Radiant Capital: Fragmented Liquidity Integration Solution for Cross-Chain Lending

TL;DR

• Radiant Capital is a decentralized lending protocol operating across multiple chains, enabling users to deposit various major digital assets and borrow cross-chain with assets supported by other platforms. Radiant Capital’s cross-chain operations are built on Layer Zero and Stargate, allowing users to engage in cross-chain lending and liquidity mining.
• The protocol has achieved significant milestones, such as becoming the highest lending project by TVL on the Arbitrum chain and launching Radiant Capital V2. The current roadmap includes cross-chain liquidation features, abstract repayment (one-click repayment on any supported chain), collateral expansion, and application deployment on more chains.
• The total supply of RDNT tokens is 1 billion, allocated to incentives, the team, reserves, contributors, treasury & LP, and liquidity providers. All tokens will be fully unlocked by July 2027.
• Radiant has experienced notable growth in revenue and trading volume, indicating a continuous increase in demand for the protocol. As a leader on the Arbitrum chain, Radiant boasts a high TVL and a substantial user base. Radiant has surpassed Aave and Compound in revenues within 90 days, with outstanding user engagement in May, accumulating 216,831 users and a trading volume of $740.7 million.
• Based on a probability-weighted DCF valuation, RDNT’s projected value by December 2023 is $168.14 million, with a token price of $0.37. Considering P/TVL, P/E, P/S ratios, and weighted DCF, the comprehensive analysis suggests a price range of $0.45 to $0.67. However, actual token prices depend on future market conditions and protocol performance.
• Recommendations for Radiant include further integrating omnichain solutions, optimizing user experience, 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 lending protocol built on LayerZero. It aims to establish a universally applicable money market where users can deposit any major asset onto any prominent blockchain and borrow various supported assets across chains, thereby eliminating liquidity silos.

Diverging from most cryptocurrency lending platforms, Radiant Capital does not require users to choose a specific chain to operate on nor restrict the use of specific tokens on that chain. Instead, Radiant Capital plans to operate on most major blockchains, making it easier for users to borrow assets and generate returns by contributing their capital for lending.

Radiant Capital generates actual revenue through its protocol fees and associated activities. Investors can deposit their assets on the platform and earn returns by locking, vesting, and lending out their assets. Through the lending mechanism, users can use their assets as collateral to enhance their liquidity.

In essence, Radiant Capital provides a more flexible and inclusive approach to decentralized lending, making it easier for users to access liquidity across multiple chains while earning returns on their assets. As Radiant Capital continues to evolve and expand, it has the potential to become a leader in the cross-chain money market space.

2.Team and Fundraising

2.1 Team

Radiant Capital boasts a team of 14 individuals, with members who have previously worked at companies such as Morgan Stanley, Apple, and Google. They entered the DeFi space as early as the summer of 2020, with many team members having been involved in cryptocurrency since as early as 2015.

2.2 Fundraising

The initial founders and developers of Radiant Capital completely self-funded the project’s development. There was no private sale, IDO, or venture capital involvement in the project, aligning with the unbiased decentralized philosophy.

3. Roadmap

3.1 Historical Events and Price Trends

Major events and announcements have to some extent triggered fluctuations in the prices and Total Value Locked (TVL) of decentralized lending protocols, such as Radiant Capital. From the charts, we can observe a significant increase in RDNT’s price and TVL on August 2, 2022, when the team announced their intention to control token inflation.

Conversely, confidence among users might decline when issues arise in the protocol, such as data loading errors and UI display problems, leading to a decrease in RDNT price and TVL. On January 16, 2023, when the team announced the future release of Radiant v2, this was perceived as positive news, resulting in an uptick in token price (influenced, of course, by overall market conditions) and doubling of TVL.

Following the official release of Radiant v2 on March 19, 2023, the version transition caused a temporary decrease in TVL. However, as the V2 version stabilized in operation, TVL quickly recovered in the following days. On March 28, Radiant v2 expanded to the BNB chain, bringing significant traffic and causing TVL to surge rapidly within a few days.

This inspires us to recognize that significant events and announcements, changes in user sentiment, and overall market conditions may impact the prices and TVL of decentralized protocols. Paying attention to this information and indicators is crucial in investment decisions.

