PCV Diversification TRIBE Update Week 2
Just a quick refresh of the activities of this Tribe.
May 4 - Kickoff: we proposed the working group and started to work informally
May 12 - Week 1: we posted the proposal of an initial stable coin investment and continue to work on the Investment Policy Statement (IPS), focusing on bringing references and drafting the first version of it.
May 21 - Week 2: we are making some simulations based on the Modern Portfolio Theory applied to crypto to bring a benchmark to PCV management, we advanced in some specific parts of the IPS and discussed some ideas to deploy stable coins (we still need more time to bring a robust analysis to community discussion).
Regarding the IPS, we are considering the following structure: (i) Introduction, (ii) Objectives, (iii) Benchmark, (iv) PCV Cash Requirements, (v) Investment Period, (vi) Risk Tolerance, (vii) Asset Allocation, (viii) Implementation of an Investment Strategy, (ix) Risk Management, (x) Performance Report, (xi) References .
The heart of the IPS is the objectives for PCV management. While we are advancing with other parts of the document, we would like to hear community feedback about these suggested objectives:
Objectives for PCV Management
The three main objectives of PCV Management are (i) FEI exchange rate stability against the US dollar (“peg maintenance”), (ii) providing liquidity for FEI markets and (iii) having a sustainable and growing FEI DAO.
This informs the approach to reserve management, governed by values of, in order of priority, safety, liquidity and return. The portfolio needs to achieve real growth, after inflation, with a level of risk that is appropriate for the PCV’s return and generate a significant amount of portfolio income.
Additionally, by holding tokens, FEI DAO can take advantage of meta-governance and influence other protocols’ decisions. As a stablecoin, Fei has a central role in DeFi, and meta-governance can be valuable to foster a thriving environment with other DeFi projects.
Another front we are working on is the investment in stable coins. After receiving the feedback from the community, we are analyzing two new alternatives:
1) ~25% of PCV on USDC&DAI is an option optimizing for diversification and increasing the liquidity of FEI with major stable coins
2) ~12,5% of PCV on DAI is an option optimizing for decentralization
We need to highlight that the vision for FEI is to be a decentralized stablecoin. Holding a centralized stable coins exposure is necessary to provide liquidity for FEI, incentivizing its use. For the future, it could be good to provide liquidity against a basket of other decentralized stable coins.
We would like to gather community sentiment on these two options.
Considering the liquidity of these two stable coins, both would support the estimated investment amount. We are suggesting having an equal amount of USDC & DAI to diversify idiosyncratic risks. Although USDC has more liquidity, it also brings more regulatory risk.
Considering the current status of PCV, 25% of it would represent ~ $200M (changing very quickly due to volatility).