4D Explanation Radiant Capital: Fragmented Liquidity Integration of Cross-chain Lending

Release time: 2023.6.26

Original link:

Written by: @CryptoAndrewCao and @YihanYihan_W, @gryphsisacademy

TL;DR

• Radiant Capital is a decentralized lending protocol that runs on multiple chains, enabling users to deposit any major digital asset and borrow assets supported by other platforms across chains. Radiant Capital's cross-chain operations are built on Layer Zero and Stargate, allowing users to cross-chain lending and liquidity mining.
• Radiant Capital has achieved milestones including becoming the highest TVL lending project on the Arbitrum chain and the launch of Radiant Capital V2. The current roadmap includes cross-chain clearing functions, abstracted 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, teams, reserves, contributors, treasury & LP, and liquidity providers. All tokens will be fully unlocked by July 2027.
• Radiant’s revenue and transaction volume have both increased significantly, indicating increasing application demand for the protocol. **Radiant is the leader on the Arbitrum chain with a high TVL and a large user base. **Radiant has surpassed Aave and Compound in 90-day revenue, and outperformed May in terms of user engagement, cumulative users (216,831) and transaction volume ($740.7 million).
• **Based on a probability-weighted DCF valuation, RDNT is projected to be worth $168.14 million by December 2023, at a price of $0.37 per token. Taking into account P/TVL, P/E, P/S ratios, and weighted DCF, a combined analysis yields a price range of $0.45 to $0.67. **Of course, the actual token price will also depend on future market conditions and protocol operations. *Suggestions to 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 create a currency market that is universal across the chain, in which users can deposit any major asset into any major blockchain and borrow various supported assets across the chain, thereby eliminating liquidity islands. **

Unlike most cryptocurrency lending platforms, Radiant Capital does not require users to choose a specific chain to work on, nor does it restrict the use of specific tokens from that chain. Instead, the Radiant Capital program will 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 real income through its protocol fees and related activities. Investors can deposit their assets on the platform and earn returns by locking, vesting and lending their assets. Through the lending mechanism, users can use their assets as collateral to increase their liquidity.

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

2. Team and financing status

2.1 Team

Radiant Capital has a team of 14 formerly employed at firms such as Morgan Stanley, Apple, and Google, who have been involved in the DeFi space since the early summer of 2020, many of whom started as early as 2015 Get in touch with cryptocurrencies.

2.2 Financing

**The original founders and developers of Radiant Capital have fully self-funded the development of this project. **No private equity, IDO or venture capital is involved in the project, which is consistent with the idea of unbiased decentralization.

3. Route and candlestick chart

3.1 Historical events and price trends

Major events and announcements cause volatility in the price and total value locked (TVL) of decentralized lending protocols (such as Radiant Capital) in part. From the chart we can see that on August 2, 2022, when the team announced its intention to control token inflation, both the price and TVL of RDNT increased significantly. On the contrary, when there are problems with the protocol, such as statistics loading errors and UI display problems, user confidence may drop, which leads to a drop in RDNT price and TVL. On January 16, 2023, the team announced that Radiant v2 will be released in the future, which was regarded as positive news by the public; the currency price began to rise (of course, it was also affected by the blockchain market), and the TVL also turned over some. Then, when Radiant v2 was officially released on March 19, 2023, the version switch caused a temporary drop in TVL. However, TVL quickly recovered over the next few days as the V2 version stabilized. On March 28th, Radiant v2 was expanded to the BNB chain, and this expansion brought huge traffic, causing TVL to rise rapidly within a few days.

This inspires us that major events and announcements of the project, changes in user sentiment, and overall market conditions may affect the price and TVL of the decentralized protocol. It is more important to pay attention to these information and indicators in investment operations.

3.2 Milestones Completed

3.3 Roadmap to 2023

3.4 version roadmap

3.5 Business progress

4. Business composition and code implementation logic

Radiant Capital's cross-chain operation uses Stargate's stable routing interface and is built on Layer Zero. Radiant Capital allows users to deposit their assets from major blockchains and let other users borrow those assets without middlemen. Those who contribute funds to the platform can obtain lower-risk returns.

The Radiant lending marketplace supports many assets on the Arbitrum chain and the BSC smart chain. On Arbitrum, users can deposit and borrow stable coins such as DAI, USDC, and USDT, or mainstream cryptocurrencies such as ETH, WBTC, and WSTETH, or Layer2 ghostwriting ARB. On the BSC chain, supported assets include stable coins BUSD, USDC and USDT, and mainstream cryptocurrencies ETH and BTCB, and other tokens include BNB. Users can deposit and borrow across chains and deeply participate in the Radiant lending market.

