Get Paid to Provide Liquidity


Make FEI the go-to trading pair in DeFi by Fei Protocol providing FEI and generous amount of either BAL or SUSHI Liquidity Mining incentives.

  • Use a small portion of the PCV to purchase large holdings of BAL and SUSHI tokens
  • Stake the BAL and SUSHI to receive veBAL and oSUSHI
  • Use the governance influence of veBAL and oSUSHI to direct BAL and SUSHI rewards to liquidity pools of Fei’s choosing
  • Fei Protocol uses Ondo Finance to provide FEI and partners with the likes of DAO treasuries provide there governance token
  • BAL and SUSHI rewards are skewed towards the partners LP token boosting the APR for non FEI LPs whilst absorbing the IL risk
  • Fei Protocl uses Ondo Finance to provide ETH and partners with the likes of DAO treasuries provide there governance token
  • BAL and SUSHI rewards are skewed towards ETH and the partner’s token has the lower APR and IL risk
  • Benefits otherwise illiquid governance tokens can now be used productively and on-chain liquidity can be significantly boosted
  • DAOs do not need to sell there governance token like they do with other incentives schemes like BOND.
  • The FEI and ETH held in the PCV is made productive
  • Fei can used the indirect governance influence through the INDEX holing, via DPI to safeguard the strategy.

The Explanation

Problem Statement

Many governance tokens have thin DEX liquidity and consequently find it hard to integrate their token and experience volatile trading conditions. With deeper liquidity, price volatility is dampened and communities are able to purse integrating there tokens across defi. Oracle price feeds whether it be Uniswap, Graph or Chainlink all require varying degrees of liquidity across DEX and/or CEXs. Rari Fuse, Cream Finance and Beta Finance can use Uniswap and top tier lenders like Aave and Compound use Chainlink. One thing in common is all these protocols rely on on-chain liquidity for loans to be liquidated when collateral factors exceed liquidation parameters.

The opportunity for the Fei team to solve this common and far reaching problem across DeFi at a relatively cheaper cost that others whilst accelerating the adoption of FEI across the ecosystem. OHM offers BONDs and this requires DAOs to sell there Governance token at a discount to spot, :(. The BOND premium, or governance token discount, is much like a VC OTC deal but without the stigma of selling to a managed fund. A 30% discount to 30 day TWAP with T&Cs or a 10% discount to spot via BOND… Either way a community needs to sell there governance token in exchange for a more usable form of capital.

Fei can offer a more compelling solution to DAOs whilst also making FEI the most liquid and tradeable stable in DeFi.

The Challenge

How can Fei entice others to create DEX pools using FEI ?
Simple, we incentivise this behaviour. Providing incentives is tried and tested in DeFi and it works. Better than providing incentives in TRIBE, is getting someone to provide the incentives on behalf of Fei. Spending money is great, but spending someone else’s is even better.

The Solution

It all starts with investing a small portion of the PCV to acquire a significant holing in two major DEXs and as using the new found governance influence to control how incentives are distributed by those DEXs. Fei can buy quality strategic assets with the PCV, then use these strategic holding to boost FEI’s adaption.

Both Balancer and Sushiswap are moving towards a Curve veCRV model whereby BAL and SUSHI are deposited into long term staking contract and in return depositors gain the ability to determine where Liquidity Mining incentives are to be distributed. If Fei was to be the largest, or majority holder, of the Liquidity Mining distribution rights, then Fei can control which pools receive LM rewards. This enables Fei to uses BAL and SUSHI incentives to create high APR on FEI pairs.

Fei can create a competitive advantage over other stable coin pairs directing BAL and SUSHI LM incentives FEI-token trading pools. This still requires others to attain FEI to then provide liquidity. There is billions in illiquid DAO governance tokens laying idle in community treasuries. These treasuries are often concentrated and hold little to no stable or ETH. How can we unlock this lazy capital and make it productive.

Enter Ondo Finance… And liquidity as a service.

Through partnering with Ondo Finance Fei and other communities can both provide liquidity to any number of DEXs. Fei can supply FEI and the partner provides there governance token. Both parties are providing single sided liquidity. Now DAOs can deposit there treasury on-chain and they don’t need to sell tokens to fund the other side of the LP position.

The only downside here is stable coin pairs often incur significant Impermanent Loss risk. How can the risk of IL be offset ?

