Migrate To Uniswap V3 For Capital Efficiency

Currently, FEI has approximately 460 million of eth PCV deployed to uniswap v2 in a manner that allows it to buy FEI from 0 to 95 cents. Because the liquidity is spread throughout this whole price spectrum, it is capital inefficient when compared to uniswap v3. With uniswap v3, we could place a limit buy order from say 0.8 to 0.95 USD and then allocate a greater percent of the PCV used to support the peg to other investments and strategies as we need less capital to maintain the 0.95 peg.

When a user buys FEI from the bonding curve, we no longer have to mint as much FEI as PCV to add to uniswap. My understanding of the current system is as follows:

  1. User buys 10 FEI from bonding curve paid in eth
  2. FEI mints 10 FEI to the user and then 10 FEI is minted to the PCV.
  3. The 10 FEI minted to the PCV is then added to the uniswap LP position to keep the price in place.

If uniswap v3 is used, it would allow the protocol to only mint 5-10% of what is currently minted as PCV. This would then be added as liquidity to the PCV uni V3 position.

Doing this would require a new re-weight mechanism to be built that manages the NFT that uni V3 generates. If we migrated to v3, we could also use a lower fee tier for swaps to 0.05% to remove friction from the buying and selling of FEI. Additionally, because uniswap v3 has so much expressivity, we could leverage the power of concentrated liquidity to add more liquidity to support the peg at lower prices thus generating more equity for PCV in terms of assets versus liabilities and discourage selling until more liquidity is added from reweights.

If we went with the multiple curve option, the code would be a bit more complex as it would require us to manage multiple positions at the same time and add more to certain positions only when warranted (i.e. when price sells off and the lower limit buy orders get hit).


Good points, Sol!

I think Uniswap v3 can have a key role for FEI. However, as FEI-ETH pool is very volatile due to ETH price, it would be more difficult to define the better range and would need more knowledge on active market making. The idea you bring would match perfectly with a new pool of FEI-DAI for example. Low fees to reduce friction and very capital efficient, at the same time it improve the diversification of PCV.