Radiant UI

The Radiant market provides two interest rates, as shown in the figure, the red refers to the APY lent and borrowed by the market to users, calculated on the basis of assets, and the purple box APR refers to the reward of Radiant’s native utility token $RDNT, which Radiant provides The annual interest rate formed by liquidity users and borrowers issuing $RDNT. Currently, higher borrowing rates are compensated by high $RDNT rewards, attracting many users.

4.1 Business Composition

4.1.1 Borrowing

Deposit: Deposit in the Radiant lending pool, earn interest, and gain additional value through $RDNT earnings. Deposits can be used as collateral, and depositors can withdraw their assets to designated chains. rTokens are interest-bearing tokens, such as rUSDC, that are minted and burned on deposits and withdrawals. Interest will be distributed directly to rTokens holders.

Lending: Radiant adds utility to users through lending. Users who do not want to sell their assets can use their assets as collateral for loans to obtain 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 guarantees that the borrower's debt is not less than the value of the collateral. When a borrower's health factor drops to 1 or below, they are liquidated. The overall penalty factor for liquidations is 15%.

Revolving loan and lock: The revolving and locking function enables users with a health factor greater than 1.11 to increase the value of their collateral by automatically making multiple deposits and borrowing cycles. The feature also automatically borrows ETH and transfers it to locked dLP positions to meet the 5% dLP requirement for activating RDNT issuance. **One-click loop (1-Click Loop) provides users with an easier way to gradually increase liquidity and achieve higher returns with up to 5 times leverage. **

4.1.2 Liquidity Mining

Investors in Radiant Capital can earn income by locking and vesting RDNT tokens. Dynamic Liquidity Providers (dLPs) are RDNT liquidity providing tokens. **Radiant allows users to use the zap function to provide liquidity. **

There are two types of trading pairs for dLP:

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

The locked dLP obtains platform income through the distribution of rTokens (interest-bearing tokens), and users can withdraw income or use income as collateral. The platform determines the share of interest payment and liquidation fees based on the share held by dlp. **Users must lock up at least 5% of their USD-denominated deposit value in dLP to be eligible for RDNT reward payouts on borrowing and deposits. **Recently, the vesting lock-up period of RDNT has been increased from 28 days to 90 days, and there is a penalty fee for early withdrawal. Users who withdraw early can receive 10% to 75% of the RDNT reward. The issuance of $RDNT incentivizes ecosystem participants to provide utility to the platform as Dynamic Liquidity Providers (dLPs).

4.1.3 Cross-chain bridge

RDNT OFT Bridge: $RDNT is an OFT-20 token. Layer Zero Labs’ full-chain Universal Fungible Token (OFT) interoperability solution** enables native cross-chain token transfer**. OFT allows multiple blockchains to be combined, so there is no more fragmented liquidity, smart contracts or finality risks, and it also avoids the custody risk of special tokens. **

Radiant-Stargate Bridge: Radiant Capital provides user lending and bridging capabilities through the Stargate Router. **Bridge based on Layer Zero's Delta (∆) algorithm enables original assets to be transferred between unified liquidity pools. **Radiant V1 allows users to deposit assets on the root chain (Arbitrum) and borrow assets from any EVM chain supported by Stargate Finance. Radiant V2 supports depositing assets on the Arbitrum and BSC chains, and can borrow to any EVM chain supported by Stargate Finance. **Radiant is currently in development testing and plans to provide full chain-wide deposit and borrow functionality in the near future. **

4.2 Code implementation logic

4.2.1 Business code logic implementation diagram

The main functions of the Radiant app are Zap (locking dLP) and lending.

• Users zap dLP tokens to deposit them into Balancer or Uniswap, and get corresponding staking rewards through MultiFeeDesitrbutions.sol.
• Users interact with the lending pool named LendingPool.sol, such as deposits, borrowings, withdrawals, repayments, flash loans, and liquidations, and interact with burning/minting ATokens. ChefIncentiveController.sol calculates user's balance and rewards, while MultiFeeDistribution.sol distributes rewards to users.

Below are the details of the Zapping and one-click cycle flow. If only one type of encrypted asset is provided, the system will automatically borrow another asset and pair it into a Uniswap or Balancer pool.