3.2 Milestones

3.3 Roadmap for 2023

3.4 Radiant Development Roadmap

3.5 Business Development Progress

4. Business Composition and Code Implementation Logic

Radiant Capital’s cross-chain operations utilize the stable routing interface of Stargate and are built on Layer Zero. Radiant Capital allows users to deposit their assets from major blockchains and enables other users to borrow these assets without intermediaries. Contributors to the platform can earn relatively low-risk returns.

The Radiant lending market supports many assets on the Arbitrum chain and BSC smart chain. On Arbitrum, users can deposit and borrow stablecoins like DAI, USDC, and USDT, mainstream cryptocurrencies like ETH, WBTC, and WSTETH, or Layer 2 token ARB. On the BSC chain, supported assets include stablecoins like BUSD, USDC, and USDT, mainstream cryptocurrencies like ETH and BTCB, and other tokens including BNB. Users can engage deeply in the Radiant lending market by borrowing and depositing across chains.

Radiant UI

The Radiant market offers two interest rates, as shown in the graph. The red represents the APY for lending and borrowing in the market, calculated in the underlying asset. The purple box APR represents the annual rate of Radiant’s native utility token $RDNT rewards, distributed to users providing liquidity and borrowing, forming an annual rate. Currently, the higher borrowing rate is compensated through substantial $RDNT rewards, attracting many users.

4.1 Business Component

4.1.1 Lending

Deposit: Deposit assets into the Radiant lending pool, earn interest, and gain additional value through $RDNT rewards. Deposits can be used as collateral, and depositors can withdraw their assets to a specified chain. rTokens are interest-bearing tokens, such as rUSDC, minted and burned during deposit and withdrawal. Interest is directly allocated to rTokens holders.

Loans: Radiant enhances utility for users through borrowing. Users who don’t want to sell their assets can collateralize them for a loan to gain additional liquidity. Borrowers need to pay loan fees and interest to Radiant DAO and liquidity providers. Borrowers with a health factor below 1 will trigger liquidation.

Liquidation: Radiant’s liquidation process ensures a borrower’s debt is not less than the value of collateral. When a borrower’s health factor drops to 1 or below, they get liquidated. The overall liquidation penalty factor is 15%.

Looping and Locking: The looping and locking feature allows users with a health factor greater than 1.11 to increase the value of their collateral by automatically looping through multiple deposit and loan cycles. This feature also automatically borrows ETH and transfers it into a locked dLP position to meet the 5% dLP distribution requirement. One-Click Loop provides users with a simpler way to gradually increase liquidity and achieve higher returns with up to 5x leverage.

4.1.2 Liquidity Mining

Radiant Capital’s investors can earn returns by locking and vesting RDNT tokens. Dynamic Liquidity Providers (dLPs) hold RDNT liquidity provider tokens. Radiant allows users to provide liquidity using the zap function.

There are currently two forms of dLP trading pairs:

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

Locked dLPs earn platform revenue through rTokens (interest-bearing tokens). Users can withdraw income or use it as collateral. The platform determines the share for interest and liquidation fees based on dlp holdings. Users must lock a minimum of 5% of the deposit value in USD to be eligible for RDNT reward distribution on borrowing and depositing.

Recently, the vesting lockup period for RDNT has increased from 28 days to 90 days, with early exit incurring penalty fees ranging from 10% to 75% of RDNT rewards. The RDNT distribution incentivizes ecosystem participants as dynamic liquidity providers (dLPs) contribute utility to the platform.

4.1.3 Cross-chain bridge

RDNT OFT Bridge: $RDNT is an OFT-20 token. The Layer Zero Labs’ Omnichain Fungible Token (OFT) interoperability solution achieves native cross-chain token transfers. OFT allows for composability across multiple blockchains, eliminating fragmented liquidity, smart contract, or finality risks and mitigating custody risks for wrapped tokens.

Radiant-Stargate Bridge: Radiant Capital provides users with lending and bridging capabilities through the Stargate router. The bridge, based on Layer Zero’s Delta (∆) algorithm, enables the transfer of native assets across unified liquidity pools.

Radiant V1 allows users to deposit assets on the root chain (Arbitrum) and borrow assets on any EVM chain supported by Stargate Finance. Radiant V2 supports depositing assets on Arbitrum and BSC chains, with borrowing capabilities extended to any EVM chain supported by Stargate Finance. Radiant is currently undergoing development testing and plans to offer full cross-chain deposit and lending functionality in the near future.

