance and growing prominence in the lending space on both platforms.

5.2 Cross-chain lending

Radiant is the first omni-chain lending & flash loan protocol built atop Layer Zero. Cross-chain lending has fewer competitors in the current marketplace. Radiant is taking the leading place in cross-chain lending. With future support for more chains and assets, Radiant has the potential to capture more liquidity and users.

As mentioned above, Radiant differs from other lending protocols is that it allows users to deposit collateral on one chain and borrow against it on another. The cross-chain functionality of Radiant is implemented through Stargate’s cross-chain router. It allows users to deposit assets on Arbitrum and borrow on any Stargate-supported EVM chain. These features can help Radiant improve its scalability on both aspects, blockchains and assets. In contrast, AAVE’s assets cannot be lent to each other across chains, resulting in fragmented liquidity and limited asset utilization. The boom in L2 has created an indispensable need for cross-chain asset interaction. Radiant uses LayerZero’s Omnichain technology to build its chain-wide interoperability, which is a nice solution to the problem of liquidity fragmentation between different chains.

Radiant Capital holds a certain amount of liquidity in the decentralized lending market. Its “dynamic liquidity provision” incentivizes both lenders and borrowers by dynamically adjusting their rewards for mining increments based on the percentage of liquidity provided. This can lock in a certain amount of RDNT in the market and enhance the liquidity to realize the long-term development of this promising protocol. Moreover, Radiant Capital has a first-mover advantage in full-chain lending, which cannot be emulated and surpassed by other lending agreements, such as AAVE in a short period of time.

6. Tokenomics

6.1 Token Allocation

RDNT has a total supply of 1,000,000,000 tokens.

• 54% emitted as incentives for suppliers and borrowers, released over five years
• 20% to the team, released over five years, with a three-month cliff (10% of the team allocation is locked at the genesis of the protocol and unlocks at the 3-month cliff)
• 14% allocated to the Radiant DAO Reserve
• 7% allocated to core contributors and advisors, released over one and a half years
• 3% reserved for the Treasury & LP
• 2% emitted for Pool 2 liquidity providers between August 3, 2022, through March 17, 2023, which has been deprecated as ratified per the RFP-8 governance proposal

6.2 RDNT Token Unlock Schedule

Here is the chart indicating the RDNT unlocking schedule following the token’s launch:

On July 24, 2022, significant token unlocks and allocations occurred within the Radiant ecosystem. The treasury unlocked 30 million RDNT tokens, while the DAO reserve unlocked 140 million RDNT tokens. Additionally, 70 million RDNT tokens were allocated to core contributors and advisors, gradually released over 18 months. Furthermore, 540 million RDNT tokens were allocated to supply and borrower incentives, released over 60 months. Pool 2 incentives received 20 million RDNT tokens, expected to be released over 8 months. These unlocks and allocations shape token distribution, incentivize participants, and impact liquidity within the Radiant ecosystem. The remaining locked tokens will be gradually released until July 2027, ensuring controlled distribution and sustainable growth. This phased approach aligns with the project’s long-term vision, promoting stability and planning for token holders and ecosystem participants.

The chart below clearly shows the timing of the unlocking RDNT currently pledged. In March 2024, over 10 million RDNTs will be unlocked. This unlocking event may have an impact on the token’s circulation and potentially influence market dynamics during that period. It’s important for stakeholders and investors to be aware of such milestones and consider the potential implications on the value and trading of RDNT tokens.

Source: Dune Analytics (@shogun)

6.3 Emission Design(V1 vs V2)

Radiant v1 Design:

All emissions were directed to RDNT’s first deployment on Arbitrum.

Proposed v2 Design:

Total Max Emissions represent the total number of emissions allocated to all Radiant deployments combined in a given month; Total Max Emissions will operate on the proposed schedule ending in July 2027. At the end of each month, the DAO will take a retrospective view of closing TVL on each chain and allocate emissions accordingly for the subsequent month. For example, at the end of March, if Arbitrum has 30% of Radiant TVL, BNB Chain 30% of TVL, and Eth Mainnet 20%, emissions should be allocated 30%/30%/20% for the subsequent month.