Fei can incentivise DAO Treasuries to pair there Governance token with FEI by allocating the BAL and SUSHI Liquidity Mining rewards to the FEI-GovToken pool on either Balancer and Sushiswap. FEI can take this one step further and make the deal irresistible, by giving FEI a fixed APY 3%-5% and allocated the remaining Liquidity Mining incentives to the GovToken LP via Ondo Finance. This has the affect to near double the rewards for the GovToken LP. It is reasonable to think this yield will exceed 10% and this is really attractive for what would otherwise be an unproductive lazy asset held in the community treasury.

The BAL and SUSHI rewards provide FEI with an APR and provide the partner with a higher APR. Both LPs are paid in the respective DEX governance tokens. Ie: DAO Treasuries get paid to LP and receive the lion share of the LM incentives to offset the IL risk.

When FEI is the most common stable coin trading pair in DeFi, FEI becomes the most logic stable coin for traders to hold.

This same concept can be applied to the ETH holding within the PCV but deploying the ETH this does not increase the adoption of FEI. Thus, the BAL & SUSHI rewards would be zero or lower and a higher fixed APY would be applied. The stETH yield of 5% is a good bench mark rate to define the minimum fixed APY if Fei was to provide ETH Liquidity as a service.

Given there will likely be overwhelming demand for such an idea, it might be plausible to consider putting some kind of eligibility requirement on this concept like minimum TRIBE holding. As in the larger the TRIBE holding the larger the BAL and SUSHI LM rewards applied to the pool. This encourages the LP to harvest a portion of the BAL and SUSHI rewards to market buy TRIBE. The BAL and SUSHI rewards that Fei receives can be rolled back into veBAL and oSUSHI to continue growing the holding over time and further disincentives other from deploying a similar strategy.

By deploying this strategy across two DEX, Fei stands to create many productive use cases for FEI and increases FEI adoption through expanding FEI surface area within DeFi.

Other Considerations

Why a DAO should participate int this arrangement ?

Any DAO can buy a BOND by selling there governance token at spot, say 10% discount and then use the capital to LP and still incur the Impermanent Loss risk.
Any DAO can seed a pool with FEI, forgoing the initial GovToken sale with Ondo Finance now. With the addition of BAL or SUSHI rewards, the Ondo Finance proposition becomes a lot more lucrative for the GovToken provider.
A DAO treasury gets on-chain liquidity without selling there governance token and makes an otherwise un-productive token holding productive whilst minimising the IL risk of pairing it a stable coin.

What if the DAO wants to pair there governance token with ETH and not FEI ?

Sure, Fei can provide the ETH to make this happen from the PCV – at a price.
stETH generates around 5% yield. If Fei was to offer ETH at say 75% of the DEX incentives, then this because a solid yield generating strategy. The returns are staked in Fei favour. All the Impermanent loss is retained by the DAO and the DAO only receives say 25% of the BAL or SUSHI incentives which will help offset any IL risk.

Could this have the effect to dilute the APR of FEI pools ?

Possible – But we can prevent this by ensuring FEI pools receive a higher allocation of incentives in some kind of tiered system. FEI-GovToken pairs receive higher rewards than ETH-GovToken pairs. Partners who hold more TRIBE receive preferential treatment. Thus an incentive to pair with FEI and to acquire TRIBE.

Why do this ?

OHMs BOND program is receiving a lot of attention and this program means DAO have to sell there governance token at a discount to spot.
Rather than DAOs sell GovToken for BONDS, then can earn BAL and SUSHI rewards without needing to sell there GovToken. DAOs an make there unproductive GovToken productive, retain ownership and minimise exposure to IL.

Fei uses the PCV to purchase compelling DEX holdings and uses the DEX LM incentives to promote FEI. This is a small allocation of the PCV and represents a significant potential to boost FEI liquidity and increase the number of liquidity pools that use FEI as a trading pair. The goal of FEI is to be the go to stable coin trading in DeFi. This idea move Fei closer towards realising this goal sooner. For FEI to become the best stable coin in DeFi it needs to be the most commonly traded stable and being the go to trading pair supports achieving this goal.

Sentiment Check

Please do provide feedback in the comments section below :slight_smile:

  • This is an interesting Idea, lets explore this further
  • Awesome idea, I’m keen, Let’s Do It
  • Great energy, but it is probably not the right time

0 voters

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This would be a great use case for FEI. I think we should start with Balancer.


I like the idea. It will be interesting to see the launching of Liquidity as a Service with Ondo Finance. In parallel, there is the proposal to swap tokens with Balancer. I agree with Count we could start with Balancer and Ondo would need to start using them for the vaults.

1 Like