Source: Radiant Capital

4.2.2 Cross-chain implementation

Radiant connects to LayerZero and leverages Stargate's reliable router interface, giving users the ability to deposit either token on Arbitrum and borrow on the same chain, or borrow and transfer to another chain through a single interface.

LayerZero: LayerZero is an omnipotent chain that enables different blockchain networks to communicate with each other and operate seamlessly. Radiant Capital achieves its goal of supporting fast and secure transactions of various digital assets through a LayerZero-based money market

LayerZero enables cross-chain communication 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 will notify the specified Oracle and Relayer through the endpoint of chain A. The Oracle sends the block header to the endpoint of the B chain, and the Relayer submits the transaction proof. Once verified on the destination chain, the message is forwarded to the intended address. In summary, the oracle verifies the message on chain A, while the relayer checks the proof of transaction, making sure that when both the oracle and the relayer have the same message, it was successfully committed from chain A to chain B.

Source: Block Tempo

Stargate: The Stargate bridge utilizes a unified liquidity pool shared across chains to ensure sufficient liquidity, prevent transaction reversal, and ensure instant finality. Backed by the ∆ algorithm, the liquidity pool is automatically rebalanced to support the ∆ bridge. For example, when exchanging USDT in Ethereum for USDC on Polygon, the user deposits USDT into the single USDT liquidity pool on Ethereum and receives USDC from the single USDC liquidity pool on Polygon. The ∆ algorithm seamlessly rebalances the two pools across chains to maintain a balance between deposited and withdrawn amounts. Stargate avoids maintaining separate liquidity pools for each cross-chain connection by adopting a single, unified liquidity pool for every asset on all supported chains.

Source: Consensys

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

Users initiate loans or deposits and interact with the lending pool. When assets are borrowed across chains, StargateBorrow is called, and assets are reserved in Stargate's unified liquidity pool. Stargate sends messages across the chain through LayerZero Endpoints, and Oracle (oracle machine) and Relayer (repeater) outside the chain verify these messages. The following is a detailed flowchart:

Source: Radiant Capital

5. Decentralized lending market

5.1 DeFi Lending

**The lending industry is an important part of the Decentralized Finance (DeFi) space, and its Total Value Locked (TVL) ranks No. three. ** Competition in the lending category is fierce, 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 the Arbitrum and BSC smart chain ecosystems. **Radiant landed on the Arbitrum chain last year, and the TVL on the Arbitrum chain has surpassed AAVE. On the BSC chain, Radiant went live in March 2023 and quickly rose to third place in terms of TVL. These accomplishments underscore Radiant's strong performance across both platforms and growing prominence in the lending space.

5.2 Cross-chain lending

Radiant is the first full-chain lending and flash loan protocol built on top of Layer Zero. In the current market, there are fewer competitors for cross-chain lending. Radiant holds a leading position in the cross-chain lending space. With future support for more chains and assets, Radiant has the potential to gain additional liquidity and users.

As mentioned earlier, Radiant differs from other lending protocols in that it allows users to deposit collateral on one chain and borrow or lend on another. Radiant's cross-chain function is realized through Stargate's cross-chain router. It allows users to deposit assets on Arbitrum and borrow on any Stargate-backed EVM chain. **In contrast, AAVE's assets cannot currently borrow from each other on different chains, resulting in fragmented liquidity and limited asset utilization. **The vigorous development of Layer 2 has brought an indispensable demand for cross-chain asset interaction. Radiant uses LayerZero's Omnichain technology to establish interoperability between its entire chains, which is a good solution to the problem of liquidity dispersion between different chains.

Radiant Capital holds relative liquidity in the decentralized lending market. Its dLP "Dynamic Liquidity Provisioning Mechanism" dynamically adjusts their incremental mining rewards based on the ratio of liquidity provided, which incentivizes lenders and borrowers on the platform. This can lock a certain amount of RDNT in the market and enhance liquidity to achieve long-term development. In addition, Radiant Capital has a first-mover advantage in full-chain lending, which cannot be imitated and surpassed by other lending protocols (such as AAVE) in a short period of time.

6. Token Economics

6.1 Token Distribution

The total token supply of RDNT is 1,000,000,000 pieces.