4.2 Logic Code Implementation

4.2.1 Business Logic Code Implementation

The main functions of the Radiant app are Zaps (locked dLPs) and lending.

• Users zap dLP tokens into Balancer or Uniswap and receive corresponding staking rewards through MultiFeeDesitrbutions.sol.
• Users interact with the lending pool called LendingPool.sol, such as deposits, borrows, withdrawals, repayments, flash loans and liquidations, and interactive operations burn/mint ATokens. ChefIncentiveController.sol calculates a user’s balance and rewards, while MultiFeeDistribution.sol distributes rewards to users.

Below are detailed explanations of the Zapping and One-Click Looping processes. If only one type of cryptocurrency is provided, the system automatically borrows the other and pairs it in the Uniswap or Balancer pool.

Source: Radiant Capital

4.2.2 Cross-chain Implementation

Radiant is connected to LayerZero and leverages the reliable routing interface of Stargate, empowering users to deposit any token on Arbitrum and borrow on the same chain or borrow and transfer to another chain through a single interface.

LayerZero:

LayerZero is an omnichain that enables different blockchain networks to communicate and operate seamlessly. Radiant Capital achieves its goal of supporting quick and secure transactions of various digital assets through a LayerZero-based money market. Cross-chain communication in LayerZero is achieved by deploying LayerZero endpoints on different chains, facilitating message transmission through Relayers and Oracles. When a User Application (UA) sends a message from Chain A to Chain B, it notifies the specified Oracle and Relayer through Chain A’s endpoint. The Oracle sends the block header to Chain B’s endpoint, and the Relayer submits the transaction proof. Once validated on the destination chain, the message is forwarded to the designated address. In summary, the Oracle verifies the message on Chain A, while the Relayer checks the transaction proof, ensuring successful submission from Chain A to Chain B when both the Oracle and Relayer have the same message.

Source: Blocktempo

Stargate:

The Stargate bridge utilizes a unified liquidity pool for cross-chain sharing, ensuring ample liquidity, preventing transaction reversals, and ensuring instant finality. With the ∆ algorithm as its foundation, it automatically rebalances the liquidity pool to support ∆ bridges. For example, when exchanging USDT from Ethereum with USDC on Polygon, a user deposits USDT into a single USDT liquidity pool on Ethereum and receives USDC from a single USDC liquidity pool on Polygon. The ∆ algorithm seamlessly rebalances these pools across different chains to maintain balance between the amounts deposited and withdrawn. Stargate avoids maintaining separate liquidity pools for each cross-chain connection by adopting a single, unified liquidity pool for each asset across all supported chains.

Source: Consensys

Radiant integration:

Below is a simplified flowchart illustrating how assets are borrowed cross chain through LayerZero and Stargate.

Users initiate lending or deposit actions and interact with the lending pool. When assets are cross-chain borrowed, StargateBorrow is called, and assets are reserved in the unified Stargate liquidity pool. Stargate sends messages across chains through LayerZero Endpoints, and Oracle and Relayer off-chain verify these messages. Below is a detailed flow chart:

Source: Radiant Capital

5. Decentralized Lending Market

5.1 DeFi Lending

The lending industry is a crucial component of the decentralized finance (DeFi) sector, ranking third in Total Value Locked (TVL) after Decentralized Exchanges (DEXs) and Liquid Staking. The competition in the lending sector is fierce, with over 200 protocols vying for market share. Currently, top lending protocols include AAVE, JustLend, Compound, Venus, Morpho, and Radiant.

Radiant stands out in the ecosystems of Arbitrum and Binance Smart Chain (BSC), becoming a leading player. It surpassed AAVE in TVL on the Arbitrum chain last year and quickly rose to third place in TVL on the BSC chain in March 2023. These achievements highlight Radiant’s strong performance on both platforms and its increasingly prominent position in the lending sector.

5.2 Cross-Chain Lending

Radiant is the first omnichain lending and flash loan protocol built on Layer Zero. In the current market, there are few competitors in cross-chain lending, giving Radiant a leading position in this field.

As mentioned earlier, Radiant’s unique feature is its ability to allow users to deposit collateral on one chain and borrow on another. This cross-chain functionality is achieved through the Stargate cross-chain router. It enables users to deposit assets on Arbitrum and borrow on any EVM chain supported by Stargate.