At launch, 100% of emissions will be directed to Arbitrum Radiant Markets; upon launch of BNB Chain, it is proposed that 50% of emissions be directed to BNB Chain for Month 1. This is a simplistic approach, and more sophisticated ideas (e.g., gauges per chain, per market, allocations based on protocol fees generated) should continue to be discussed and brought to subsequent proposals. This portion of the RFP can be subject to updates upon subsequent proposals generated by the DAO stakeholders. That said, this is a predictable and formulaic approach that can give transparency in the short term. As voted in by Governance Proposal RFP-4, $RDNT emissions incentivize ecosystem participants to provide utility to the platform as dynamic liquidity providers (dLP). Only users with locked dLP (liquidity tokens) activate eligibility for RDNT emissions on their deposits or borrows.

Given Radiant’s cross-chain ambitions and the shift from single-sided lock to LP locking, this allows Radiant to plan for the long-term future more appropriately and provides for more chain deployments.

6.4 Contract Path, Value Capture and Token Usage

6.4.1 Contract Path

The contract generates revenues primarily from borrowing interest and loan fees. The process involves lenders depositing their assets into the platform, which are then borrowed by borrowers who pledge collateral. The borrowers are required to pay borrowing fees for accessing the loan. If a borrower fails to repay the loan as per the agreed terms and conditions, the assets pledged as collateral may be liquidated. The platform then collects fees from these transactions and distributes rewards to lenders and dynamic liquidity providers. This revenue model incentivizes participation and provides a mechanism for generating income for the platform and its participants.

6.4.2 Radiant Platform Value Captured

• Borrow interest, the interest rate changed dynamically based on liquidity.
• Liquidation fees
• Early exit penalty

Revenue & Fee Path, Source: Radiant Capital

6.4.3 $RDNT Token Usage

• Minimum of 5% deposit dLP activate RDNT emissions for borrowers/lenders, which is an added value other than base market rates
• dLP lockers (lock-in RDNT liquidity) earn 60% of platform fees
• RDNT holders can engage in DAO governance

Utility Flow Chart, Source: Radiant Capital

Sustainability is an important Key Performance Indicator to the Radiant DAO, and thus, the protocol implemented a Dynamic Liquidity (dLP) mechanism, which only enables incentivized RDNT emissions and platform fee distributions to Dynamic Liquidity Provisioners. The dLP mechanism is a good improvement over Radiant v1. It incentivizes users to provide liquidity to $RDNT liquidity, the 90 days vest period to fully unlock RDNT emissions and the penalty for early exit drastically decreases the selling pressure of the token.

7. Operation Status & Competitive Landscape

7.1 TVL

Radiant leads in the Arbitrum chain with high TVL. The borrowing TVL is relatively higher than its peers possibly due to its easy use lock & loop feature and high incentives. However, its MCap/TVL ratios are higher than its peers, indicating its slightly higher valuation now.

7.2 Users

Since the launch of V1, there were two waves of user surge during Q3 2022 and the January Arbitrum boom, but users had no significant rise after the Radiant V2 launch. The current Cumulative users are 216,831. The daily active users are 4,750.

Source: Dune Analytics (@defimochi)

7.3 Volume

The fact that $RDNT emissions incentivized trading volume for borrowers and lenders positively indicates the platform’s ability to drive engagement and activity. With a trading volume of $740.7 million in May, Radiant Capital has demonstrated a strong level of trading activity. This trading volume surpasses that of its peers with similar market capitalization, indicating that Radiant is effectively attracting users and generating significant trading activity on its platform.

7.4 Utilization Rate

The total utilization rate of around 60% is relatively higher than its peers. The $RDNT emission incentives and loop & lock easy-use UI increase the asset utilization rate. Breaking down to each asset, Radiant has a similar utilization rate in stablecoins compared to AAVE but a higher utilization rate with wbtc and weth.

The platform launched on Binance Smart Chain(BSC chain) on March 27, bringing in over $33 million in locked capital. The green area of the chart below shows the revenue RDNT has earned from the BSC chain since March 27th, while the purple section shows the revenue RDNT has gained from the ARB chain. It is evident that from mid-April onwards, RDNT has generated more revenue from the BSC chain than from the ARB chain. Revenue has increased by 115.9% in the last 90 days. Radiant Capital has achieved significant revenue growth and has even surpassed well-known protocols like Aave and Compound in terms of 90-day revenues. This indicates that Radiant is experiencing rapid expansion and gaining traction within the industry.