• 54% as incentives for suppliers and borrowers, released over five years.
• 20% is allocated to the team and released in five years in three months (10% of which is locked when the agreement is generated and unlocked after three months).
• 14% allocated to Radiant DAO Reserve
• 7% allocated to core contributors and advisors, to be released within a year and a half
• 3% reserved for Treasury & LP
• 2% is allocated to Pool 2 liquidity providers between August 3, 2022 and March 17, 2023, which is currently deprecated according to the approval of the RFP-8 governance proposal.

6.2 RDNT Token Unlocking Schedule

The picture above is the unlocking schedule after the issuance of RDNT tokens. On July 24, 2022, a major token unlocking and distribution took place in the Radiant ecosystem. The Treasury unlocked 30 million RDNT tokens, while the DAO reserve unlocked 140 million RDNT tokens. Second, 70 million RDNT tokens are allocated to core contributors and advisors, to be released gradually over 18 months. Additionally, 540 million RDNT tokens are allocated for supply and borrower incentives, to be released over 60 months. Pool 2 has been rewarded with 20 million RDNT tokens, which are expected to be released within 8 months. The currently remaining locked tokens will be gradually released in the future until all unlocked in July 2027. These unlocks and distributions shape the RDNT token distribution model, incentivize participants, and influence liquidity within the Radiant ecosystem, ensuring token distribution and sustainable growth. This phased approach aligns with the project's long-term vision, facilitating stability and planning for token holders and ecosystem participants.

The chart below clearly shows the timing of vested unlocking RDNT tokens currently. In March 2024, more than 10 million RDNT will be unlocked. This unlocking event may affect the circulation of tokens and have a certain impact on market dynamics during this period. Investors should be aware of such milestone events and consider the potential impact on the value and trading of RDNT tokens.

Source: Dune Analytics (@shogun)

6.3 Comparison of the design of token release rules for proposals (V1 vs V2)

** Radiant v1 design: **

All token releases are lead to the first deployment of RDNT on Arbitrum.

Proposed design of Radiant v2:

Total Max Emissions represents the total emissions allocated to all Radiant deployments in a given month; the total maximum emissions will run on 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 releases accordingly for the next month. For example, at the end of March, if the Arbitrum chain had 30% of the total locked value in Radiant, the BNB chain had 30%, and the Eth Mainnet had 20%, then the release of these three chains in the following month should be divided into 30%/30 %/20%.

When the project was launched, 100% of the token release was directed to the Arbitrum Radiant market; after launching on the BSC Chain, the proposal suggested that 50% of the release in the first month be directed to the BNB Chain. This is a simple approach, and more complex ideas (e.g. per-chain, per-market metrics, distribution based on protocol fees generated) should continue to be discussed and brought forward to subsequent proposals. This part of the RFP can be updated based on subsequent proposals generated by DAO stakeholders. It's a predictable and formulaic approach that gives transparency in the short term. According to the voting results of Governance Proposal RFP-4, the release rules of **$RDNT incentivize ecosystem participants to provide utility to the platform as dynamic liquidity providers (dLP). **Because only users who have locked dLP (liquidity tokens) will activate their deposit or loan RDNT token release reward qualifications.

In view of Radiant's cross-chain vision and the transition from unilateral lock-up to LP lock-in, this enables Radiant to plan for the long-term future more rationally and provides the possibility for more on-chain deployments.

6.4 Smart Contract Revenue Path, Value Capture and Token Utility

6.4.1 Smart Contract Revenue Path

The income of this contract mainly comes from loan interest and loan fees. The process involves lenders depositing their assets on the platform, which are then borrowed by borrowers on the collateral. Borrowers need to pay borrowing fees to obtain loans. Assets held as collateral may be liquidated if the borrower fails to repay the loan on agreed terms and conditions. The platform then collects fees from these transactions and distributes the rewards to lenders and dynamic liquidity providers. This revenue model incentivizes user engagement and provides a revenue-generating mechanism for the platform and its participants.

6.4.2 Platform Value Acquisition

• Borrowing interest, the interest rate changes dynamically according to the liquidity
• Clearing fee
• Early withdrawal penalty

Revenue & Fee Path, Source: Radiant Capital

6.4.3 $RDNT Token Utility

*Minimum 5% deposit dLP to activate RDNT token release for borrowers/lenders, which is added value on top of base market rate

• dLP lockers (locking RDNT liquidity) earn 60% of platform fees
• RDNT holders can also participate in DAO governance

Utility Flow Chart, Source: Radiant Capital

Sustainability is an important KPI for Radiant DAO and as such, the protocol implements a Dynamic Liquidity (dLP) mechanism that only allows distribution of rewarded RDNT tokens and platform fees to Dynamic Liquidity Providers (dLPs) . As mentioned above, the dLP mechanism is a nice improvement over Radiant v1. It motivates users to provide liquidity for $RDNT. After a 90-day lock-up period, the RDNT token release incentive can be fully obtained, and early withdrawal will be punished. This penalty mechanism can reduce the selling pressure of the token.