In contrast, AAVE’s assets currently cannot be borrowed across different chains, leading to scattered liquidity and limited asset utilization. The thriving development of Layer 2 has created an indispensable demand for cross-chain asset interaction. Radiant uses LayerZero’s Omnichain technology to establish interoperability among its full chains, providing a good solution to the liquidity fragmentation issue between different chains.

Radiant Capital holds a relative liquidity advantage in the decentralized lending market. Its dLP (Dynamic Liquidity Providing) mechanism dynamically adjusts mining incremental rewards based on the provided liquidity ratio, incentivizing both lenders and borrowers on the platform. This helps lock a certain amount of RDNT in the market, enhancing liquidity for long-term development. Additionally, Radiant Capital has a first-mover advantage in full-chain lending, something other lending protocols (e.g., AAVE) cannot imitate and surpass in a short period.

6. Tokenomics

6.1 Token Allocation

The total supply of RDNT tokens is 1,000,000,000.

• 54% is allocated for incentives to suppliers and borrowers, released over five years.
• 20% is allocated 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 unlocked at the 3-month cliff).
• 14% is allocated to the Radiant DAO reserve.
• 7% is allocated to core contributors and advisors, released over one and a half years
• 3% is reserved for Treasury & LP.
• 2% is allocated to liquidity providers in Pool 2 between August 3, 2022, and March 17, 2023, which has been deprecated and ratified in the RFP-8 governance proposal.

6.2 RDNT Release Schedule

The chart above is the release schedule for RDNT tokens after the token issuance. On July 24, 2022, significant token unlocks and allocations occurred within the Radiant ecosystem. The Treasury unlocked 30 million RDNT tokens, and 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 for supplier and borrower incentives, released over 60 months. Pool 2 received 20 million RDNT tokens as incentives, expected to be released within 8 months. The remaining locked tokens are set to be gradually released until all are unlocked by July 2027.

These unlockings and allocations shape the RDNT token distribution model, incentivizing participants and influencing liquidity within the Radiant ecosystem, ensuring a fair 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 following chart clearly illustrates the currently vested unlock schedule for RDNT tokens. In March 2024, over 10 million RDNT tokens are expected to be unlocked. This unlocking event could impact token circulation and have certain effects on market dynamics during this period. Investors should be attentive to such milestone events and consider their potential impact on the value and trading of RDNT tokens.

Source: Dune Analytics (@shogun)

6.3 Comparison of Token Release Rules in Proposals (V1 vs V2)

Radiant v1 design:

All token releases are directed towards the initial deployment of RDNT on Arbitrum.

Proposed design for Radiant v2:

Total Max Emissions represent the total allocation to all Radiant deployments for a specific month; the maximum total emission will run according to the proposed schedule, ending in July 2027. At the end of each month, the DAO will review the Total Value Locked (TVL) on each chain and allocate the emission accordingly for the next month. For example, if the Radiant TVL ratio is 30% on Arbitrum, 30% on BNB Chain, and 20% on ETH Mainnet at the end of March, the emission for the following month should be distributed as 30%/30%/20%.

At the project’s launch, 100% of the token release was directed to the Arbitrum Radiant market. After launching on the BSC Chain, the proposal suggests guiding 50% of the release to the BNB Chain in the first month. This is a straightforward approach, and more complex ideas (such as metrics for each chain and market, allocation based on protocol fees generated) should continue to be discussed and brought into subsequent proposals.

This section of the RFP can be updated based on subsequent proposals generated by DAO stakeholders. It provides a predictable and formulaic approach, offering transparency in the short term. As per the voting results of Governance Proposal RFP-4, the RDNT release rules incentivize ecosystem participants as dynamic liquidity providers (dLP) towards the platform. This is because only users locking dLP activate their eligibility for RDNT token release rewards on deposits or loans.

Given Radiant’s cross-chain vision and the shift from unilateral locking to LP locking, this allows Radiant to plan for the long-term future more reasonably and provides possibilities for more chain deployments.

6.4 Smart Contract Revenue Pathways, Value Capture, and Token Utility

6.4.1 Smart Contract Revenue Pathways

The contract’s revenue primarily comes from loan interest and loan fees. This process involves lenders depositing their assets into the platform, which are then borrowed by collateralized borrowers. Borrowers need to pay loan fees to obtain the loan.

If borrowers fail to repay the loan according to the agreed terms and conditions, the assets serving as collateral may be liquidated. The platform subsequently collects fees from these transactions and distributes rewards to lenders and dynamic liquidity providers. This revenue model incentivizes user participation and provides a revenue-generating mechanism for the platform and its participants.