Source: Token Terminal

7.5 Financial Statement Comments

Based on the financial report statistics, RDNT has experienced significant growth in both income and trade volume over the past few months. In January and May, RDNT earned earnings of $105.38k and $1.04m, respectively, with an 886.90% increase. The trading volume of the RDNT in January and May was $39.50m and $740.74m, which shows that RDNT’s performance is rapidly improving. The increase in earnings and trading volume indicates that there is increasing demand for the platform’s services. As of May 31, 2023, the platform had $377.39 million in active loans and $636.75 million in net deposits. The net deposits of $636.75 million indicate that the platform has a substantial amount of liquidity, which is an important factor for maintaining user trust and ensuring that the platform can meet user demand for borrowing and lending activities. Furthermore, the $377.39 million in active loans implies that there is a high level of user engagement with the platform, which is also a positive sign for the platform’s growth prospects. Additionally, the solid borrowing-to-deposit ratio（377.39/636.75=0.59）suggests that the platform is managing its lending activities effectively and maintaining a healthy balance between borrowing and lending.

Source: Token Terminal (Date as of May 31, 2023)

Overall, the financial statement shows that RDNT is in a strong financial position and is well-positioned to continue growing its user base and expanding its services in the decentralized lending market.

8. Growth Drivers

8.1 Development of L2

The prosperity of Layer 2 chains drives the development of the RDNT protocol. As more users and transactions migrate to Layer 2 chains, the demand for decentralized lending services provided by the RDNT protocol will increase. Radiant’s plan to launch on Ethereum and zkSync also demonstrates its commitment to capturing this growing market.

8.2 Cross-chain Market Place

Radiant is the first functional cross-chain market place, enabling users to engage in lending on one blockchain (X chain) while borrowing on another (Y chain). Given the frequent occurrences of cross-chain bridge theft and hacking incidents, cross-chain lending presents a promising alternative that could alleviate the demand for traditional cross-chain bridges. Successful implementation of full cross-chain lending within the protocol would enhance the utility and demand for RDNT , ultimately driving its price upwards. This unique offering positions Radiant at the forefront of the industry, with the potential to reshape cross-chain transactions and solidify the value proposition of Radiant Capital.

8.3 Passive Income

Users earn passive income in a bear market with low risk through lending/borrowing across chains.

8.4 Token Design

The V2 tokenomics has boosted the value of its incentives, directing more sustainable RDNT emissions to long-term protocol users. The “5% locked dlp” threshold incentives users to buy RDNT and re-lock more LP to stay above the threshold.

8.5 Airdrops

Radiant has proposed to airdrop $ARB to long-term dLP holders. Additionally, with LayerZero and ZKSync narratives, Radiant attract users to the platform to gain potential airdrops.

9. Valuation

Our valuation is based on the DCF analysis and Comparable Analysis methodologies, both of which are adjustable in our valuation model. Below is the details and explanations of our methodology.

9.1 DCF Analysis

The discounted cash flow is a valuation method used to estimate the value of an asset based on its expected future cash flows. The rationale is that the value of an investment today must equal the money it generates in the future. Our model uses a 5-year projection period and accounts for any cash flow thereafter with an estimated terminal value.

9.1.1 Assumptions

Protocol TVL Growth Rate: We break down the available assets to borrow/lend into three categories: BTC & ETH, StableCoins, Alt L1&L2 and assume growth rates in Low, Moderate and High three scenarios for each asset class.

We project Microsoft and Gold MarketCap using the historically annual growth rate over the last five years and use ETH MarketCap as a percentage of Microsoft MarketCap, and BTC MarketCap as a percentage of Gold MarketCap to justify whether the growth rates of 3 scenarios are reasonable. The assumed growth rate is linearly decreased. Since Radiant support BSC and list BNB on the market, the TVL growth for Alt L1 and L2 increased by 231.53% in the following month. It is reasonable to assume a high growth rate for Alt L1 and L2 compared to StableCoins and BTC/ETH.