7. Operating conditions and competitive landscape

7.1 TVL

Radiant has the highest TVL on the Arbitrum chain. Radiant TVL is higher relative to other lending protocols of similar market capitalization due to its easy-to-use lock-and-cycle functionality and highly incentivized rewards. However, its MCap/TVL ratio is higher than that of its peers, suggesting that it is now slightly valued.

7.2 Users

Since the launch of V1, there have been two waves of user surges in the third quarter of 2022 and the Arbitrum boom in January, but there has been no significant increase in users after the launch of Radiant V2. The current cumulative users are 216,831, and the daily active users are 4,750.

Source: Dune Analytics (@defimochi)

7.3 Trading Volume

$RDNT issuance incentivizes debit and lender transaction volume, reflecting the platform's ability to drive engagement and activity. With a volume of $740.7 million in May, Radiant Capital outpaced lending protocols with a similar market capitalization, showing that Radiant is effectively attracting users and inspiring significant deal activity.

7.4 Utilization

**The total utilization rate is about 60%, which is relatively higher than similar lending agreements. ** $RDNT rewards and an easy user interface for cycling and locking improves asset utilization. Broken down per asset, Radiant has similar utilization to AAVE for stablecoins, but higher utilization for wbtc and weth.

Radiant launched on the Binance Smart Chain (BSC Chain) on March 27 with over $33 million in locked funds. The green area in the figure below shows RDNT’s income from the BSC chain since March 27, and the purple part shows RDNT’s income from the ARB chain. It is clear that from mid-April, RDNT earns more from the BSC chain than from the ARB chain. Earnings have increased by 115.9% over the past 90 days, a massive increase in earnings. It even beats well-known protocols like Aave and Compound making it bigger in terms of 90-day revenue. This shows that Radiant is experiencing rapid expansion and gaining traction within the industry.

Source: Token Terminal

7.5 Financial statement analysis

According to statistics in financial reports, RDNT has seen significant growth in revenue and transaction volume over the past few months. In January and May, RDNT’s revenue was $1.0538 million and $1.04 million, an increase of 886.90%. In January and May, the trading volume of RDNT was $39.5 million and $740.74 million, which shows that the performance of RDNT is improving rapidly. Increases in revenue and transaction volume indicate growing demand for the protocol. As of May 31, 2023, the platform had active loans of $377.39 million and net deposits of $636.75 million. The total net deposits of $636.75 million indicate that the platform has a large amount of liquidity, which is an important factor in maintaining user trust and ensuring that the platform can meet the needs of users' lending activities. In addition, $377.39 million in active loans means that users are highly engaged with the platform, which is also a positive sign for the platform's growth prospects. Additionally, a solid borrowing ratio indicates that the platform is effectively managing its lending activity and maintaining a healthy balance between borrowing and borrowing.

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

**In general, the financial statements show that RDNT's financial situation is good, and it has a good foundation to continue to expand the user base and expand the services of the decentralized lending market. **

8. Growth drivers

8.1 Development of Layer2

The prosperity of Layer2 has promoted the development of the RDNT protocol. As more and more users and transactions migrate to Layer2, the demand for RDNT decentralized lending services will increase. Radiant's planned launch on Ethereum and zkSync also demonstrates its commitment to capturing this growing market.

8.2 Cross-chain market

Radiant is the first functional cross-chain lending marketplace, and given the frequent occurrence of cross-chain bridge theft and hacking incidents, cross-chain lending offers a promising alternative that can alleviate the need for traditional cross-chain bridges. If the protocol successfully realizes comprehensive cross-chain lending, it will enhance the utility and demand of RDNT, and eventually push its price up. Radiant is at the forefront of the cross-chain lending market, with the potential to reshape cross-chain transactions and solidify Radiant's value proposition.

8.3 Passive Income

Users earn low-risk passive income through cross-chain lending/borrowing in a bear market.

