FIP-37: Fei v2 TRIBE buybacks

proposal: FIP-37
status: Last Call

Summary

Begin the Fei v2 rollout with TRIBE buybacks as a percentage of protocol equity.

Motivation

Fei v2 was recently announced, and includes many features such as TRIBE buybacks/backstop, 1:1 redeemability, and algorithmic PCV management.

These features should each be staged and gradually increased in order to minimize any technical risk.

The first feature, buybacks, has completed audit and is ready for release. It will undergo a 2 week bug bounty before potential deployment. This proposal includes an initial trial week before ramping up to full buyback size.

Design

Buybacks use Balancer v2 LBPs to efficiently and continuously auction newly minted FEI for TRIBE.

Fei v2 has a contract called the PCVEquityMinter which mints FEI proportionally to the protocol equity and a given duration. For example an APR of 10%, frequency of every 1 month and equity of $120m would do $1m FEI of buybacks per month.

At the end of the month, the previous FEI->TRIBE auction will close and a new one will kick off.

The proposed initial parameter is 1 week frequency for buybacks with an initial trial week of 100k FEI.

The APR would be voted on by TRIBE holders, and be either 5%, 10%, or 20%. This number will be revisited at least yearly via snapshot.

At a current protocol equity of over $700m, this would amount to $35m, $70m, and $140m worth of buybacks in the first year, respectively.

The tradeoff of a larger buyback means less protocol equity to absorb market volatility (and prevent backstop). However, larger buybacks also increase the effective APR of liquidity mining and protocol treasury size.

Note that buybacks will initially go exclusively back to the treasury for initial rollout, but as more v2 features roll out portions can be burned, added to tribalChief rewards, or sent elsewhere.

  • in favor @ 20% APR
  • in favor @ 10% APR
  • in favor @ 5% APR
  • not in favor of buybacks

0 voters

3 Likes

despite TRIBE buyback being the most popular and enduring topic amongst this community; we must recognize that FEI is still in its very early innings of development. The potential for organic revenue growth at this juncture rivals any conventional startup, and we are at a very fortuitous place of not need to raise additional equity. FEI can achieve rapid, compounded growth with its PCV in the coming years, and therefore buybacks might not be the most efficient use of capital.

With in in mind, it is also noteworthy to mention that TRIBE is undervalued even relative to PCV equity/outstanding tokens, therefore represent high value compared to most buyback. Therefore I am in favor of a limited scale buyback, within the scope of the protocol’s organic revenues, as to not dig into the PCV on an ETH basis.

The closest figure to that value is 5% of PCV equity.

1 Like

I believe the reason TRBIE is priced at a discount to its intrinsic value is social in nature. A buyback will improve the legitimacy of FEI/TRIBE. This is a great experiment using the enviable protocol equity - I look forward to how it all plays out. Voting for at least 10% buyback.

2 Likes

Being more conservative on the buybacks is a great long term strategy similar to Amazon constantly reinvesting. Note that the buyback mechanism mints FEI against PCV for the buyback rather than directly spending any PCV.

I’ve added a vote items for <5% to see if more community members wish to be more conservative

  • less than 5%
  • more than or equal to 5%

0 voters

In the volatile world of crypto, a high Collaterization Ratio and protocol equity help in the process of building trust with users and DeFi ecosystem. It brings safety and encourages investors to use FEI. Maybe 20% is too aggressive, considering these potential drawbacks.

Companies buyback their shares when they trade at a discounted level. I like the idea of alterning between 5% and 10% depending on TRIBE market price. As TRIBE price is discounted to its intrinsic value now, I suggest starting with 10% APR.

1 year is like 7 years in tradfi, we could revisit the APR whenever the market conditions change. Buyingback when market is trading with big premiums does not bring value for the token holders.

1 Like

I agree with this completely, but because 5% is already far behind in the poll I’m putting my vote behind 10%, which still has a slim chance of beating out 20% APR.
Wen ranked choice voting?