Utilization Rate: The utilization rate keeps a similar level for both Radiant v1 and Radiant v2. Thus, we assume the trend will maintain. The monthly averages of utilization rate are as follows. We round the average numbers and select 73% utilization for Stablecoins and lower the estimated utilization to 50% utilization for both BTC, ETH, Alt L1 and L2 to include the factors of market uncertainties.

Annualized Fees/ Borrowed Assets: We compared the rate to AAVE, a relatively matured lending protocol, and calculated the averaged annualized fees/borrowed assets of the two protocols. We compare this rate to current Radiant’s annual rate and select the minimum of two rates as the final year rate for the Year 2028. The rate for the rest of the years is calculated by linearly increasing to the final year rate.

Discount Rate: We use a 10-year Treasury note for the risk-free rate and BTC for the market benchmark. The beta is obtained by the regression model for RNDT returns as a function of BTC returns. The regression is based on data starting the RDNT IDO day, July 22, 2022. The CAMP returns a cost of capital of 35%. The regression shows BTC returns are significantly predicting RDNT price but with only 1.7% of the total variance explained by the model. Therefore, we select 35% as the discount rate which is similar to a venture capital fund’s average return of 30%.

Terminal P/E ratio: The terminal exit multiple of 10X is applied to 2028 forecasted free cash flow, which aligns with the PE ratio of publicly listed lending protocols.

9.1.2 Moderate Case Valuation

The result of the moderate scenario is illustrated below. For this scenario, we find the RDNT price of $0.35 and a valuation of $158.49 million on Dec 31, 2023.

9.1.3 Probability Weighted Valuation

We assign low and high cases with 25% probability and moderate cases with 50% probability, the probability-weighted DCF for RDNT price is valued at 0.37, and the RDNT protocol is valued at 168.14 million. The price for RDNT on 31/05/2023 is 0.31, which has a potential 17.26% upside.

9.2 Comparable Analysis

Comparable analysis is a commonly used method for valuing companies by comparing them to their peers in the same industry. The underlying assumption is that similar companies should have similar valuation multiples, such as the price-to-sales (P/S) and price-to-earnings (P/E) ratios. However, there can be limitations when valuing companies in the crypto space due to the availability of reliable sales figures.

When conducting comparable analysis, it is crucial to select companies that are as similar as possible in terms of industry, business model, risk profile, and market dynamics. By ensuring comparability in these aspects, external factors’ impact is reduced, allowing a focus on the intrinsic value drivers of the analyzed companies. If the comparables we have selected belong to the decentralized lending industry and share similar business nature and risk situations with RDNT, it can strengthen the validity of the comparative analysis. By focusing on lending protocols within the dex lending industry as comparables, we address concerns regarding varying market risks across different sectors. Given that all four comparable projects belong to the DEX lending industry within the decentralized financial market, it is reasonable to assume they face similar market risks.

9.2.1 Assumptions and Variables Considerations

Price/ TVL Ratio (Fully Diluted Valuation / TVL Ratio): This ratio reflects market sentiment and perception towards the protocol’s value by measuring its market capitalization relative to the total value locked (TVL). It provides insights into investor valuation of the protocol’s assets and economic activity within it. Additionally, the TVL represents the total value of locked assets, and dividing the market capitalization by the TVL gives an indication of the protocol’s efficiency in attracting and retaining assets compared to its market valuation. A lower P/TVL ratio suggests potential undervaluation and strong growth prospects. Considering these factors, the P/TVL ratio becomes a relevant and useful multiplier for evaluating the valuation of decentralized lending protocols in the broader DeFi ecosystem.

Price/Earnings Ratio: The P/E ratio brings valuation discipline to the valuation process by considering the relationship between price and earnings(called ‘Revenue’ in the decentralized industry). It helps investors and analysts assess whether the market’s valuation of the decentralized lending protocol is reasonable or if it is overvalued or undervalued compared to its earnings potential. This can promote more efficient markets and help identify potential investment opportunities or risks.