6.4.2 Platform Value Capture

• Loan interest, with interest rates dynamically changing based on available liquidity
• Liquidation fees
• Early withdrawal penalties

Revenue & Fee Path, Source: Radiant Capital

6.4.3 $RDNT Token Utility

• A minimum of 5% of the deposited dLP is required to activate RDNT token releases for borrowers/lenders, providing additional value beyond the base market rates.
• dLP lockers (those who lock RDNT liquidity) earn 60% of the platform fees.
• RDNT token holders can also participate in DAO governance.

Utility Flow Chart, Source: Radiant Capital

Sustainability is a critical key performance indicator for the Radiant DAO. Therefore, the protocol has implemented the dLP mechanism, which only allows RDNT token rewards and platform fees to be allocated to dynamic liquidity providers (dLPs). As mentioned earlier, the dLP mechanism is a significant improvement over Radiant v1. It incentivizes users to provide liquidity for $RDNT, with a 90-day lock-up period required to fully obtain RDNT token release incentives. Early withdrawals incur penalties, which serve to mitigate selling pressure on the token.

7. Operational Status and Competitive Landscape

7.1 Total Value Locked (TVL)

Radiant boasts the highest TVL on the Arbitrum chain. Its TVL is relatively higher compared to other lending protocols of similar market value, attributed to its user-friendly locking and looping features and highly incentivized rewards. However, its MCap/TVL ratio is higher than its peers, indicating a slightly elevated valuation.

7.2 Users

Since the launch of V1, there have been two waves of user surges during Q3 2022 and the Arbitrum craze in January. However, after the introduction of Radiant V2, there hasn’t been a significant increase in users. The cumulative user base stands at 216,831, with 4,750 daily active users.

Source: Dune Analytics (@defimochi)

7.3 Trading volume

The issuance of $RDNT incentivized trading volumes for both borrowers and lenders, reflecting the platform’s ability to drive engagement and liquidity. May’s trading volume reached $740.7 million, surpassing lending protocols with similar market values. This suggests that Radiant Capital has effectively attracted users and stimulated substantial trading activities.

7.4 Utilization

The overall utilization rate is approximately 60%, relatively higher than similar lending protocols. The combination of $RDNT rewards and the simplicity of the user interface for looping and locking has increased asset utilization. When broken down by each asset, Radiant’s utilization rate for stablecoins is similar to AAVE, but it is higher for wbtc and weth.

Radiant was launched on the Binance Smart Chain (BSC) on March 27th, with locked funds exceeding $33 million. The green area in the graph below represents the income RDNT has obtained from the BSC chain since March 27th, while the purple portion shows the income RDNT has obtained from the ARB chain. Clearly, from mid-April onwards, RDNT’s income from the BSC chain has exceeded that from the ARB chain. Over the past 90 days, income has increased by 115.9%, achieving significant revenue growth. In terms of revenue over the past 90 days, it has even surpassed well-known protocols such as Aave and Compound. This indicates that Radiant is experiencing rapid expansion and gaining traction in the industry.

Source: Token Terminal

7.5 Financial Statement Analysis

According to the statistics from the financial reports, RDNT has experienced significant growth in both revenue and trading volume in the past few months. In January and May, RDNT’s revenue was $105.38 thousand and $1.04 million, respectively, representing an increase of 886.90%. The trading volume for RDNT in January and May was $39.50 million and $740.74 million, indicating a rapid improvement in RDNT’s performance. The increase in revenue and trading volume suggests a growing demand for the protocol.

As of May 31, 2023, the platform’s active loans amounted to $377.39 million, with a net deposit of $636.75 million. The substantial net deposit of $636.75 million indicates that the platform possesses a considerable amount of liquidity, a crucial factor in maintaining user trust and ensuring the platform can meet the borrowing needs of its users.

Additionally, the $377.39 million in active loans signifies high user engagement with the platform, which is a positive signal for the platform’s growth prospects. Furthermore, a robust loan-to-deposit ratio indicates that the platform is effectively managing its lending activities and maintaining a healthy balance between borrowing and lending.

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

Overall, the financial statements demonstrate that RDNT is in good financial health, providing a solid foundation for expanding its user base and extending decentralized lending market services.