8.4 Token Design

The token economic model of token design V2 enhances the incentive value, distributes RDNT issuance to long-term agreement users, and promotes its sustainability. The "5% locked dlp" threshold incentivizes users to purchase RDNT and relock more LPs to stay above the minimum threshold.

8.5 Airdrop opportunity

Radiant plans to airdrop $ARB to long term dlp holders. Additionally, there are LayerZero and ZKSync narratives attracting users to the Radiant platform for potential airdrops.

9. Valuation

Our valuation is based on DCF analysis and comparable analysis methods, both of which can be adjusted accordingly in our valuation model (Radiant Capital Valuation Model - Gryphsis Academy). The following is a detailed description and explanation of the valuation methodology.

9.1 Cash Flow Analysis

Discounted cash flow (DCF) is a valuation method used to estimate the value of an asset based on its expected future cash flows. The principle is that an investment must be worth as much today as it will generate cash in the future. Our model uses a 5-year forecast period and accounts for any cash flows thereafter with an estimated future value.

9.1.1 Assumptions

Protocol Total Value Locked (TVL) Growth Rate: We divide the assets available for lending into three categories: BTC and ETH, stablecoins, L1 and L2 alternative assets, and assume that each asset class is in the low, medium , High growth rates under three scenarios.

We use historical annual growth rates over the past five years to project the market caps of Microsoft and gold, and use Ethereum market cap as a percentage of Microsoft's market cap and Bitcoin's market cap as a percentage of gold's market cap to demonstrate growth rates under three scenarios: high, medium, and low Is the estimate reasonable. Our false growth rate is linearly decreasing. Since Radiant self-backed BSC and offered BNB lending in the market, the TVL of Alt L1/L2 assets increased by 231.53% in the following month. It is therefore reasonable to assume higher growth rates for L1 and L2 alternative assets compared to stablecoins and BTC/ETH.

Utilization: Asset utilization remained at a similar level in Radiant v1 and Radiant v2. We rounded the average and selected stablecoins with a utilization rate of 73%, reducing the estimated utilization rates for BTC, ETH, Alt L1, and L2 to 50% to accommodate market uncertainty.

Annualized fees/loaned assets: We compared this ratio to AAVE (a relatively mature lending protocol) and calculated the average annualized fees/loaned assets for both protocols. We compare this rate to the current Radiant annual rate and choose the lowest of the two rates as the final year rate for 2028. The percentage for the remaining years is calculated by increasing the rate linearly to the final year.

Discount rate: We use the 10-year US Treasury bond as the risk-free rate and BTC as the market benchmark. The beta value is derived from a regression model of RNDT returns as a function of BTC returns. The regression analysis is based on data from the RDNT IDO day, which is July 22, 2022. The Capital Asset Pricing Model (CAMP) calculates a cost of capital rate of 35%. Regression analysis shows that Bitcoin returns significantly predict RDNT prices, but the model can only explain 1.7% of the total variance. Therefore, we choose 35% as the discount rate, which is similar to the average return rate of VC funds of 30%.

Final P/E: Assuming an exit PE multiple of 10x for projected free cash flow in 2028, which is in line with the P/E of publicly listed lending agreements.

9.1.2 Mid-case valuation

The results in the medium case are shown in the figure below. In this case, the RDNT price is expected to be $0.35, with a valuation of $158.49 million on December 31, 2023.

9.1.3 Probability Weighted Valuation

We assigned 25% probability to the low and high scenarios respectively, and 50% probability to the medium scenario. After calculation, the probability-weighted DCF valuation of RDNT price is $0.37, and the valuation of the agreement is $168.14 million. The RDNT price on May 31, 2023 is $0.31, with a potential upside of 17.26%.

9.2 Comparable analysis

Comparable analysis is a commonly used valuation method, which evaluates by comparing with similar companies in the same industry. Its basic assumption is that similar companies should have similar valuation multiples, such as price-to-sales (P/S) and price-to-earnings (P/E). Of course, it needs to be stated that there may be certain limitations when using this valuation method to value these lending agreements in the field of decentralized finance, because reliable sales revenue data may not be available.

When conducting a comparability analysis, it is crucial to select businesses that are as similar as possible in terms of industry, business model, risk profile and market dynamics. By ensuring that these dimensions are comparable, the influence of external factors is reduced, allowing us to focus on the intrinsic value drivers of the businesses being analyzed. If we select comparable companies that belong to the decentralized lending industry and have a similar business nature and risk profile to RDNT, this can enhance the validity of the comparative analysis. By making the lending agreement within the decentralized exchange (DEX) industry a comparable agreement, the problem of different market risks between different industries can be solved. Since these four comparable projects all belong to the DEX lending industry within the decentralized finance market, it is reasonable to assume that they face similar market risks.