Price/Sales Ratio: The P/S ratio is commonly used to assess the valuation of traditional companies based on their revenue. In the case of decentralized lending protocols, the protocol fee(called ‘Revenue’ in traditional companies) is a critical factor in evaluating their financial performance and sustainability. By using the P/S ratio, the analysis takes into account the relationship between the market capitalization (price) and the fees generated by the protocol. This provides insights into how the market values the revenue(fees)-generating capability of the protocol.

Average P/S ratio: We use the average P/S ratio of the four comparable protocols as the market multiplier 1, which is a common market multiplier method in the crypto industry. By using the average, we are essentially taking into account both the upper and lower bounds of the comparable items, providing a balanced estimate of the market multiplier. This method helps mitigate the potential biases that could arise from relying solely on the maximum or minimum values. Therefore, we choose to use the Average of Comparable Items as the market multiplier for the quantification.

Median: Statistically speaking, the median is representative of all unit sign values determined by its position among all sign values and is not affected by the extreme values of the distribution series, which improves the representativeness of the median to the distribution series to some extent. Therefore, we consider this choice reasonable.

Revenue and protocol fees: Revenue and protocol fees provide insights into the financial performance of the decentralized lending protocol. By analyzing the revenue generated by the protocol, analysts can assess its ability to generate income and sustain its operations. Revenue serves as a key indicator of the protocol’s financial health and growth potential. Evaluating the protocol fees specifically helps in understanding the revenue streams directly associated with the lending activities and the profitability of the lending protocol. Moreover, Revenue and protocol fees can come from various sources within the decentralized lending protocol. This includes interest rate spreads, liquidation penalties, transaction fees, and other revenue-sharing arrangements. By considering revenue and protocol fees as variables, analysts can evaluate the diversification of income streams. A protocol with a more diversified revenue base is generally considered more sustainable and less reliant on any single source of income. It helps assess the protocol’s ability to withstand market fluctuations and maintain long-term viability.

9.2.2 Price Multiple Valuation

The diagram shows that Radiant has a token value locked (TVL) of $636.75 million, positioning it between Benqi and Venus in terms of capital locked within the protocol. With a fully diluted valuation of $312.92 million, Radiant is smaller in size compared to Aave and Compound but larger than Benqi and Venus.

The high Fully Diluted Valuation/TVL Ratio of 0.49x indicates a potential overestimation of Radiant’s value relative to its capital locked within the protocol. This could imply that the market is pricing Radiant at a premium compared to its underlying value. However, Radiant generates an annualized total revenue of $15.98 million and an annualized protocol fee of $26.63 million, indicating a solid revenue-generating capability. Additionally, Radiant’s lower price-to-earnings (P/E) and price-to-sales (P/S) ratios compared to the average ratios for decentralized lending protocols suggest that Radiant may be undervalued. Based on these valuation multiples, there is an implied valuation for Radiant with potential prices of $0.16, $0.40, and $1.73, respectively.

It’s important to remember that these valuations and implied prices are derived from the provided data and current market conditions. The actual market dynamics and future performance of Radiant will ultimately determine its true valuation.

9.3 Comprehensive Analysis

To conclude, we run a sensitivity analysis to obtain a range of valuation outcomes.

The comparative analysis’s three values are calculated by using P/TVL, P/E and P/S ratios, respectively. We select the minimum and maximum value from sensitivity analysis with different terminal PE ratios and discount rates for probability-weighted discount cash flow valuation. Finally, with weight for multiples as 15%, respectively, and 55% for weighted DCF, the comprehensive analysis returns a price range of $0.45 to $0.67.

10. Risks

10.1 Contract Risk

Although Radiant v2 contracts have undergone audits by reputable firms such as BlockSecTeam, Peckshield, and Zokyo_io, with pending review by OpenZeppelin, there is still inherent contract risk. Additionally, reliance on external components like Stargate and LayerZero introduces potential additional risks. It is important to note that as Radiant launched in 2022, with a maturity of less than a year, the technical risk is elevated due to the relative lack of battle-testing for smart contracts.

10.2 Inflation Risk

Radiant Capital faces a high inflation rate, which presents a potential risk to the protocol. This could impact the value and purchasing power of the native token or affect the overall stability and sustainability of the lending ecosystem.