Edit: I’m an idiot, didn’t realize I could vote for multiple options.

FIP’s has improved FEI a lot since launch and now we have potential partnership proposals with good protocols. Since the price of tribe is not so appealing, we need a aggressive back buy of TRIBE so that the TRIBE price can get to ATH and hence gives new investors the courage to be involved in FEI and TRIBE. The PCV also boosts 1B+ which is a good time for aggressive buyback. TRIBE is undervalued hence aggressive buy back. Finally since we are minting FEI equivalent to protocol equity, we are not digging into PCV ETH for buck buy. Hence I support aggressive buy back so that the social optics of FEI and TRIBE look more appealing for new investors to use FEI and TRIBE markets.

2 Likes

10% APR would already be hard to sustain, given how we deploy the PCV in “conservative” ways (established protocols, battle-proven contracts, etc). I don’t know if we have stats from the yield generated on lending by the PCV, but I’d bet it’s less than that.

Generally speaking, I’m in favor of small buybacks. If we have 10% of buyback, generate 5% of return with the PCV, and keep a PCV mostly composed of ETH, we basically bet that ETH will rise more than 5% per year, to avoid activating the TRIBE reserve stabilizer.

However, considering the history of the project, I feel that showing some love to TRIBE would be beneficial, a lot of Genesis participants are still at a loss, and there is some bad press, despite the project being largely successful and in a super healthy situation.

As has been argued before, TRIBE is undervalued relative to PCV assets, so it seems like a good time to buy back some & prepare for the future. I think everyone here who believe in the project will agree that buying back TRIBE now to fund future protocol activity (e.g. continue some LM rewards after the initial program of 2 years end) is a good trade.

To avoid the bad precedent of a buyback at high APR (>=10%), could we have 1 week of test run with 100k FEI for technical/lindy reasons, and then a one-off lump sum buyback, before starting the streamed buybacks at a lower APR? that would reclaim a good chunk of circulating TRIBE and boost the price (which will increase LM rewards & attract more liquidity / create demand for FEI to earn LM rewards)

I voted 20%, because it is said that we can revise the APR later. After the initial deployment, I think 10% is ok (but risky & on the high end already, so I’d prefer less, like 3-5%).

8 Likes

@Eswak I’m in agreement with you. I think that doing a 10% buyback is the maximum that we should think about doing for the first run as we can always decide to do more later.

Protocol equity is currently around 770 million and using 10% of that equity amounts to a whopping 77 million FEI which is a very nice buyback size.

2 Likes

Similar to @eswak and @elliot My long term position is to lean towards being very conservative. From a fundamentals perspective this seems to be strictly better, as if we did a buyback of say 100% of the equity, TRIBE holders would likely exit at a premium.

This was a big problem with MKR buybacks.

That being said, I think of this initial buyback partly as a marketing spend. Fei Protocol and TRIBE are stronger than ever, and getting eyes and volume will be really good to jumpstart community sentiment.

I’m likely going to vote in favor of all affirmative options if we do an approval vote, but lean towards the high end of the spectrum for this first APR.

We should absolutely do a test run. I think a clear intention to vote on new params after 6-12 months is good enough regarding precedent

4 Likes

I would also lean towards having a high initial pilot buyback and then scaling back by a lot in the manner of an inverse curve.

This is for 2 reasons:

  1. In the immediate term, the initial large buyback will be a massive reward payout to TRIBE holders and will increase the price which is good (I’m curious to see whether there will be any market exits here from Genesis participants);
  2. Over the long term, we are telegraphing that buybacks at a certain rate are to occur every month (not many other institutions do this) which will keep the general upward movement of TRIBE prices barring a black swan event. Aggressive buybacks are not sustainable either and we need to be cognizant of long term Treasury and operational needs. If we are to give a form of ‘dividend’ to TRIBE holders then I would prefer redeemable FEI instead (perhaps KPI options can be introduced to align incentives) and a smaller rate of buyback.
4 Likes

Moving this to last call! Would love to hear any additional community feedback before snapshotting in ~2 days

At the same time of buyback , there should be a budget to support the community to do more marketing, especially show the future of FEI V2 and TRIBE.

