FIP-51: Fei <> Rari: Token Merge

[jaibhavnani]

Hello Fei Community:

I’m Jai, a co-founder and contributor to the Rari Capital DAO. Recently, I’ve been thinking a lot about Rari, Fei and the overall trajectory of the DeFi space and wanted to share a proposal.

If you’re reading this, you likely are aware of the impact that the DeFi space can have on the world. We, the pioneers of DeFi, can fundamentally change the way that value is perceived and transacted. We can fundamentally change the way the world works. Rari began simply as a yield aggregator but has evolved into a powerful open interest rate protocol, laying the groundwork for any asset to be productive. At the same time, Fei has introduced the most powerful stablecoin in DeFi, providing a trustless foundational unit of account for DeFi and the future of money itself.

Rari and Fei are two of the most powerful primitives with the potential to change the world in their own right, but they are stronger together. We’ve already gotten a hint of how powerful this collaboration can be:

• Fei was the first DAO to spin up a Fuse pool and deposit directly from a DAO
• Fei is directly providing liquidity into a wide spectrum of Fuse pools (10+)
• Fei has assisted in writing one of the first Fuse plugins to level up the capital efficiency of the Liquity/LUSD fuse pool
• Fuse pools hold a large percentage of TRIBE supply
• Fei / Tribe being the first assets inside of Fuse to receive liquidity mining rewards
• Fuse has enabled Fei to directly bootstrap usage of their stablecoin in a way that Aave / Compound never could because of the lindy that existing stables have received

These achievements are just a taste of what Rari and Fei can accomplish together. I believe that we should double down on this collaborative effort for the benefit of both DAOs, communities, and the DeFi ecosystem as a whole.

I propose we bring RGT into the Tribe family and unify our efforts in creating the future of decentralized finance. Together, we will create a DeFi capable of scaling to trillions of TVL and truly revolutionizing the way we (DeFi users today and tomorrow) interact with money and finance.

I propose:

1. $1:$1 conversion of RGT to TRIBE, created from both the existing treasury and newly minted TRIBE
2. Fei creating proper contributor incentives as a mechanism to scale Fuse / yield aggregator
3. Fully pay back the Rari DAO’s debts from the ETH yield aggregator exploit (to REPT-b holders) in Fei (full compensation in Fei, at Dai price at hack time)
4. Keep independent communities (Fei, Rari) building together under a shared Tribe family

(you can view Joey’s proposal with the details of each of the mechanics here: Fei Letter to Rari)

There are a number of protocol-specific collaborations that will be possible with the passing of this proposal. By combining the yield aggregator, Fuse and Fei we can quickly accelerate Fei’s usage as a dominant stablecoin across various chains and layers. We can supercharge each other to the maximum degree. Additionally, we can work together on numerous joint products: various DAO treasury projects, automated liquidity products for new pools and even an innovative oracle model to guarantee liquidity for TWAPs. This will have no direct impact for the users of today. For the users of tomorrow, it should result in better products, better experiences and a wider set of possibilities. As a user of Rari, I am excited for what this means.

A treasury diversification into each other’s assets is something that we have seen before, but historically doesn’t actually provide much substance in aligning incentives because of the sheer scale of DeFi projects. By going all in with each other, we are absolutely aligned with each other’s products, communities and spirits. We are in it for the long haul, together.

By working together with the Fei community, becoming part of the Tribe family together, we instantly start to build our empire. Together, we are stronger than ever before. We will be ready to scale and conquer. I am excited about the potential of the Rari Capital community joining the Tribe family and I am stoked for what we will be able to do together.

I’d like to open this up to discussion and hear everyone’s thoughts on this. What do you think?

[countvidal]

I want further discussion on this topic. I really love Rari, but I am not sure how I feel about assuming Rari’s hack liabilities.

Also we need both protocols to publicly release financial statements to help shareholders properly value and perform their risk analysis.

[0XTHAD]

FratDAO endorses this proposal and overall agrees that Jai Bhavnani is extremely sick.

