Fei Redemption Window: Proposal for moving forward and reducing risk

Proposals
1

Some quick thoughts on Fei and the current situation:

First, it should not have launched as it did. I voiced that on launch day. The more critical/high security bugs they had, the more likely there were undiscovered ones. There has already been 1, plus unintended reweights. But we’re here now and must find a way to move forward.

The unintended reweights last night allowed some users to exit @ or near peg, which significantly increased the collateral ratio from 1.3->1.5. The good: the protocol is overcollateralized. This means that every $FEI owned by users could be redeemed for $1 of ETH.

The bad things: the burn/mint incentives and reweights are disabled, the market price is ~$0.78, and they still control about $1b.

With each passing minute there’s a chance that there’s another critical bug that could make this far worse (ie, drained/bricked).

There should be a sense of urgency here to reduce risk and not drag this out significantly.

If ETH moves down fast, things could get very ugly. If ETH goes up, no one is really happy since they invested ETH in the first place – this is a no-win situation unfortunately.

My suggestion is to remove the liquidity from FEI/ETH and offer a redemption window. Every FEI not owned by the protocol/team can be redeemed for [$0.95, $1] of ETH by users. This reduces overall risk massively, allows users who add no value and don’t want to a graceful exit.

I want to note that this suggestion is what I think will happen if the team implements the protocol as described – people will exit near the peg after reweights until there is no one left that wants to exit. My solution allows this to be done in a clean, transparent, fair, risk-minimized way. This is much safer from a technical perspective, and IMO the best way to avoid a total disaster (ie, most people will get the vast majority of their principle back, if they want it).

The team can proceed with a much stronger community, a healthy/overcollateralized protocol, albeit with lower PCV, and iterate on the project to realize its vision. Proving it with smaller amount of money, and if it works, it will grow again. Hopefully some concessions can be made out of the DAO to TRIBE holders and pre-swappers, and people holding TRIBE will have upside if the protocol is able to maintain the peg and grow sustainably (which is what was intended).

I am open to suggestions and look forward to feedback here.

10 Likes
2

I agree that the best way forward is just to let FEI holders exit. Just look at how Maker grew DAI slowly and organically. Market cap of DAI was tiny for the longest time, and now they’re the biggest non-fiat stablecoins out there because they iterated slowly, methodically while the market cap and Maker governance community was small and tight-knit. This is exactly what TRIBE and FEI need right now - to start from a smaller base to grow organically.

3 Likes
3

Yes let us exit at $1.00 per FEI. Anything lower is a scam that benefits the founders.

They are collateralized to $1.17 per FEI currently, they can easily afford to let us exit at $1.00/FEI.

2 Likes
4

Removing the burn has allowed a lot of people from outside the genesis to buy at $0.78 to game the system. It can’t be a good thing to let them trade back out at 0.95. Enough with the short-term bandaids and unforeseen consequences. At this point, we need more subtle nudging back to the peg. If we are going to remove liquidity, it needs to happen wherever the market price is at the moment (or just slightly above)

1 Like
5

Buyers are taking significant risk, taking the opposite side of the trade that the panic sellers are taking (who prefer safety over risk).

That aside, it doesn’t really matter, because they will just sell after reweights anyway. This solution makes exiting more fair because it doesn’t advantage bots over normal users.

7

There is a reason that FEI is reaching equilibrium at the .80 cents level. That's what it is worth within the context of the system that was created. If you artificially let people out at a higher price, it's at the expense of those of us who are holding the bag (ie. Tribe). Anything else is magical thinking. Future dilution by the founders/investors is getting priced in at .80…the right way to fix it is for them to return some of the value they extracted back to the protocol.

8

They will get out at a higher price anyway as long as the protocol is overcollateralized. At this point it is overcollateralized by a lot, so everyone can get out at $1 if they wait for enough reweights.

The equilibrium is surely under $1 though, because there is still significant technical risk that this gets drained or bricked. I think a 5% penalty pro rata (ie, everyone has option to redeem at .95) is more than fair, as it gives the protocol a lot more equity/overcollateralization.

1 Like
9

Everyone can get out of FEI at a dollar. Leaving less value for Tribe. The overcollateralization is an illusion that assumes Tribe needs zero collateral.