I support an aggressive initial buyback as well. TRIBE is so underpriced in the market that buying TRIBE is actually a great investment opportunity for all TRIBE holders.

Once this mispricing is gone, buybacks can be scaled down to be lower than the yield from PCV. But we should consider scaling up again when TRIBE becomes underpriced again as @delitzer mentioned in the previous buyback thread.

3 Likes

I just realized that buybacks actually benefit retail investors at the expense of the team and VC. The reason is the same as why a capital raise (such as treasury swaps) hurts retail - a buyback effectively increases the size of liquidity mining rewards, just as a capital raise decreases it.

Suppose there is one VC investor and two retail investors, and each has 1 TRIBE. Tomorrow, each retail investor will get 1 additional TRIBE through risk-free liquidity mining. PCV has 5 ETH in it, so 1 TRIBE is worth 2 ETH today. Suppose we buyback 1 TRIBE from retail investor 1 at a price of 2 ETH. This is fine for retail investor 1, but now, retail investor 2 gets 2 TRIBE tomorrow. So tomorrow, VC has 1 TRIBE and retail investor 2 has 3 TRIBE, which means retail controls 3/4 of 3 ETH, or 9/4 ETH. This is larger than his original share which was 2 ETH.

So for a buyback to have a neutral impact on the cap table, we actually need to reduce LM. But it’s hard to know how much before we actually run the buyback because we don’t know how much will be bought from the IDO vs. retail holders, and only the TRIBE bought from retail affects the cap table.

To put it differently: to be cap-table neutral, a buyback should buy back not just circulating TRIBE but the LM (i.e. vesting) TRIBE as well.

Another consequence of this asymmetric impact on retail/VC is that if we run the buyback without scaling back LM, it will increase TRIBE price. Buyback either buys from IDO or retail. If it buys from IDO, TRIBE price increases. If it buys from retail, APY of TRIBE staking pools will increase, so TRIBE price will increase.

In hindsight this should have been obvious since a buyback is the exact opposite of a capital raise.

When the protocol equity is above the allocated marketcap of TRIBE (TRIBE owned by someone, locked or not), aggressive buybacks feel like a no brainer. Equivalent to buying a dollar for 90 cents, for example, even without taking into acccount the intangible value of the project.

Wonder if it would make sense to take into account the discount/premium over protocol equity as part of dynamic buyback percentages at one point.

3 Likes

In addition to this “hard value” of [protocol equity / circulating TRIBE supply], there are additional parameters, like :

  • :heavy_minus_sign: expected future share dilution (liquidity mining program, OTC swaps, etc) and sell pressure
  • :heavy_minus_sign: unexpected future dillution (TRIBE auction if FEI becomes undercollateralized, potentially a catastrophic event)
  • :heavy_minus_sign: illiquidity (TRIBE is not directly redeemable for protocol equity)
  • :heavy_minus_sign: opportunity cost (TRIBE’s price is super sticky to USD because of deep liquidity with FEI, so it does not follow ETH price as much)
  • :heavy_minus_sign: regulatory risk regarding stablecoins
  • :heavy_plus_sign: growth potential of the protocol (PCV assets raise in value, income streams from productive PCV deployments and FEI lending)
  • :heavy_plus_sign: expected future share increase (buybacks, liquidity mining) and buy pressure

For these reasons, I’m not so surprised that TRIBE trades at a discount. But long-term holders should indeed see this as an opportunity :wink:

Minting new FEI will increase FEI supply, lowering price below the peg, causing PCV ETH to be used for reweights.

It’s just a roundabout way of buying Tribe back for ETH

Buybacks snapshot passed at 20% APR

3 Likes