• 0xThad, FratDAO core contributor

[deranzxc]

yo Jai! Great to see you here

IMO - this proposal is historical in itself, the first DAO x DAO merger. I want to highlight that

• how this is done
• why this is done
  will likely be a case study for multiple mergers moving forward. This has already happened on a protocol level (eg. Pickle > YFI) so DAO x DAO seems like a natural step forward.

Thinking out loud - some benefits I see for both parties.

For Tribe

• Fei will be used in Rari Fuse (Good as this means greater resistance to oracle manipulation?)
• Increase in FEI Usage to becoming a dominant stablecoin

For Rari

• Huge PCV Ripe for deployment
• If the full 1.1b was to be deployed towards Rari, this would likely drive Rari’s TVL to 2.5b
• Hack Debt

My questions:
Centralisation
It’s no secret that a16z is one of the driving forces behind Tribe, while Rari is a fairly launched protocol. How do we strike a balance (or should we even) and would there be a pull towards either side of the spectrum?

The Hack
This personally feels a little lopsided - at first glance Rari seems to benefit more, a little bit like a buyout whereby Tribe pays for the debt and buys out Rari. Curious to hear discussion on this and let me know if I misread/misinterpreted something.

Thanks for taking the time to read my response - again, very sorry if I mis understood/misread something, the brain often slows down at 4am

[cozeno]

will the merger cause newly minted TRIBEs to exceed its 1 billion token hard cap?

The purchasing price of RGT should be a moving average over a long period. This is a very interesting proposal, but indeed, merits far more discussion and should not be rushed to a vote.

[samkazemian]

This sounds like a great idea! I totally support this. It would be a good idea to fully explain what the unique benefits are for the FEI stablecoin itself if Fuse is still staying fully agnostic to its choice of stablecoins? Other than the synergies of working under 1 roof/token, what unique treatment does the FEI stablecoin get for the investment of TRIBE holders?

[kermankohli]

super interesting proposal. is this meant to be more of RGT being absorbed by TRIBE or genuinely a joint merger? furthermore, how do existing team and investor vesting schedules work in this whole dynamic?

[cozeno]

Bringing up another point mentioned by Teng from wechat; there are timelocks still existing on many Rari holders. If a merger is to go through, the large holders of newly minted TRIBE should be subject to a lockup period not shorter than what would be remaining on their RGT.

Even a general vesting period for all major holders of newly minted TRIBE could be considered, due to the immense increase in token supply.

[starit]

As a $tribe holder, I personally don’t like this idea.

1. Protocol philosophy

As a stable coin, why not just do one thing and do it well?

2. Risk merge

The credit should be different between the centralized bank and the commercial bank.

If the stable coin itself involves in a permissionless money market,

Does it mean the protocol has to pay for the further potential loss?

Does it mean I need to take Rari’s risk into consideration when I use FEI as a stable value?

3. Dev

As a developer, I tried to integrate with Fei and Rari in both smart contracts and javascript. To be honest, I feel not good about Rari’s docs and open source level.

For example, some of the smart contracts that Rari is using are still not open source, I feel really sick about this.

One of the contract: 0xc76190E04012f26A364228Cfc41690429C44165d

4. Value lost

In general, after reading the proposal, I feel my $tribe would be not worthy than I used to expect to be after the merge. ( Though the market gives good feedback and prices goes up, but I mean the value in my mind)

I do like Rari’s idea and product, but I like fei and $tribe even more. In general, I hope these two products run independently and collaborate actively.

5. Numbers

More numbers should be calculated including risk-free PCV value, circulating supply, etc… before and after the merge and be open to the community.

Anyway, I still respect the ideas from Fei Team. These are some of my personal thoughts around this.

[Jeannemadeline]

I think that having the talent pool of both of these core teams will be a huge competitive strength longterm. Few understand DeFi as well and temperamentally Fei and Rari appear similar with respect to leadership and communities.

Not worried about the hack or small deal mechanics as considering the overall win for value creation getting things absolutely ‘fair’ at this moment in time seems trivial. Fei has made it very clear that this is a longterm endeavour and personally I was happy for the accident that saw the initial shakeout of speculators who were obviously not aligned.