10.3 Competition Risk

Radiant operates in a competitive landscape with numerous lending protocol competitors. The presence of more established lending protocols that support cross-chain lending adds to the competition, potentially impacting the growth and adoption of the Radiant protocol. It is important for Radiant to differentiate itself and provide unique value propositions to attract users and maintain market share.

10.4 Governance Risk

Radiant is governed by Radiant DAO, which exposes the protocol to governance-related risks. This includes potential challenges in quickly implementing changes or responding to market demands, as well as the vulnerability to governance attacks or manipulation. Robust governance processes and transparency are essential to mitigate these risks and ensure the long-term success and stability of the protocol.

It is crucial for potential investors or users to be aware of these risks and conduct their own due diligence. Evaluating and understanding the risks associated with a decentralized lending protocol like Radiant is essential for making informed decisions and managing potential exposures.

11. Closing Thoughts

Radiant’s recent performance on cross-chain lending is impressive. However, it still has a long journey to go to achieve the omnichain money market. It heavily relies on Stargate and LayerZero for the purpose of cross-chain, which might limit its growth. Radiant could further its development by integrating more omnichain technical solutions and thus optimize user experiences.

Furthermore, Radiant could further expand business lines on money markets not limited to lending/borrowing. A few approaches that possibly improve the protocol:

• Risk management framework: One of the challenges faced by decentralized lending protocols is the lack of collateral diversification and the risk of liquidation events. Implementing a robust risk management framework can help mitigate these risks and increase the overall stability of the protocol. This could include the use of dynamic collateral ratios, liquidation penalties, and risk-based interest rates.
• Incorporating more asset types: Decentralized lending protocols currently primarily support cryptocurrencies as collateral. However, incorporating more asset types, such as real-world assets and LSDs, can help to increase the diversity of the money market and attract new users who may not be comfortable with cryptocurrencies.
• Integration with other DeFi protocols: Decentralized lending protocols can also integrate with other DeFi protocols, such as decentralized exchanges, yield aggregators, or prediction markets, which create a more comprehensive financial ecosystem.
• Expansion of additional Defi products: Radiant Capital can explore opportunities beyond lending and leverage its omnichain ability to expand its business into other DeFi products, such as liquid staking derivatives (LSD) and collateralized debt positions (CDP), adding wider-ranging token utility use cases. The OFT-20 token standard of RDNT also enables seamless cross-chain token transfers, making it easier for users to swap and use any dApp on any chain, thus attracting more users to the platform. As Radiant gradually integrates more cross-chain money market businesses, it can create more empowering scenarios for its token and become a financial platform with multiple DeFi products, which can help to pull up the price of the token as the platform becomes more valuable and user-friendly.

Overall, the future prospect for RDNT is bright, and there are many opportunities for growth and innovation. By implementing robust risk management frameworks, incorporating new asset types, and integrating with other DeFi protocols, Radiant Capital can continue to evolve and attract new users to the money market.

References

https://research.binance.com/en/projects/radiant-capital

https://www.theblockbeats.info/news/34467

https://followin.io/zh-Hans/feed/3220420

https://tokenterminal.com/terminal/projects/radiant-capital

https://defillama.com/protocol/radiant

Other Information

Radiant Capital (RDNT) social media:

• Twitter: https://twitter.com/RDNTCapital
• Discord: https://discord.radiant.capital
• Telegram: https://t.me/radiantcapitalofficial

Radiant Capital (RDNT) contract address:

• Arbitrum(Arb One): 0x3082CC23568eA640225c2467653dB90e9250AaA0

Declaration

The present report is an original work of @CryptoAndrewCao and @YihanYihan_W, @GryphsisAcademy trainees, under the mentorship of @CryptoScott_ETH and @Zou_Block. The author(s) alone bear the responsibility for all content, which does not essentially mirror Gryphsis Academy’s views or that of the organization commissioning the report. The editorial content and decisions remain uninfluenced by the readers. Be informed that the author(s) may own the cryptocurrencies mentioned in this report.

This document is exclusively informational and should not be used as a basis for investment decisions. It is highly recommended that you undertake your own research and consult a neutral financial, tax, or legal advisor before making investment decisions. Keep in mind, the past performance of any asset does not guarantee future returns.

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