9.2.1 Valuation Assumptions and Variable Considerations

Market Cap/Total Locked Value Ratio (Fully Diluted Valuation / TVL Ratio): This ratio reflects market sentiment and perception of the value of the protocol by comparing the market cap with the total locked value (TVL). It provides investors with insights into the corresponding valuations resulting from the protocol's assets and economic activity. Secondly, TVL represents the total value of locked assets. Dividing the market value by TVL can give an indicator of the efficiency of the protocol in terms of attracting and retaining assets compared to the market value. A lower P/TVL ratio indicates potential undervaluation and stronger growth prospects. Taking these factors into account, the P/TVL ratio can be a relevant and useful comparable multiplier for calculating the valuation of DeFi lending protocols.

Price/Earnings Ratio (Price/Earnings Ratio): The price-earnings ratio helps investors assess whether the market's valuation of the decentralized lending agreement is reasonable or overvalued compared to its earning potential by considering the relationship between price and earnings Undervalued or undervalued, this can help identify potential investment opportunities or risks.

Price/Sales Ratio: Price/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 evaluating 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 agreement, it is possible to understand how the market values the earning power of the agreement.

Average P/S ratio: We use the market multiplier method commonly used in the encryption industry, and use the average of the price-to-sales ratios of four comparable protocols as the market multiplier 1. By calculating the average, we essentially take into account the upper and lower bounds of comparable items, providing a balanced market multiplier estimate. Therefore, we choose to use the average of comparable items as a quantified market multiplier to avoid potential bias that may arise from relying solely on maximum or minimum values.

Median(Median): Statistically speaking, the median is not affected by extreme values in the distribution sequence, which improves the representativeness of the median to the distribution sequence to a certain extent. Therefore, we think it is reasonable to choose the median as the market multiplier of 2.

Revenue and protocol fees: By analyzing the revenue generated by a protocol, its ability to generate revenue and maintain operations can be assessed. Revenue is a key indicator of a protocol's financial health and growth potential. The evaluation of agreement fees helps to understand the revenue streams directly related to the lending activity and the profitability of the lending agreement. Revenue and protocol fees can come from a variety of sources within a decentralized lending protocol, including interest rate differentials, liquidation penalties, transaction fees, and other revenue sharing. By considering revenue and agreement fees as variables, analysts can assess diversification of revenue streams. This helps assess the protocol’s ability to withstand market volatility and its long-term viability.

9.2.2 Valuation

According to the figure below, Radiant's TVL on May 31, 2023 is $636.75 million, which is between Benqi and Venus. At a fully diluted valuation of $312.92 million, it is small compared to Aave and Compound, but larger than Benqi and Venus.

Radiant's fully diluted valuation/TVL ratio of 0.49 is high relative to other protocols, suggesting that Radiant may be overvalued relative to the capital it has locked up within the protocol. That could mean the market could be pricing Radiant above its potential value. However, Radiant's estimated annualized gross revenue of $15.98 million and annualized agreement fees of $26.63 million proves that Radiant has good revenue-generating capabilities. In addition, the price-to-earnings ratio (P/E) and price-to-sales ratio (P/S) are relatively low relative to the average ratio of the selected decentralized lending agreement, and the value may be underestimated. Finally, based on these three valuation multipliers, the potential prices of RDNT were deduced to be $0.16, $0.40, and $1.73, respectively.

It is worth noting that the establishment of the valuation model and the derivation of the token price are based on the current data and market conditions provided. The actual future market dynamics and the performance of the Radiant protocol will ultimately determine its true market value.

9.3 Comprehensive analysis

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

Three values are selected for comparative analysis, which are P/TVL, P/E and P/S ratios. At the same time, we select the maximum and minimum values of the probability-weighted DCF valuation (cash flow valuation) under different terminal price-earnings ratios and discount rates from the sensitivity analysis. Based on the above data, the weights of the three comparative analysis multiples are 15% respectively, and the weighted DCF is 55%. The price range obtained from the comprehensive analysis is 0.45-0.67 US dollars.

