FEI DAO Investment Policy Statement (IPS)

[Bruno]

Thanks for the feedback, very good questions, @arcology !

@arcology

Risk Tolerance
What made you come to the conclusion of the target TRIBE risk profile of volatility 3M of 5% and Expected Shortfall of 12%? Is this based on a comfortable risk appetite as discussed within your Working Group or is there certain sampling of users who are comfortable with losing over a certain percentage of their portfolio? There is a lack of causality explained in getting to these figures.

It is an initial suggestion based on the scenarios we presented here: FIP-6 PCV Initial Stable Coin Investment - #32 by Bruno

We can have 5% of volatility and 12% of Expected Shortfall, If we hold in the future sth between 20% and 25% stables, for example. As the FIP-6 first investment would be around 15% of PCV we would not be far from this objective. One way of reaching this target would be to add a basket of decentralized stablecoins. We could also reduce this volatility by other means, adding less correlated assets, which is not so easy in the crypto world.

This was just a starting point and the intent is to gather the sentiment of the community about it.

@arcology

Asset Allocation
On a similar note, what made you come to the conclusion of the target desired allocation of assets within a 6 month timeframe (not not longer/shorter)? As experienced with the recent market moves, 6 months is an eternity in the crypto space. Therefore, can you please elaborate whether this time period includes other unmentioned factors such as code development to diversify, waiting for suitable times to enter the market, FIP-6 implementation, etc?

Each proposal requires time to do a robust analysis, discussing with the community and voting. If we use the code from PCVSwapper, the coding part is more quickly. But when we are talking about providing liquidity to Uni V3, it will require more time to develop and audit it.

Usually, some funds, as endowments, establish the target allocation each year, others funds define a more permanent allocation limits. In our case we preferred to let this short period of 6 months, because, as you said, it is an eternity in crypto. We also preferred to let some flexibility with min and max, because each investment will depend on DAO specific analysis and vote.

The duration of 3 months would be the minimum possible period, as each quarter we need to do a review of PCV performance and will have more insights about its performance. I think 6 months is reasonable because the target allocation is flexible with minimum and maximum %. We can view more as a roadmap for the next 6 months instead of a determination. But If we feel the need to review with the quarterly reports, there is no problem in updating it.

@arcology

Whether it makes sense to hold small amounts (basket) of other algo stablecoins, subject to your performance criteria to be included;

I think so. The great differential for FEI is liquidity. So, holding a basket of other stables could help, by increasing the liquidity with them. The benefit for it, is facilitating current users of stablecoins to exchange for FEI. Additionally, it also helps to reduce portfolio volatility.

@arcology

Whether it makes sense to hold other large-cap DeFi tokens in an indexed form (DPI) or in their constituents; subject to your performance criteria to be included;

I would prefer to hold directly the large-cap DeFi token instead of the index, because of meta-governance. If we hold the index we cannot vote. “By holding tokens, FEI DAO can take advantage of meta-governance and influence other protocols’ decisions. As a stablecoin, Fei has a central role in DeFi, and meta-governance can be valuable to foster a thriving environment with other DeFi projects”.

Another benefit is that we could provide liquidity for the pair FEI/DeFi Token, making it easier for token holders to swap to FEI. It can be an attractive feature as many DeFi protocols have liquidity mining programs and some users may want to sell their governance tokens.

@arcology

1. Preferred vehicle for asset to be invested in;

Did not get this one.

@arcology

Risk Management
To make this clear to users and the community, can you please give an example of one asset that you can apply your methodology on as an example case. You can/should use some of your research from the FIP-6 assets on DAI/USDC.

An example of this methodology was used for FIP-6 and selecting the DAI/USDC. The risk analysis of each token is here and the impact on portfolio risk metrics (volatility and Expected Shortfall) is here. If you need further explanation, please tell me.

@arcology

Implementation
I disagree that by holding indexed tokens we will miss out on governance. Again, I quote the Index Coop model, their governance token can be used for meta-governance, based on the underlying shares and components of DPI, which influences the INDEX token.

Hmm according to the information I got with the team there, If we hold DPI we will not have voting power on DeFi protocols. Index Coop has the right to vote.

@arcology

Performance and Changes to the model
Can you please comment on how/if based on market conditions and other influencing factors, whether and how the IPS will be modified, and under what criteria will be used to ‘reweight’ the investment portfolio into other assets, if necessary. There appears no consideration on whether the investment policy should respond quickly/slowly to changes in DeFi and the wider cryptosphere.

We expect the IPS to be periodically updated to reflect any major change in the TRIBE/FEI ecosystem and DeFi/crypto environment. By each quarter, we will have the opportunity to analyze PCV performance and discuss if it is necessary any change. In case of an unexpected event, we could also make an extraordinary revision of the IPS.

Thanks one more time for the questions and feel free to bring more points!