FIP-99: Sell RAI

Summary

Sell RAI to replenish DAI reserves and/or relieve upcoming peg pressure

Motivation

Many upcoming initiatives will either increase the FEI supply or apply some pressure to the FEI-DAI psm peg mechanism:

  • Launch of Turbo
  • FEI-DAI PSM fee reduction
  • VOLT protocol FEI reserve deposits into Fuse
  • Boosted Balancer Pools depositing into Fuse

This is fine from a collateral backing perspective, as the PCV is still much larger than the amount of user FEI in circulation. The peg mechanism itself requires DAI though, and it’s likely that the protocol needs to either rebalance some of its assets into DAI or create matching buy pressure for FEI.

TRIBE’s RAI is not as productive as other assets such as ETH and LUSD. Liquidating it for FEI would create some FEI buy pressure without liquidating these more productive assets. This would either earn the protocol DAI directly if the FEI is purchased through the FEI-DAI PSM, or it would create a FEI liquidity buffer if purchased from 3rd-party dexes.

Specification

There are many ways this could be done, including LBPs, DEX trades, PSM’s, and bonding curves. There are also many trade-offs, including slippage, time sensitivity, developer resources, and minimizing undesirable effects such as slippage, MEV sandwiching, RAI peg pressure, and Soros/Whale attacks.

A solution that navigates these tradeoffs is liquidating the RAI through a price-bound, non-custodial, zero-fee, sell-only RAI-FEI PSM:

  • Being “price-bound” means that the PSM will shut-off if the price falls below some threshold. If the RAI peg breaks for some reason, trading will stop.

  • Being “non-custodial” means the PCV RAI would be sitting in Aave until it is pulled out on demand to be swapped for FEI, minimizing opportunity cost.

  • Being “zero-fee” means there is no fee for conversion, anyone can directly convert FEI→RAI at the current Chainlink RAI-USD oracle price. This will make it so the liquidations will happen relatively soon rather than over an extended period of time.

  • Being “sell-only” means the PSM will only convert its RAI to FEI, and not the other way around.

Additionally, the current PCV RAI in Fuse ($10M) worth would be moved to Aave, as a non-custodial PSM can only draw from a single source.

As for choosing an appropriate price threshold we can look at the historical price of RAI:

Based on this data I believe $3.005 would be a good price threshold, as it would allow for RAI to slip a small amount while still letting the trade progress swiftly. As an additional charter of this FIP, we can say that if the RAI price falls below this price threshold for 48 hours, then this price bound can be lowered in $0.005 increments down to $2.99 by the Optimistic Approval crew’s Operations Timelock.

Abstract

  1. Move all PCV RAI to AAVE
  2. Activate a price-bound, non-custodial, zero-fee, sell-only RAI-FEI PSM with a price threshold of $3.005

Voting Options

  • Yes, liquidate RAI via a PSM
  • No, do nothing

Please share your thoughts.

7 Likes

Flat 2.99 prob better because its just a floor on the oracle, rather than putting more burden on OA. Either way in favor

1 Like

Definitely in favor of this action. We will need to add an upper bound for the price as the PriceBoundPSM requires this, however the upper bound is meaningless in this context, so that can just be 2^256-1.

@storm expressed concern about natural arbitrage flow failing to empty the PSM, one way to address this would be a small negative fee applied with a simple oracle wrapper.

In support of consolidating PCV assets and maximizing FEI/DAI convertibility as a priority for the DAO.

lets meet near the middle at a $3.00 price threshold

negative fee would be cool, but would require some arch changes to the contract. so maybe this would be good to do down the road if the zero fee does not push things along quickly enough

3 Likes

this seems ready for vote. moving to last call

2 Likes

snapshot is live. go vote

https://snapshot.fei.money/#/proposal/0x17eeb97c73e2c2a1f4e5c412fe044628291a2b13b250da859aa48afaaab8b1d0

1 Like

DAO vote code is ready to go pending completion of snapshot.

2 Likes

Vote is live on tally:

1 Like