Why are you guilty of those who brought the money?
Why do you call the launch successful? I don’t think it’s a failed launch. I am an interested user who was the first to invest my ETH in the protocol, I took a very risk, because the protocol is new and it can be hacked. But now our early supporters are called dumb money, and we ourselves are to blame for this. I want to ask, are you out of your mind when you write this?
You misinterpret me. My overarching point is that I’d bet there’s a silent majority of genesis participants that are not panicking over the situation we’re in at the moment. And that those genesis participants that have been looking to sell the fei from the get go are not representative. As a larger community, we should cater to participants like you, that knew the enormous risks involved in participating, not to participants that are outraged that they can’t sell their fei through the incentivized market at the moment. Does that make sense?
5 Likes
Pretending that the launch is a success is not helping, some urgency is needed. We’re walking on the hedge of a cliff and we will fall if the ETH price crashes. The system would naturally scale down with the eth price if it was working so that the collateral ratio would remain at healthy level. Right now it can’t and if ETH loses 20% it will be impossible to get FEI back to peg.
2 Likes
we may need more data to confirm this, but I think direct incentives can be pretty safe for us to say it is definitely not going to work. PCV’s re-weight is nice, but have to have a mechanism to keep the bot arbitrager away.
My original post was addressing the two concerns that I saw expressed most often: (1) that fei wasn’t on peg; (2) that preswappers bought tribe at an all time high.
Your point is different. And it’s a real concern. If ETH price crashes significantly everything changes. The protocol will be undercollateralized and the public perception of the protocol will take yet another hit. However, I’d say this is a predictable risk that we all took when we put our ETH in genesis when ETH was at an all time high. And as long as the protocol’s PCV in ETH isn’t tremendously compromised, it’s likely we can draft a solution where fei and tribe holders are returned ETH at a small loss in ETH.
Why do you think the system should scale down with the price of ETH? I acknowledge that there should be sell pressure as ETH closes in on a price that’s widely believed to be a support. But going short on ETH is not the only reason to hold a stable coin. In fact, I’d assume a large portion of the stable coin market is simply looking to protect itself from the volatility of ETH and BTC.
One of the design goals of FEI is that it can withstand undercollateralization. I think this is precisely because it is implicitly understood that the demand for FEI doesn’t drop along with the price of ETH. Now, whether or not it can withstand significant undercollateralization in the current wave of FUD is an open question. We’ll see.
1 Like
Because If the PCV reweight was working, people who rely on the collateral ratio to valuate fei would slowly exit as eth goes down and the collateral ratio would stay relatively stable.
We do need data. I feel like the widely held perception that direct incentives are not working is based on the fact that some bots have evidently profited from arbitraging without restoring the peg. But that’s not what direct incentives are supposed to prevent. They’re supposed to prevent the group of arbitragers from profiting off of honest users and PCV. If, after looking at the data, we discover that the group of arbitragers is profiting off of honest users and PCV, then we should seek to tweak the parameters of direct incentives so that they work as intended: namely, that short term arbitraging is a loss for arbitragers as a whole and a win for the PCV/FEI ratio. That’s the protocol we bought into. And I think that should be the goal of our first efforts.
I think, to some extent, this is already happening. The team recognized a vulnerability in the minting mechanism and they’re working on a patch. It’s hard to know what that vulnerability is before they share it with us. But it’s possible that after the patch the “fixed” direct incentives will work as intended.
I’m by no means married to the idea of direct incentives. I simply think it shouldn’t be the object of our first efforts to improve the effectiveness of the protocol.
If changing the direct incentives mechanism becomes imperative, one idea that’s been floating in my mind is to give time locked fei rewards. The time lock wouldn’t be linear because that would simply postpone what’s happening now at every reweight to a later date. Instead, the time lock could be designed in such a way that the release of the fei rewards is always uniformly small relative the liquidity in the incentivized pool. We could achieve this by a sort of arbitrage token that entitles arbitragers to a prorata proportion of the fei rewards that are released on any given day. This way any attempt to sell fei rewards as soon as the price is at peg will not move the peg. But arbitragers are still incentivized to arbitrage for long term profits.
I don’t understand. Are you saying that there’s a set of users that would only hold fei at a 1:1 collateralization ratio? Why would they do that if it’s clear from the protocol’s design that a 1:1 collateralization ratio does not imply immediate liquidity to every user? After all, PCV is not collateral. Users that want guaranteed liquidity on their fei in case of a bank run should probably only participate in fei when collateralization ratio is significantly over 1:1. I’m not sure what that “completely liquid” ratio is. But it sure isn’t 1:1, given the way the incentivized market is designed.
I’d even say that the 1:1 collateralization user you’re implying is effectively just a user that wants to hold eth under a different name.
1 Like
Not everything is black or white and for many people there is a big difference between holding esd and frax although both are not the same as holding usdc. One is/was ponzinomics while the other one has a “central bank” committed to restoring the peg through different means. Fei system falls under the second category and it is very natural to relate the will of people to hold fei to the collateralization ratio. In this regard having a high collateralization ratio at least at the beginning while fei utility is bootstrapped seems like the cautious way to go and I feel like the project could use some caution
But why would someone only want to hold fei only at a 1:1 collaterallization ratio? I promise I’m trying to understand your point. I’m relatively new to the world of stablecoins and I don’t by any means understand all the possible uses.
I’ll explain what I do understand: the higher the collateralization ratio, the more security people can have in the value of each fei. What I don’t understand is what could be special to a particular user about a 1:1 collateralization ratio. And I also don’t understand what percentage of users might have this perspective.
Because very much like dai, fei can gather utility compared to pure eth from the fact that its individual rate stays close to $1. This means that fei gets integrated into project and people do not only want want to hold fei but they need to hold fei. As this happens the collateralization ratio can decrease without major consequence, especially if the PCV is commited to maintain the PEG in the long run through farming or other means.
Right. The utility of fei is in that it is worth a dollar. At least it will be once it stabilizes. And it’ll gain more and more utility as it becomes integrated into other protocols. I’m on board with that view.
But as long as fei is worth a dollar and eth remains volatile, the PCV/fei ratio is bound to be off 1:1.
The case of dai is interesting. dai is always overcollateralized. If the collateralization of a particular dai ever gets close to 1:1, the lending position is closed. So in dai you’re giving me a clear example of what I’m saying: no one would want to hold dai at a 1:1 collateralization ratio. In fact, the protocol won’t allow it.
There are different shades of off 1:1 and those shades can become darker and darker as fei gains utility. Look at FRAX, it is undercollaterized to ta certain degree but with a central entity committed to restore the peg with time, as a consequence it has maintained its peg pretty well. The underlying idea is that ou do not need to be fully collateralized now if you know that an entity with financial power (here the PCV) is willing to restore the peg, given enough time, if needed.
And that’s precisely what’s happening with fei. The problem at the moment is that other actors with financial power are willing to destabilize the peg immediately after it’s been restored. That dynamic has to change. And hopefully it will in the medium to short term. If direct incentives aren’t achieving their goal at the moment, they should be tweaked so that short term speculation for massive dumps is a net loss for the group of arbitragers, even if it’s profitable to some speculators. Then an equilibrium will be reached where no bots will be doing short term arbitraging because they’ll realize they’re playing a game significantly biased against them.
Above I share a potential solution if small tweaks to direct incentives don’t work. I’m not sure it would work. But here it is in case you’re interested: