FIP-44 Idle Protocol as yield source of PCV Allocations

Authors
Idle Treasury League

Summary
My name is Davide, member of Idle DAO’s Treasury League. We are reaching out to the Fei community with a formal proposal to consolidate the relationship started between Fei and Idle, building up synergies within our protocols.

After the development of Fei Best-Yield strategy, the upcoming launch of Fei Tranches, and $IDLE liquidity mining activation to boost such products, we propose a $40m PCV deployment into Idle protocol to increase your revenues without changing the risk profile.

Rationale
Idle DAO initiated the collaboration with Fei by developing idleFEI Best-Yield, a strategy that aggregates yields provided by Aave and Fuse, and provides the best rates on the market.

After 1 month of beta phase and with $3m in TVL, IdleFEI Best-Yield landed in production.
The community finalized the onboarding of Fei into the Idle family, enabling $IDLE liquidity mining on idleFEI. At the time of writing, idleFEI is incentivized with 380 $IDLE per day!

Now, we introduce here how the protocol could become a safe place to host part of the liquidity held in PCV, getting better yields and ownership in the Idle protocol without changing Fei’s risk profile.

Security Due Diligence
Days of activity: 820 (2+ years)
Overall protocol audits: 6
Bug Bounty Program: $500k
Nexus Mutual coverage liquidity: $40m ($DAI and $USDT)
Governance: Compound Governor Alpha
TVL: $125m
Hacks: 0
Losses: $0

Launched in 2019, Idle proved to be secure and resilient over the years, with particular attention to security procedures, scalable infrastructure, and developing a friendly environment for risk-averse liquidity providers.

Today, the protocol provides extra coverage features with Nexus Mutual’s Yield Token Cover, protecting against the full spectrum of risks including asset de-pegging.
The $500k bug bounty program launched with Immunefi and Armor fortifies the protocol’s security.

Economic analysis
From the economic perspective, organic yield generated via Idle protocol overperformed Compound on DAI and WETH (source).
On top of that return, you have to add $IDLE distributed via liquidity mining.
This Dune dashboard collects overall returns for DAI, USDC, USDT.

Simulating a $20m deposit on DAI & $20m on WETH and calculating final returns in comparison to Compound, a $40m deployment on those assets would generate +$900,000 over a year.

7-month APY for DAI, USDT, USDC

Year-to-date APY for WETH

PCV Deployment
The proposed allocation is $20m in DAI (20% of the DAI holdings) and $20m in ETH (3% of the ETH holdings).
In total, Fei would deploy 3.4% of its treasury in Idle protocol.

Final Considerations
The deployment in Idle would be much more than mere better economic returns: it’s a way to fortify our fruitful relationship.

Idle Leagues are working on idleFEI Perpetual Yield Tranches, a new primitive that allows LPs to get fund protection via Senior Tranche or maximize yield exposure via Junior Tranche. The product has been already audited by Consensys Diligence and Certik.

In Idle, we think that Fei community would benefit from this product, making Fei yield generation attractive to both risk-averse users and risk-tolerant ones. The Fei community will then have access to the “neutral” Best-Yield, “protected” Senior Tranche, and “leveraged” Junior Tranche, opening the doors to further composable products built on top of these products.

With $IDLE accrued via liquidity mining, the Fei community now has a say in Idle Governance activities and could vote on-chain proposals and off-chain snapshots. Furthermore, Fei DAO could join $IDLE staking by locking tokens up to 4 years and getting a time-weighted multiplier on fees shared by the protocol (34% APY for 4-year lock).

The proposed allocation would represent a minimal component of the Fei treasury and would help this community to get more familiar with us, making Idle a solid alternative to Aave and Compound in the long term. Let’s scale together!

Here below you find 3 polls to determine if the community agrees on the deployment, its size, and which asset should be allocated.

Do you support Idle Protocol as yield source of PCV Allocations?
  • YES
  • NO

0 voters

Which Fei Protocol’s PCV deposit size into Idle would you support?
  • Less than $10m
  • $20m
  • $40m
  • $80m
  • More than $100m

0 voters

Which asset allocation do you prefer?
  • 50/50 ETH and DAI
  • Only DAI
  • Only ETH
  • Other assets

0 voters

4 Likes

Great proposal! Definitely open to growing our relationship with IDLE. I think the 40m range is appropriate for this. Don’t feel as strongly on breakdown but I’d lean towards 50/50 or only DAI.

I don’t think we should lock for very long given the liquidity requirements of PCV.

2 Likes

In favor of 40m, only DAI preferably. Currently lockups don’t seem amazing for our purposes, as treasury liquidity is important. Thanks for the proposal!

1 Like

Thanks for the proposal Davide! Considering the current Idle TVL, I would prefer a $20 M total allocation to start and in a few months later we could review it.

Just to check, the ETH pool would be covered by Nexus Mutual or only DAI? Anyway, considering that the overperformance on ETH is not so relevant as in DAI, I think it would be better only DAI.

1 Like

Thank you @joey @Fishy @Bruno for the feedback!

$IDLE locking is just an on-top use case, it’s perfectly fine to hold it as a liquid asset.

The Yield Token Cover provided by Nexus Mutual is available only for DAI and USDT

1 Like

Only the IDLE is locked correct? And locking boosts APR for IDLE? If the underlying is liquid this is fine to do.

I’d like to move this to last call with 20m DAI only as the single proposal. If people think we should add 40m as an approval option we can do that.

2 Likes

There are no locking periods for liquidity providers in Idle protocol, you can redeem deposited assets anytime.
When LPs deposit assets, they receive organic yield in native token (e.g. DAI) + accrued governance tokens (COMP+stAAVE+IDLE).
Then, it’s possible to periodically redeem just the accrued governance tokens without redeeming the underlying deposit, and continue getting revenues on such deposit. Underlying funds can always be redeemed.

$IDLE tokens allocated to liquidity mining are distributed to pools (DAI/USDC/WETH…) according to the protocol fees generated by each pool. This distribution does not take into account how many $IDLE you have, but only the profitably on the protocol’s perspective.

$IDLE staking is a parallel initiative, not related to liquidity provision and it’s not mandatory. $IDLE tokens accrued via liquidity mining can be held in the treasury (and used to vote on Idle proposals) or staked, getting an extra revenue stream on that amount.

2 Likes

:writing_hand: FIP-44: PCV Allocation into Idle Finance is live on Snapshot: vote here
:spiral_calendar: End date: Nov 25th, 8:00pm UTC

1 Like

Snapshot results are reported below.
With more than 19m TRIBE in favor, Fei Governance approved the deposit of $20m DAI into idleDAI Best-Yield :handshake:

2 Likes