FIP 102: Propose and use a FEI-A vault on MakerDAO

Motivation

As discussed here and here, Tribe DAO need to improve it’s DAI funding to keep the peg strong and growth significantly.

This proposal suggest to get a line of credit from MakerDAO. MakerDAO has currently excess reserves (4B of idle USDC). It will be a win for both protocol (stable source of revenues for MakerDAO and stable funding for TribeDAO) and a good PR move to show partnership between those DeFi stablecoins.

This proposal is complementary to borrowing on Aave as TribeDAO need to keep a diversified source of funding.

PS: Question 7, brief history of the project, is still TBD, happy to get a short paragraph from a Fei historian :slight_smile:

Specification

  1. Publish the MIP6 (shown below) on MakerDAO forum
  2. If accepted, develop a PCV sentinel that refill the DAI PSM by borrowing on MakerDAO, when a drip doesn’t refill it.

Voting options

  1. Yes, launch the MIP6 process
  2. No, do nothing

MIP6: FEI

Summary of the proposal

While filled as a MIP6, this proposal can be seen (and converted) to a D3M (or even a PSM). It is suggested to have a good overcollateralization, meaning that the only use case for this vault will be Tribe Protocol to put FEI as collateral to mint DAI. The Tribe DAO will use this loan to finance its balance sheet and provide a better peg for its users.

Moreover, with the stablecoin war starting and CeFi stablecoins winning the DeFi space, it makes sense to partner with other stablecoin issuers to push DeFi stablecoins ahead. FEI is already pegged to DAI with 10bps fees. This vault will allow Fei to decrease conversion fees. Tribe DAO is also managing Fuse so this will be complementary to the Fuse D3M discussion.

Initial suggested parameters are 150M Debt Ceiling, 150% Collateralization Ratio, 2% Stability Fees, with or without liquidations. As Fei Protocol target usage will be 100M, it will bring 2M additional revenues per year (increasing our revenues by 2.5%).

Background Information

  1. Who is the interested party for this collateral application?

The Fei community as voted on this snapshot TBD.

  1. Provide a brief high-level overview of the project, with a focus on the applying collateral token.

Fei is a decentralized, scalable, and DeFi-native stablecoin protocol.

  1. How long has the project been live in production?

Fei smart contract started by used on March 3rd, 2021.

  1. Provide a brief history of the project.

Fei Protocol was launched in March 2021 and was a huge success as a lot of stacked ETH was converted to TRIBE token (the governance token). It started with 2B outstanding FEI (the stablecoin). For the first months, the peg was hard to keep until a new system was put in place. The peg is now stable since May 2021 and is getting better over time.

On October 2021, TribeDAO announced a partnership with Ondo Finance to provide Liquidity-as-a-service.

Fei v2 was launched in December 15th and introduce a tight peg with DAI, TRIBE backstop to FEI holders (similar to MKR backstop) and improved decentralized governance.

In December 2022, Fei Protocol and Rari Capital were merged to form the actual TribeDAO which is both managing the FEI stablecoin and the Fuse lending market (for which a D3M is explored by Risk).

This month, Volt was launched as a inflation-liked stablecoin based on Fei.

Another new product is Tribe Turbo where DAOs can borrow against their governance tokens and use the proceed in specified pools. revenues are split between the borrower and TribeDAO. First customers are Balancer and Olympus.

There was a recent analysis by Messari.

  1. Link the whitepaper, documentation portals, and source code for the system(s) that interact with the proposed collateral, and all relevant Ethereum addresses. If the system is complex, schematic(s) are especially appreciated.

Asset Information

  1. What type of asset is it? (e.g. store of value, currency, commodity, capital asset, governance token etc.)

Stablecoin

  1. How is the asset used and does it give any rights to holders? (e.g. financial claims, dividends, governance rights)

The Fei token is a stablecoin backed by a mix of assets which currently correspond to 240% collateralization ratio. Most of the backing is ETH (and derivatives), but there is also around $140M of stablecoins.

A DAI PSM allows to convert FEI for DAI with 10bps fees (expected to be reduced). If the DAI reserve is depleted, a LUSD PSM can be activated, then a ETH PSM.

Since FEI v2, TRIBE is used as a backstop to keep the system solvent (similar to MKR for MakerDAO).

  1. What is the market cap for the asset?

The market cap is around $550M divided in two parts: user FEI and protocol FEI.

User FEI, around $250M is FEI circulating in the hands of users.

Protocol FEI, around $300M correspond to FEI owned by the protocol and stacked to different DeFi protocols.

  1. Where does exchange for the asset occur?
    9.a Provide exchange data on market liquidity, volume and order book depth.

Fei has many on-chain liquidity pools for liquidty:

Onchain DEX volume range from 5 to 30M daily.

Additionally, as mentionned before, Fei has a DAI PSM and can active LUSD and FEI PSM if needed.