10

Yes, I believe that is intended. Fei is like the bond whereas TRIBE is like the speculative part. Investing in TRIBE is supposed to be riskier, and it’s supposed to have more downside when the project is not successful (and must contract instead of grow). Which is what’s going to happen, whether they implement a proposal like this or not.

The sooner the team/community faces that reality, the sooner we can proceed without a critical bug ruining everyone-- FEI and TRIBE holders alike. Making changes to the algo is DANGEROUS, and should not be done when there has already been 1 bug and unintended reweights. They still have a billion $ of ETH. They can drastically reduce risk by allowing that number to shrink in a way that keeps the protocol safe and doesn’t advantage bots over regular users.

3 Likes
11

I’m sorry I didn’t sign up to guarantee a bunch of FEI at $1 --and a Tribe bonus-- to fast money apes, and give the rest my money to the developers who botched the genesis. I bought the vision of a better Stablecoin and want to see it through. It’s not stable at – or worth – $1 but that’s the hand we currently have.

12

You probably also didn’t sign up for a protocol with a bug. The situation has changed, the risk has gotten a lot higher.

Also please do not misframe my proposal. I suggested a range of [$.95, 1], with everyone having an option and everyone who takes that option getting the same price. Also stated this is my best guest approximation of what will happen anyway with reweights – everyone that wants to exit will, but in that case, everyone will get a different price, with bots getting the best execution.

In this case, there will still be PCV remaining, and people who want to stick around and share in the upside of the vision being realized can still do that. If it works, it will grow organically from a smaller base. I also mentioned in my OP that some concessions should be made to TRIBE holders from the DAO. That way TRIBE holders who want to add value and be involved can have even more upside if this is [eventually] successful.

2 Likes
13

I appreciate the ideas and discussion. But I believe there are only 2 ways to fix this without screwing over Tribe holders.

(1) Founders give back the IDO portion that they misleadingly allocated to themselves instead of the protocol. That’s what doomed the project, not their rewards bug.

(2) Or stop changing everything, lock it down, and patiently wait for the next wave of ETH appreciation to pull FEI up 25% to $1. If you are an ETH believer like me, then you should see the beauty and inevitability of that.

14

What you are calling for is a reverse dutch auction where people put the lowest price they are willing to accept and everyone gets the price that is within their bounds AND gets the most volume. Stocks do this all the time and its a good way to give massive liquidity all at once without allowing for speed to game the system.

You are right that ETH moving down and fiddling while rome burns is going to continue to kill this project. I’m not sure what management is doing but the VCs must have told them that waiting around hoping for things to get better is very very bad in a situation like this. They should look at the response the Force protocol mounted for a relatively small hack and see how overwhelming communication and transparency goes very far in the crypto world. These 1 msg a day comments that the PCV is safe is inadequate and makes people loose confidence that THIS team can salvage the protocol.

15

Okay, (2) is a non-starter / definitely not an option. No one signed up for abandoning the protocol / peg mechanism entirely to pivot to gambling whether ETHUSD goes up. That is not going to happen, and the opposite case where ETH nukes is catastrophic / death spiral.

Also, in the proposal I laid out, TRIBE holders are not screwed over. They still have their TRIBE and will benefit if the project is successful. The protocol will still be overcollateralized and have protocol equity the TRIBE holders can govern/grow. Again I reiterate that I would suggest concessions to TRIBE holders beyond the 1-5% penalty that FEI redeemers take by exiting now. Your (1) is an option as well as an airdrop of more TRIBE to preswappers/holders out of the DAO treasury. Open to other suggestions but I think this proposal is 1) directionally correct 2) likely to be what happens regardless as people exit near peg

1 Like
16

totally agree on this. This should be the first important priority.

3 Likes
17

As the holder of the tribe, I object, hahaha

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18

Only genesis participants can be given the option. It is easy because the addresses are recorded.

19
  1. does not seem realistic here. I agree with hittingBOMBS. Simply telling the entire community to wait and bet long on ETH does nothing to solve the problems we are all facing.
1 Like
20

Well like it or not, I believe that is what will happen. We will have gridlock until FEI gets back to $1 on its own. No big tribe holder is going to vote to make FEI holders whole.

21

You propose to basically shutter the project, and not develop/work on it further until the price of ETH grows organically to a point where the peg is achieved. I do not believe that this is something that the community wants, as many members are interested in the success of this project long term, and want to see fixes.

3 Likes