Tldr; much support for this innovative proposal. Thanks @jaibhavnani, nice letter.

[Mudca]

Is there no other alternatives to achieve the same thing but without a merge? Maybe a new DAO only controlled by the two DAOs or something?

[ethyuan]

@jaibhavnani

$1:$1 conversion of RGT to TRIBE

Do not acquire tribe, tribe labs faces the legal risk of class action.

[cozeno]

Ferrying over more points from the Chinese community on Wechat:

1. Tribe is still in a state of price discovery; The net value of the PCV per TRIBE token is close to $1.8 currently. Therefore for gensis holders of TRIBE the current deal represents a value write-down.

2. RGT has experienced a 5500% runup in the last year, and as is RGT carries significant liabilities right now. It’s TVL to Mcap ratio is hovering at 3:1, it is very inflated compared to blue-chip lending protocols such as comp, which has a ratio of 6:1, and Aave at, 7.2:1. The team should provide more figures such as organic protocol earnings and current protocol liabilities to allow TRIBE holders a better sense of its valuation.

3. Tribe should not have to be subject to additional inflation that is not outlined by the white paper already, the protocol has worked hard to rein in inflation from Tribalchief rewards for the past months, and it is finally entering a state of stable circulation.

4. Fei should not be accountable for restitution to Rari hack victims, if Rari is unable to pay such a sum itself, perhaps it belies further liquidity problems at Rari, and demands further scrutiny.

[Sandypaper]

I have reservations taking on RARI’s hack issue. FEI/Tribe is going well after their own issues.

What would merging solve?

[andy]

IMO - DAO to DAO collaboration is right step to move forward in DeFi competition. But part of terms are unfair to initial supporter of FEI protocol.

a) Initial supporters swapped their ETH to FEI and take the additional trible as reward. Spot rate of ETH is close to 2k and trible launch price is $2.6 . Even trible price collapsed a lot. It seems trible is discovering its real price now ( up to $2 ). Meanwhile, i think the initial locked ETH supportted whole project. core team and RARI should take care of these people and respect their contribution ( For me, i lost 2m dollars in this case) . anyway i’d like to support your experiment. So $1 conversion of RGT to TRIBE - need more deeply negotiation.

b) Fully pay back the Rari DAO’s debts from the ETH yield aggregator exploit (to REPT-b holders) in Fei (full compensation in Fei, at Dai price at hack time) - From my solution , it should be bring RGT to PCV pool and issue debt FEI tokens to pay back the hack lost. RGT treasury shares the revenue from PCV and becomes the long-term supporter. There is no additional cost ， interest. It sounds like a new round FEI issuance.

Hopefully two coinbase listed project can lead the DeFi 2.0 campaign.

[joey]

Hey everyone,

This is such an important proposal and I am glad to see the ideas and feedback being shared.

I will take in all of the feedback and plan on responding more broadly and specifically with thoughts tomorrow.

I’d like to highlight that the original intention and true benefits behind this joint proposal lies in the long term growth and strategic alignment of two highly talented and creative DeFi development teams. We have some pretty incredible collaborations planned if this vote will pass, and if we achieve even a fraction of our goals, the details of the terms of this merge will be minor in comparison to the benefits

All that being said, please continue to share thoughts as they will help guide the discussion towards a place where our community can feel confident in the final outcome.

[fei.saver]

To get fair conversion rates, we would need a clear understanding of the tokenomics of both TRIBE and RGT. Rate of 1:1 is intuitively appealing but may not be the fair number, especially since both protocols have vesting tokens and liquidity mining programs.

But the more fundamental question for TRIBE holders is whether we want to pay more than 400M USD for a lending platform (albeit a nice one for sure). That kind of money seems more than enough for us to build our own customized lending platform and incentivize it aggressively.

Despite the recent surge, the market cap of TRIBE isn’t much higher than the naked value of our PCV equity (around 800M USD). On the other hand, Rari apparently does not have enough capital to pay back 11M to hack victims. If we believe Rari is worth more than 400M USD because of their future potential, we should also conclude that Fei Protocol is more than just the ETH in our PCV, and not try to sell TRIBE at the undervalued market price.

