Fei Financial Report

[Bruno]

Authors: @Bruno , @fei.saver , @Elee

As discussed in the Discord, we are preparing the first financial report related to the second quarter (Q2), considering April, May and June. We considered some references: Index Coop Report 1, Index Coop Report 2 and Yearn.

The motivation for elaborating the financial report is to increase Fei Protocol transparency and raise awareness around the financial strength of Fei Protocol. It has an educational and communication potential to bring new users and investors to the protocol. It can also be a tool for the community to make good and informed decisions.

After initial discussions, we are proposing the following structure for the Q2:

Income Statement

Balance Sheet

Comments

→ Selling FEI for US$ 1 ETH in the bonding curve, add US$ 1 FEI liability and US$ 1 ETH asset , so it does not impact the income statement.

→ Buying FEI in the reweights with US$ 1 ETH, reduces US$ 1 FEI liability and US$ 1 ETH asset, so it does not impact the income statement.

→ Buying with the stabilizer (considering the 0.95), reduces the US$ 1 FEI liability, and US$ 0.95 ETH, registering US$ 0.05 ETH result in the income statement.

→ FEI loans, register US$ 1 FEI liability and US$ 1 fFEI asset. The asset increases its value as the interest is accrued, and the result impacts the income statement.

→ We did not consider PCV Deployment Results inside the revenue because it can increase or decrease in value (eg.: DPI price can go down or up). It would be weird to have a negative revenue. Revenue is dedicated only for operations.

The guidelines for calculating each line are in the spreadsheet: here.

Next steps

We will collect the onchain data, populate these 2 statements and share here.

We are open for feedbacks.

[countvidal]

I think the PCV Deployment Results should instead be converted to the Available for Sale Securities method in IFRS. Gains or losses from revaluation of the asset are put through Other Comprehensive Income in Shareholders’ Equity except to the extent that any losses are assessed as being permanent and the asset is therefore impaired (under IAS 39, paragraph 58), or if the asset is sold or otherwise disposed of. If the asset is impaired, sold or otherwise disposed of, the revaluation gain or loss implicit in the transaction is recognised as an income or expense.

If we anticipate to do constant trading of those assets then they should be classified as Held-For-Trading.

[Bruno]

Interesting discussion Count, tks for bringing it!

I see that in Fei case PCV Deployment is not an investment asset separated from operations. Different from non-financial companies, for Fei the yield/return on these assets are essential to the balance of our operations. So the $ received can increase in a greater proportion than our liability.

From this aspect, Fei reminds me an insurance company, that register the results they have with the investments in the income statement. It is also part of their business, investing well the money to be prepared to pay the claims in the future.

So, we included this results in the income statement and they are key to Fei success.

[countvidal]

There are only three ways to categorize investment assets, be it for banks, insurance or regular companies:

Available for sale
Held for trading
Held until maturity

We would have to divide our investments and put them in each bucket depending on how we want to treat them.

This link will help:

Types of For Sale Securities and Their Accounting Treatment (AFS/HTM/HFT)

[Bruno]

That’s an interesting and polemic topic in accounting, Count.

During these days, I needed to study more this to gather additional references. This is what I found: in 2018, IFRS 9 replaced IAS 39, Financial Instruments – Recognition and Measurement. So now the guideline is to recognize the change in the value of the asset in the income statement (profit/loss).

Some highlights from it:

The new standard is based on the concept that financial assets should be classified and measured at fair value, with changes in fair value recognized in profit and loss as they arise (“FVPL”), unless restrictive criteria are met for classifying and measuring the asset at either Amortized Cost or Fair Value Through Other Comprehensive Income (“FVOCI”).

The IFRS 9 model is simpler than IAS 39 but at a price—the added threat of volatility in profit and loss. Whereas the default measurement under IAS 39 for non‑trading assets is FVOCI, under IFRS 9 it’s FVPL.

The IASB provided the FVOCI option in response to objections that some investments are made primarily for non-financial benefits (e.g., strategic alliances). Rather than trying to define the term
“strategic alliance” or a general principle for identifying such assets the IASB decided to make FVOCI classification optional. Entities should carefully consider the implications of designating a particular investment as FVOCI considering that changes in fair value of the investment will never find their way to profit and loss. An entity that decides to designate an investment at FVOCI will have to disclose the reasons for doing this.

Source: https://www.pwc.com/gx/en/audit-services/ifrs/publications/ifrs-9/ifrs-9-understanding-the-basics.pdf

Considering this and for simplicity, I think it’s a good idea to consider the PCV Deployments in the FVPL category with impact on the income statement.

[0xSami]

Did this ever get completed?