10. Risks

10.1 Smart Contract Risks

Although Radiant v2 smart contracts have been audited by reputable firms such as BlockSecTeam, Peckshield, and Zokyo_io, and are pending review by OpenZeppelin, there are still inherent smart contract risks. Additionally, dependencies on external components like Stargate and LayerZero introduce potential additional risks. Since Radiant will be launched in 2022, the maturity period is less than a year, and there is a lack of long-term testing, so there may be certain technical risks.

10.2 Inflation risk

Radiant is exposed to high inflation, a potential risk that could affect the value and purchasing power of the native token, or affect the overall stability and sustainability of the lending ecosystem.

10.3 Competitive Risks

There are a large number of competitors in Radiant’s lending track, and the existence of more mature lending protocols that support cross-chain lending has increased competition, which may affect the growth and user volume of the Radiant protocol. For Radiant, being able to provide unique value is extremely important in attracting customers and maintaining market share.

10.4 Governance Risk

Radiant is governed by the Radiant DAO, which exposes the protocol to potential governance-related risks. This includes potential challenges in rapidly implementing change proposals or responding to market demands, and vulnerability to governance attacks or manipulation. Robust governance procedures and transparency are critical to mitigating these risks and ensuring the long-term success and stability of the protocol.

Potential investors and users need to be aware of these risks and do their own due diligence. Evaluating and understanding the risks associated with a decentralized lending protocol like Radiant is especially important for making informed investment decisions and risk management.

11. Conclusion

Radiant's recent performance in the cross-chain lending track has been impressive. However, there is still a long way to go to realize a full-chain currency market. If it relies heavily on Stargate and LayerZero to achieve cross-chain purposes, its development may be limited. Radiant can grow further by integrating more omnichain technology solutions to optimize user experience.

In addition, Radiant can further expand its line of business in the money market beyond just lending. Some possible ways to improve the protocol:

• Risk management framework: One of the challenges faced by decentralized lending protocols is the lack of diverse collateral and a mature risk management framework corresponding to it. Implementing a robust risk management framework can help mitigate a range of risks, and Radiant can improve the overall stability of the protocol through continuous refinement of dynamic collateral ratios, liquidation penalties, and risk-based interest rates.
• Incorporate more asset types: Decentralized lending protocols currently mainly support cryptocurrencies as collateral. However, the inclusion of more asset types, such as real-world assets and LSD, can help increase diversity in the currency market and attract new users who may not be comfortable with cryptocurrencies.
• Integration with other DeFi protocols: The Radiant lending protocol can also be integrated with other DeFi protocols, such as decentralized exchanges, yield aggregators, etc., to create a more comprehensive financial ecosystem.
• Expansion to other DeFi products: Radiant Capital can explore opportunities beyond lending and leverage its omnichain capabilities to expand its business into other DeFi products such as LSD and Collateralized Debt Positions (CDPs), adding broader token utility use cases . Use the advantages of its RDNT OFT-20 token standard to create more token scenarios, realize seamless cross-chain token transfer, and make it easier for users to exchange and use any dApp on any chain, thereby attracting more users to come to the platform. As Radiant gradually integrates more cross-chain money market businesses, it can create more enabling scenarios for its tokens and become a financial platform with a variety of DeFi products. With the improvement of the platform's value and user experience, Helps drive up the price of the token.

Overall, the future prospects for RDNT are bright, with many opportunities for growth and innovation. By implementing a robust risk management framework, incorporating new asset types, integrating with other DeFi protocols, and expanding more DeFi leveling applications, Radiant Capital can continue to grow and attract new users to Radiant's full-chain currency market.

References

other information

Radiant Capital (RDNT) social media:

• Twitter:
• Discord:
• Telegram:

Contract address of Radiant Capital (RDNT):

• Arbitrum(Arb One): 0x3082CC23568eA640225c2467653dB90e9250AaA0

Disclaimer: This report is an original work completed by @CryptoAndrewCao and @YihanYihan_W, students of @GryphsisAcademy, under the guidance of @CryptoScott_ETH and @Zou_Block. The authors are solely responsible for all content, which does not necessarily reflect the views of Gryphsis Academy, or the organization that commissioned the report. Editorial content and decisions are not influenced by readers. Please be aware that the author may own cryptocurrencies mentioned in this report. This document is for informational purposes only and should not be relied upon for investment decisions. It is strongly recommended that you conduct your own research and consult a neutral financial, tax or legal advisor before making an investment decision. Remember that the past performance of any asset is no guarantee of future returns.