8. Growth Drivers

8.1 Development of Layer 2

The flourishing of Layer 2 contributes to the development of the RDNT protocol. As more users and transactions migrate to Layer 2, the demand for RDNT decentralized lending services is expected to increase. Radiant’s plans to launch on Ethereum and zkSync indicate its commitment to seizing this growing market.

8.2 Cross-chain Markets

Radiant is the first functional cross-chain lending market. Given the frequent occurrences of theft and hacking incidents with cross-chain bridges, cross-chain lending provides a promising alternative that can mitigate the demand for traditional cross-chain bridges. If the protocol successfully achieves comprehensive cross-chain lending, it will enhance the utility and demand for RDNT, ultimately driving its price higher. Radiant is at the forefront of the cross-chain lending market, with the potential to reshape cross-chain transactions and solidify its value proposition.

8.3 Passive income

Users can earn low-risk passive income by lending/borrowing across chains during bear markets.

8.4 Token Design

The token design in V2’s tokenomic model enhances incentive value by allocating RDNT issuance to long-term protocol users, promoting sustainability. The threshold of “5% locked dlp” incentivizes users to purchase RDNT and re-lock more LP to maintain above the minimum threshold.

8.5 Airdrop Opportunities

Radiant plans to airdrop $ARB to long-term dlp holders. Additionally, the narrative of LayerZero and ZKSync attracts users to the Radiant platform for potential airdrops.

9. Valuation

Our valuation is based on the Discounted Cash Flow (DCF) analysis and Comparable Analysis, both of which can be adjusted accordingly in our valuation model (Radiant Capital Valuation Model - Gryphsis Academy). Below are detailed descriptions and explanations of the valuation methods.

9.1 Discounted Cash Flow (DCF)

Discounted Cash Flow (DCF) is a valuation method used to estimate the value of an asset based on the expected future cash flows. The principle is that the present value of an investment must be equal to the cash it generates in the future. Our model uses a 5-year forecast period and discounts any cash flows thereafter to an estimated terminal value.

9.1.1 Assumptions

Growth Rate of Protocol’s Total Value Locked (TVL): We categorize assets available for lending into three classes: BTC and ETH, stablecoins, and L1 and L2 alternative assets, assuming growth rates for each asset category in low, medium, and high scenarios.

We use the historical annual growth rates for the past five years to forecast the market cap of Microsoft and Gold and use Ethereum’s market cap as a percentage of Microsoft’s market cap and Bitcoin’s market cap as a percentage of Gold’s market cap to validate whether the growth rate estimates in low, medium, and high scenarios are reasonable. We assume the growth rates to be linearly decreasing.

Since Radiant has supported BSC and provided BNB lending in the market, the TVL of Alt L1/L2 assets grew by 231.53% in the next month. Therefore, assuming higher growth rates for L1 and L2 alternative assets compared to stablecoins and BTC/ETH is reasonable.

Utilization: In both Radiant v1 and Radiant v2, asset utilization rates remain at similar levels. We round the average and choose a utilization rate of 73% for stablecoins, reducing the estimated utilization rates for BTC, ETH, Alt L1, and L2 to 50% to accommodate uncertainties in the market.

Annual Fee / Loan Assets: We compared this ratio with AAVE (a relatively mature lending protocol) and calculated the average annual fee / loan assets for both protocols. The resulting rate was then compared with the current annual fee rate of Radiant, and the minimum of the two rates was chosen as the final year fee rate for 2028. The rates for the remaining years were calculated by linearly increasing to the final year rate.

Discount Rate: We utilized a 10-year US Treasury bond as the risk-free rate, with BTC serving as the market benchmark. The β value was obtained from a regression model where RDNT returns functioned as a function of BTC returns. The regression analysis was based on data starting from the RDNT Initial DEX Offering (IDO) date, which is July 22, 2022. The Capital Asset Pricing Model (CAPM) calculated a cost of capital rate of 35%. Regression analysis indicated that Bitcoin returns significantly predict RDNT prices, but the model could only explain 1.7% of the total variance. Therefore, we chose 35% as the discount rate, which is similar to the average return rate of venture capital funds, which is 30%.

Terminal Price-to-Earnings (PE) Ratio: Assuming an exit PE multiple of 10 times, consistent with the PE ratio of publicly listed lending protocols, this was applied to the projected free cash flow for 2028.

9.1.2 Valuation under Moderate Case

The results under the moderate case are illustrated in the chart below. In this scenario, the anticipated price of RDNT is $0.35, with a valuation of $158.49 million as of December 31, 2023.

