FIP-2 FEI Redemption + TRIBE staking

[Eswak]

@Inaniel

Hmm… Where’s @Eswak when we need him the most? Perhaps he can’t type at the moment because his popcorn fingers are too buttery.

Lol me like proposal. Me use small bag to vote yes fingers buttery but try to explein:

@joey

TRIBE voting to bring FEI up to $0.95 will restore confidence in FEI’s peg and the community behind it. […] Allows room for mechanisms to operate with a floor of $0.95 […] Equal opportunity of exit price compared to reweight-based peg restoration

In the thread of my proposal for TRIBE staking pools, I already said that I support the idea of a fixed-price FEI redeem faucet from PCV (& you seemed to agree @Inaniel ? relevant part of the discussion below).

@Eswak

Essentially, this proposal allows staking TRIBE holders to always be able to redeem FEI at the exact peg price, so staking TRIBE holders can perform risk-free arbitrage and stabilize the price of FEI

@Inaniel

I agree with you here. I think many of us (myself included) have a bit of a dogmatic resistance to the idea that FEI would be reserve-backed. In reality, the ecosystem would probably benefit from having a faucet (even if an indirect one) where people can sell FEI for ETH at $1. And what’s nice about your solution is that the size of that faucet will be dynamic, but capped at 20% of PCV in the case that the only use of the loans is arbitrage.

I think the idea of allocating a part of the PCV to allow FEI redeem at a fixed price is necessary for the peace of mind of FEI users. “What if the algo stability feils ? Well, worst case, i’ll exit with the faucet”. It allows for better (risk-free) arbitrage below faucet price & it’s an important psychological aspect to maintain peg price (or at least some boundary around it, if the faucet redeems as far as 5% below the peg).

It’s also important that the faucet has a limited reserve, because if ETH sharply drops overnight and the protocol becomes undercollateralized, we don’t want the faucet to empty PCV & leave some worthless FEI in circulation. It seems to be the case here

@joey I hope that “95% of dollar peg price” is a parameter that can be adjusted by DAO. For the short term when this proposal passes, we’ll set it to 95%, but later on it’s good to keep the mechanism of a “ReserveStabilizer” and be able to adjust it to, like, .99$, when peg is held closely with a <0.01$ volatility for some time :

• Worst case, if the community doesn’t like it, we can just configure the PCVSplitter to give nothing to the “ReserveStabilizer”.
• Better case, it’s a new feature in the protocol that can stay for a while & not a throw-away feature developed just to relieve the current situation.

Once the direct incentives are turned back on, that idea of a faucet is even stronger because the effective sell price including burn fees will push the market price above the faucet price. For instance, if the faucet redeems at 95% peg (5% off peg), the market price should not go down below \sqrt5\%\approx2.23\% off-peg, because under that the effective sell price is <0.95$.

Later, with a 99% faucet, it’s even better because of the shape of the square function below 1%.

@joey

The allocation of an additional 100 million TRIBE from the DAO Treasury to staking rewards is an essential part of this proposal

I would have passed on using 25% of the DAO treasury for that (>70% APY is already pretty good), I think there could be better uses for it, like some TRIBE-only staking mechanism. But since the proposal is a “package” and I want to see things move forward…

Also, can’t say no to additional TRIBE, as a staker

@Ricburton

I pre-swapped and want to get a larger share of the system for that capital.

I’ll share some more thoughts later today.

Looking forward to that, I also think we should work on a TRIBE-only staking mechanism ASAP.

@joey

The core team will vote for this proposal

Transparency. Aligned with the long term interests of the protocol. Good