What if we got rid of instantaneous reweighting altogether? What if we reweighted only staked FEI?
Imagine if we create a staking pool for FEI that is only useful when FEI is below peg. If a user buys FEI at 80 cents and then stakes in this pool, then they get a portion of burn fees until they are made whole at $1. You could optionally add in a mechanic that pays a re-weight automatically if the burn fees don’t fill them back up before a certain time has passed since the made the stake.
What this would do is create demand for FEI at below peg, because buyers could scoop up FEI at 80 cents, stake it (taking it off market) and then earn an effective yield on burn fees until the FEI price hits the, let’s say $0.95 to $1.05 range. For each staking deposit, you could set a “high water mark” to indicate how much in fees they redeemed until that point
Let’s say FEI price is 80 cents. I stake 1000 FEI that I spent 800 DAI on. There are 100K FEI in the staking pool. I will receive 1% of the total burn fee allocation for the staking pool while FEI is below peg. You could add a mechanic where if the FEI price does not reach the $0.95 level by a certain time, then that individual deposit is “reweighted” based on (peg - fees earned).
What this would do is more closely align buyers with incentives for removing liquid supply from the market (rather than arbitraging burn fees from external exchanges). It would avoid the problem of bots front running reweights and would offer no advantage to a human vs. bot.
I believe with this mechanic you could also safely cap the burn fee when below peg. Let’s say you cap it at 5%. Now sellers can understand this 5% as a “max tax” they have to pay to sell below peg. In fact, they’d have to do this knowing there was a deposit pool available where they could earn their money back eventually, so this would cause further tension back towards $1. So a seller is presented with an option: do I burn FEI or stake FEI? They will burn FEI if they need to dump quickly. They will stake FEI if they can afford to wait.