9.1.3 Probability-Weighted DCF

We assigned probabilities of 25% each to the low and high cases, while the moderate case was allocated a 50% probability. The calculated probability-weighted DCF valuation for RDNT is $0.37 per token, resulting in a protocol valuation of $168.14 million. With the RDNT price at $0.31 as of May 31, 2023, there is a potential upside of 17.26%.

9.2 Comparable Analysis

Comparable analysis is a commonly used valuation method that involves comparing a company to similar businesses in the industry, typically using metrics like the Price-to-Sales (P/S) and Price-to-Earnings (P/E) ratios.

It is important to note that using this valuation method in decentralized finance (DeFi) may have limitations due to the lack of reliable sales revenue data.

When conducting a 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. Ensuring comparability in these aspects reduces the impact of external factors, allowing a focus on the intrinsic value drivers of the analyzed company.

In this case, if the chosen comparable companies belong to the decentralized lending industry and share similar business nature and risk situations with RDNT, it can enhance the effectiveness of the comparative analysis. Treating lending protocols within the decentralized exchange (DEX) industry as comparable protocols addresses the issue of differing market risks across industries.

Given that these four comparable projects all belong to the DEX lending industry within decentralized finance, it is reasonable to assume they face similar market risks.

9.2.1 Valuation Assumptions and Variable Considerations

Fully Diluted Valuation / TVL Ratio:

This ratio, obtained by comparing the market value to the Total Value Locked (TVL), reflects the market sentiment and perception of the protocol’s value. It offers insights for investors into the protocol’s efficiency in attracting and retaining assets compared to its market value. A lower P/TVL ratio indicates potential undervaluation and strong growth prospects. Considering these factors, the P/TVL ratio becomes a relevant and useful comparable multiplier for estimating DeFi lending protocol valuations.

Price/Earnings Ratio:

The Price/Earnings ratio helps investors assess whether the market’s valuation of a decentralized lending protocol is reasonable concerning the relationship between price and earnings. It aids in identifying potential investment opportunities or risks relative to its profit potential.

Price/Sales Ratio:

The price-to-sales ratio is often used to assess the valuation of traditional companies based on revenue. For decentralized lending protocols, protocol fees (known as “sales revenue” in traditional companies) are a key factor in assessing their financial performance and sustainability. By using the price-to-sales ratio, which takes into account the relationship between the market capitalization (price) and the fees incurred by the protocol, you can understand how the market assesses the earning power of the protocol.

Average P/S ratio:

Using the market multiplier method prevalent in the crypto industry, we take the average of the Price/Sales ratios of the four comparable protocols as Market Multiplier 1. Calculating the average considers the upper and lower limits of comparable projects, providing a balanced market multiplier estimate. Therefore, we choose to use the average of comparable projects as a quantified market multiplier to avoid potential bias that relying solely on the maximum or minimum values might introduce.

Median:

Statistically, the median is less influenced by extreme values in a distribution, enhancing its representativeness of the distribution to some extent. Hence, choosing the median as Market Multiplier 2 is considered reasonable.

Revenue and Protocol Fees:

Analyzing the revenue generated by the protocol helps evaluate its ability to generate income and sustain operations. Revenue is a key indicator of the protocol’s financial health and growth potential. Assessing protocol fees aids in understanding the profitability directly related to lending activities. Revenue and protocol fees can come from various sources within decentralized lending protocols, including interest differentials, liquidation penalties, transaction fees, and other revenue-sharing mechanisms. By considering revenue and protocol fees as variables, analysts can evaluate the diversification of income streams, contributing to assessing the protocol’s resilience to market fluctuations and long-term viability.

9.2.2 Valuation

According to the chart below, as of May 31, 2023, Radiant’s Total Value Locked (TVL) is $636.75 million, positioning it between Benqi and Venus. The Fully Diluted Valuation is $312.92 million, smaller than Aave and Compound but larger than Benqi and Venus.

The Fully Diluted Valuation / TVL ratio for Radiant is 0.49, relatively higher compared to other protocols, suggesting that Radiant’s valuation might be overestimated relative to the capital locked in the protocol. This could imply that the market’s pricing of Radiant might be higher than its potential value. However, Radiant estimates an annualized total revenue of $15.98 million and annualized protocol fees of $26.63 million, demonstrating Radiant’s strong revenue-generating capabilities.

