FIP - 56: debt DAO <> Fei Partnership

Hey Tribe,

I’m William X, working on Debt DAO, a dao working on providing debt to DAOs.

Context:

DAO debt is extremely underutilized in this space. There are very few options for DAOs to take on debt, and as a result, many simply resort to selling tokens. For DAOs that are essentially selling tokens for liquidity, this is an issue solved by Fei’s recent partnership with Ondo.

Protocols however, have many more expenses outside of Liquidity Mining, and as a result, still need to resort to dilution in order to finance these expenses.

Proposed Solution:

To this end, we’re using revenue based and backed financing to extend lines of credit to DAOs.

Initially, we will be looking for DAOs to overcollateralize these lines of credit with an abundance of project tokens, and treasury assets. However, as we prove out our model and begin to build credit histories for these DAOs, we can move undercollateralized lending as we move toward future cashflows.

We’ve applied for the Olympus Incubation program, and have also been verified as pool creators by Rari Governance. Given Fei’s extensive focus toward supporting DAOs, we believe it is important that we make this partnership early.

We hope to provide access to discounted token swaps with debt DAO in the future (pending approval and discussion by debt DAO governance) to help solidify this partnership.

What we’re proposing:

We’re seeking to use OA to mint and deposit FEI into an Optimistic Approval process as outlined by FIP-39. Whitelist DebtDAO as pool creator - Rari Governance Forums

  • Providing 2.5 million Fei to a Fuse Pool 122 for the purpose of extending lines of credit to whitelisted DAOs that meet debt DAO’s stringent requirements, receiving DP1 (Debt Pool 1) in exchange.
    • initially, we’re looking towards Index Coop as the primary recipient of this line of credit, however, debt DAO will provide a report detailing the financials and an analysis of whichever DAOs are whitelisted.
  • DP1 tokens as PCV asset, with an eye toward creating a process for which the senior tranches of future Debt Pools can enter through a streamlined governance process as PCV.
    • DP1 will be an fToken, received when depositing into the Fuse Pool

Pros:

  • encourage the utilization of Fei among DAOs and across web3
  • diversify the backing of Fei with less correlated assets
  • provide DAOs with financing to allow them to invest in growth
  • fees earned for the protocol

Cons/Risks

  • the DAO defaults on a loan (highly unlikely, but loan will be overcollateralized)

If you’d like to learn more about debt DAO, feel free to join our discord server, https://discord.gg/jmkS7a2h and read the docs https://williamx.notion.site/debt-DAO-docs-92bca987c1d341cfb443cb415c86ae70

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It seems like this is another take on a LaaS offering using debt instruments instead. Perhaps you can highlight the key differences?

Without reading too much into the specifics it seems that an ask of $2.5M FEI is probably far too high as there is no other source of liquidity in pool 122 at the moment; and that there are current discussion that FEI deployed outside of the major pools are being overextended and not put to good use - thus is being clawed back.

I think the proposal would garner more support if the requested FEI is < $1M depending on the amount of other assets that enter the pool; and that there is an upfront offering of debtDAO’s tokens instead of ‘in the future’.

Interesting idea. Fei as a stablecoin for DAOs could explore this opportunity. Could you provide more details on the framework to analyze the DAOs rating? How the loan rate will be defined?

Hey, thanks for the reply.

We’re providing a line of credit to DAOs, which they can use for many different use cases (payroll, capex, etc) , whereas LaaS is specific to solving the issues around Liquidity Mining.

On the point of Pool 122’s liquidity being low, we’re planning on making Pool 122 the senior tranche for this loan. Since this will be a whitelisted pool, the purpose is not to have generalized borrowing, so I would hesitate to immediately compare this to other Fuse pools.

In addition, we are looking to source funds for our Junior tranche, which would be the portion of we funded by Olympus Pro bonding.

Finally, because this is a very novel alternative to traditional sources of yield farming, this would be a good opportunity to show how Fei can expand its use cases, and qualifies for “good use.”

I understand the point on offering debt DAO’s tokens, and we want to do more via tokenswaps in the future, but as a show of good faith, we will provide 1% of our token supply to the Fei treasury.

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With the caveat that we’re still working through the risk framework, here is the doc:Debt DAO — Due Diligence Process - Google Docs

We will provide a report that analyzes Index Coop by the end of this week, which will hopefully act as a good way of showing how we think about onboarding new DAOs.

As for the loan rate, since we’re using Rari fuse, we will create an interest rate curve that (excluding the spike when pool utilization reaches 80-90%+) averages to the risk free rate (most likely the annualized vAPY of the Curve tricrypto2 pool) plus an additional amount corresponding to the risk factors involved in the loan.

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Update: given the Fei’s team’s focus on the merge and shipping V2, we will hold off on this until the beginning of January.

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