  1. Is the asset settled on chain (trustless) or off chain (trusted)?

Settled on-chain

  1. If offchain (trusted) settlement: describe what are the involved entities, process and estimated time.

n/a

  1. List any possible oracle data sources for the proposed collateral type.
  1. List any parties interested in taking part in liquidations for the proposed collateral type.

n/a

Business Questions

  1. What is/are the expected use case(s) of the Dai generated by the vault?

The use cases for MakerDAO are:

  • Generate a yield and decrease USDC exposure. The FEI vault will be akin to a super-senior DAI loan to Fei Protocol (D3M-like). Being overcollateralized in FEI, MakerDAO would enjoy more protection than FEI holders.
  • Taking the role of a decentral bank by providing temporary liquidity to stablecoin issuers when needed. This was already discussed on MakerDAO forum in the Intra DeFi stablecoin issuers money-market. Long term such arrangement will make DeFi stablecoins safer.

The use cases for Fei Protocol are:

  • Engage in a more expansionary monetary policy by issuing more FEI through Tribe Turbo
  • Use funding for investments
  • Defend the peg of FEI if needed
  1. What is the amount of Dai expected to be generated against the collateral and what is the timeline? Is there a commitment on a minimum amount of Dai to be generated?
  • 100M for investments
  • 50M additional when needed to temporary balance the supply/demand of the token
  1. What are the strategic benefits for MakerDAO in onboarding the collateral?

Legal Questions

  1. What are the legal risks associated with the tokens?

Same as those related to DAI, if any.

  1. (Optional) Does one organization bear legal responsibility for the collateral? What jurisdiction does that organization reside in?
  2. (Optional) Has your project obtained any legal opinions or memoranda regarding the regulatory standing of the token or an explanation of the same from the perspective of any jurisdiction? If so, those materials should be provided for community review.
  3. (Optional) Describe whether there are any regulatory registrations for the token and provide related documentation (including an explanation of any past or existing interactions with any regulatory authorities, regardless of jurisdiction), if applicable.
  4. Is issuance of the asset decentralized (trustless) or centralized (trusted)?
    20.a If centralized/trusted: by which legal entity, type of entity and jurisdiction?

The governance of FEI is done by the TRIBE tokenholders. This is fully decentralized like Maker.

Technical Questions

  1. Link any available audits of the project. Both procedural and smart contract focused audits.

Audits where made on some parts of the system by Consensys and OpenZeppelin.

The protocol also use Immunify for bug bounties.

Code4rena regularly is also used regularly

  1. Has the token (and/or supporting protocol) been formally verified?

No

  1. Does the asset follow a token standard? (E.g. ERC20, ERC721, ERC1400)

ERC20

  1. Is the asset, or asset balances, controlled by a central actor, or group of actors (e.g. through a multisig, or DAO)?

FEI issuance is controlled by Tribe DAO.

  1. Does the token have whitelist or blacklist functions? If so, what is the process for utilization and what stakeholders are involved?

No whitelist or blacklist.

  1. Can the token implementation be upgraded/changed? If so, what is the process and what stakeholders are involved?

The contract is not upgradable

  1. Does the token contain rebasing logic?

No

7 Likes

Since we are piggy backing off the DAI peg, it does make sense to get a line of credit from Maker DAO. Bringing DAI as part of decentralized stables game with FEI is definitely good. But if FEI is struggling to maintain peg during mere 500 Million circulating FEI, how can we expect to maintain peg around 1 Billion or if the circulating FEI goes to 4-5 Billion in the future ? Dev’s we need to think of a permanent solution now while we use DAI for now. We cannot always rely on Maker for peg in the long time. Joey, Storm, Eswak, hopefully you have some plans ?

1 Like

In favor :slight_smile: Fei Protocol’s primary goal is peg defense, secondary goal is growth of FEI supply and PCV.

This initiative allows for both while building a tighter relationship with MakerDAO. At a 2% interest rate, Tribe initiatives such as Turbo, LQTY farming, and new FEI issuance can all be ramped up to the extent the yield or strategic value exceeds the debt.

The way I see it, PSM is a way to have a tight peg but the more important feature is backing outstanding debt. PCV is more overcollateralized than any other stablecoin, so having a minimal net exposure to hard pegged assets like DAI and USDC is all that is required to keep the peg. DAI is preferred here due to its permissionless nature. Beyond that its essentially a way to earn more yield and grow other tribe initiatives.

This is also good for MakerDAO as it transitions more DAI backing to decentralized collateral types.

5 Likes

Brief story of TribeDAO was updated and moving to last call. If we can get the snapshot result before Sunday I can post it on MakerDAO so we start the onboarding process on Monday (otherwise it’s the following week).

4 Likes

Moving to last call! @SebVentures please feel free to post a 3 day snapshot beginning Thursday and ending Sunday

A snapshot was created starting tomorrow 10am CET and finishing on Sunday 10am CET.

1 Like

According to the successful snapshot, the MIP6 was submitted.

It will be a 2 week freeze, then a greenlight poll for 2 weeks.

1 Like