Additionally, the Price/Earnings (P/E) and Price/Sales (P/S) ratios are relatively lower compared to the average ratios of selected decentralized lending protocols, indicating the potential undervaluation of Radiant. Finally, based on these three valuation multipliers, the derived potential prices for RDNT are $0.16, $0.40, and $1.73, respectively.

It is important to note that the establishment of the valuation model and the derived token prices are based on the provided current data and market conditions. The actual market dynamics and the performance of the Radiant protocol in the future will ultimately determine its true market value.

9.3 Comprehensive Analysis

Finally, we performed a sensitivity analysis and obtained the final valuation range.

Three values ​​are selected for the comparative analysis, namely P/TVL, P/E and P/S ratio. At the same time, we select the maximum and minimum values ​​of the probability-weighted DCF valuation (cash flow valuation) under different terminal value P/E ratios and discount rates from the sensitivity analysis. Combining the above data, the weights of the three comparative analysis multiples are 15% and the weighted DCF is 55%, and the comprehensive analysis results in a price range of $0.45-0.67.

10. Risks

10.1 Smart Contract Risks

Despite the audits conducted by renowned companies like BlockSecTeam, Peckshield, and Zokyo_io, with pending review from OpenZeppelin, there still exists inherent smart contract risk in Radiant v2. Additionally, dependencies on external components such as Stargate and LayerZero introduce potential additional risks. Given Radiant’s launch in 2022 and its maturity of less than a year, the lack of extensive testing may pose certain technological risks.

10.2 Inflation Risks

Radiant faces a high inflation rate, and this potential risk 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 risks

Radiant operates in a lending space with numerous competitors, and the presence of more mature lending protocols supporting cross-chain lending adds to the competition. This may impact the growth and user base of the Radiant protocol, emphasizing the importance of providing unique value.

10.4 Governance Risks

Managed by Radiant DAO, the protocol is exposed to potential governance-related risks. This includes potential challenges in rapidly implementing change proposals or responding to market demands, as well as vulnerabilities to governance attacks or manipulation. Robust governance procedures and transparency are crucial to mitigate these risks and ensure the long-term success and stability of the protocol.

Potential investors and users should be aware of these risks and conduct their due diligence. Assessing and understanding the relevant risks of decentralized lending protocols like Radiant is vital for making informed investment decisions and risk management.

11. Conclusion

Radiant has recently demonstrated an impressive performance in the cross-chain lending space. However, achieving a fully interoperable currency market is a lengthy journey. Heavy reliance on Stargate and LayerZero for cross-chain purposes might limit its development. To optimize user experience, Radiant could further evolve by integrating more omnichain technological solutions.

Moreover, Radiant can diversify its business lines within the currency market, expanding beyond lending alone. Some potential protocol improvements include:

• Risk Management Framework:
  One challenge faced by decentralized lending protocols is the lack of diversified collateral and mature risk management frameworks. Implementing a robust risk management framework can help mitigate various risks. Radiant can enhance overall protocol stability by continually refining dynamic collateral ratios, liquidation penalties, and risk-based interest rates.
• Incorporate More Asset Types:
  Current decentralized lending protocols primarily support cryptocurrencies as collateral. However, including more asset types, such as real-world assets and LSD, can increase market diversity and attract new users unfamiliar with cryptocurrencies.
• Integration with other DeFi protocols:
  Radiant lending protocol can integrate with other DeFi protocols, such as decentralized exchanges and yield aggregators, creating a more comprehensive financial ecosystem.
• Expanding into other DeFi Products:
  Radiant Capital can explore opportunities beyond lending, leveraging its omnichain capabilities to expand into other DeFi products like NFTs and Collateralized Debt Positions (CDPs). Creating more token scenarios using the advantage of its RDNT OFT-20 token standard can facilitate seamless cross-chain token transfers, making it easier for users to exchange and use any dApp on any chain.

As Radiant gradually integrates more cross-chain currency market businesses, it can empower its token with more utility scenarios, becoming a financial platform with a variety of DeFi products. As the platform’s value and user experience improve, this could contribute to an increase in token price.

In summary, the future outlook for RDNT is promising, with ample opportunities for growth and innovation. By implementing robust risk management frameworks, incorporating new asset types, integrating with other DeFi protocols, and expanding into more DeFi applications, Radiant Capital can continue to thrive and attract new users to its omnichain currency market.

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