Alternatively, if we believe that Fei Protocol is really a decentralized ETF leveraging on ETH and that the value of TRIBE comes mainly from the value of PCV, do we really want to give up half of our assets to buy a lending protocol that we are already using?

[Bruno]

I am excited about this proposal and the discussion around it. Glad to be participating in this historic moment for DeFi. Congrats to the teams for bringing this big dream to the communities.

I like the vision of a crypto central bank that provides the infrastructure for permissionless banking. The one-stop shop for DAOs. Having both teams and communities together in a more intense collaboration can lead to innovative products.

I am assuming the main clients of Fei and Rari are the DAOs and I believe that, together, we can better serve DAOs.

DAOs need liquidity for their tokens, stability and yield for their treasuries, borrow money to cover expenses and investments, increase the utility for their governance token, etc. What are the need of DAOs? How do these needs vary depending on the sector (DeFi, NFTs, Gaming, etc)? How can Fei and Rari serve them better?

Let’s think about the “details”, merges are not simple.

This discussion reminds me of this figure that shows the reasons why M&A happens. The top of the pyramid is where companies are more willing to pay more. The top is buying peace of mind.

Source: In 2017, GE Will Buy More Tech Startups Than Google | by Hunter Walk | Medium

TRIBE brings a very tangible and concrete value to the merge, protocol equity of ~ $ 800M.
It also adds a talented and well-funded team and a stablecoin product with improved mechanisms (Fei v2)

Rari capital adds a talented team and a product with customers and small revenues for now (less than $ 5M per year). TVL is a very unstable metric and Rari TVL is highly concentrated on OHM (50%). As the product can be forked, I suppose that the main value Rari brings is the talent and the current relationships with other DAOs.

Synergies

• Joint development of new products (we will have one of the most talented devs together)

• Economies of scale in marketing and business development with DAOs (e.g. cross-selling of products)

Doubts:

• As the team and stakeholders are one of the main assets from Rari Capital, the TRIBE locking period is an important discussion. What will be the vesting schedule? This is key. We need to design the appropriate incentives. It will also help to reduce the TRIBE dilution in the short term.

• What is the value of the hack to be covered?

• What will be the impact of the merge on how OHM uses Rari? I am curious to know what is the opinion of their team and community. It would be good to get their impressions on it.

Price:

TRIBE is currently undervalued. This is a fact. If the protocol was liquidated today, Protocol equity would give at least $ 1.7 per token. Minting a huge amount of TRIBE considering a valuation below the protocol equity is a problem. It will bring dilution for TRIBE holders. It is like selling TRIBE for depressed prices to raise money.

I would prefer to pay more than half with FEI and all the amount paid in TRIBE be locked with a vesting schedule.

And definitely, I would not consider minting extra TRIBE besides DAO treasury.

I think we need a third-party opinion to make a valuation of the projects. Crypto prices are very susceptible to speculation. Due to the low liquidity, not sure that market prices alone could be the basis for a fair transaction.

I would not feel comfortable approving the funding of the Rari Infrastructure Task Force before discussing a more comprehensive compensation plan for this new DAO being formed. . We need to discuss how to compensate long-term contributors to attract and retain talents in the long term. We could separate this from the M&A deal.

Merge Plan:

It would be good to create a “transition group” with members from both communities to elaborate a plan for a smooth transition for the new DAO. It should include not only core teams, but also community members.

As discussions move forward, we should elaborate a plan for this merge, defining the waves of integration concerning smart contracts, governance, communities, DAO infrastructure, etc.

It would be also good to hold some calls with both communities to better know each other.

[doubi]

I can’t understand why we should buy a bubble that is seriously overvalued. rai If the annual income is 1 million dollars, each coin is worth $0.1, even if it is valued at 30 times, it is only $3. The rai of $30 is all foam. To buy such a rubbish, your evaluation system is terrible

[ethyuan]

The fair choice is based on the proportion of net assets rather than the price, and the price is controllable.