Another thing to consider about delayed reweights when eth price goes down and remains below is the potential cost of delaying the reweight -both moneywise and trustwise
As long as eth price remains below (it could not go above the rate in fei/eth pair), trading will stop except for those who deliberately sell.
Buys won’t be efficient to restore the peg for a pool with this much of liquidity.
The restoration of the peg will fully depend on the price action of ether. If eth could make a quick move, the peg will be restored immediately. On the other hand, if eth keeps remaining below, the protocol will be selling the eth reserve with a premium (Peg Distance + Buy reward Rate), it will even be good for people who are long on ether to buy at a discount and wait. However, in case ether keeps dropping it will be catastrophic and will pose a great risk to the protocol.
Right now, as a short term solution, finding a way to making reweights more frequently is inevitable. The sell pressure should be diminished, it would also be nice to have less PCV.
Afterwards, the focus must be to spare some of the PCV for other uses which will help to stabilize the peg when in need.
And one more thing, I understand that there is a process but 1-2 weeks just to take first steps at alleviating the current conditions is an eternity in the minds of most people complaining on discord.
It is true that most of them have not read anything about the project and it is not the team’s fault for their position. However, these are the same, most vocal, people that go around other communities and give Fei a bad perception.
Another short term solution, while there is no FEI integration, would be to allow FEI holders to stake their FEI in exchange of TRIBE (or reserves being accumulated by the protocol). This way, you create a first simple use case and people will start holding, while other protocols start building new use cases for FEI.
This seems like a great idea to decrease some of the immediate sell pressure. It would also serve to have a more gradual exit for those that will want to exit as APY of the Fei staking pool decreases. Coupling this with frequent reweights should relieve all the sell pressure and make fei stable.
I understand why $FEI does not have usability right now so early on but my point was to say it’s unlikely to become usable with the current design because it’s not a great collateral (burn penalties would make liquidations really difficult) and an undesirable stablecoin as long as the periods below peg are so long
I guess the formula of the solution is;
People should able sell FEI at $1.
There should be demand for FEI.
People should be able hold their FEI without thinking, if I miss this reweight, I will be stock for while.
And these all should happen without use case.
Maybe direct incentive can be good, but should be thought carefully.
@Roro suggested unannounced reweights for preventing bots but pcv contract is out there so I think this would hurt normal users more than bots imho.
It seems to me that reweighing should be done every hour.
The contract is out but the question is what are the balances of the bots at the moment and how much can they influence price. The re-weights could be announced as they happen, just not with a big enough time window for someone to purchase the needed balances to make an impact.
Again, I think it’s ok for the team to experiment and see what works, even with mass re-weights for a day or two. This is uncharted territory.
The fei/tribe pool sounds exactly like this
unannounced reweights will not hurt bot at all… Do not do that. It is very easy to monitor.
In combination with Options 1, 2 and 3, please consider adjusting the staking emissions to be more front-loaded. While we wait for integrations and other use-cases, the only real use case for FEI is to stake it for emissions (especially since you can buy TRIBE at a discount in the TRIBE-ETH pool without ever having to touch FEI) While the initial plan was to provide linear emissions over a 2 year period, I think it would be advisable to front-load the emissions more to drive demand over this initial period. Reweighting and allowing some of the built up sell pressure out is addressing only one side of the equation. Increasing staking rewards is a short-term fix for the other side of the equation and will increase demand over this critical period.
Incentivizing holding FEI sounds like an OK temporary solution, tbh.
Why ?
As others stated already, there is crazy sell pressure from all the uninformed people who aped in something they didn’t research.
Let them stake their FEI (people are always looking to “stake” tokens, as you may know, it’s a magic thing).
Incentivize for 2 weeks, re-assess in 2 weeks. Maybe the emissions could taper off as time passes or some other non-linear thing so that the rewards don’t end abruptly (creating a destabilization in the peg, maybe).
I would definitely vote for a proposal like this right now.
Tomorrow’s start of the staking rewards for LPs will also contribute to stability because then people will lock their FEI.
Seems pretty crazy to not have capped the raise and then suggest there is too much PCV and now effectively transfer ape money to fei dumpers
Doesn’t depleting reserves incentivize shorting of FEI in the long run since there’s you can only do it so many times?
We are currently overcollateralized so reweighting is neutral/slightly positive for reserves
Thanks @joey - Like many others here, I’m in favor of options 1 and 3. Longer-term, I think 4. should be worked on as it’s the most promising, but 1-2 weeks is too long to restore the peg (and confidence).
Summary:
- 1 & 3 will attract arbitrager’s, this is good because they make up for the natural demand in the short-term (first two weeks) → peg will be restored, and arbitragers will cut themselves out
- FEI needs to show that the mechanisms that are all theoretical at this point work to restore confidence and show a strong/fast community exists to protect user value (stability)
- 1 & 3 cost very little to execute out of the PCV funds (we’re over-collateralized now)
As others have mentioned, FEI will not get any respect as a stablecoin, or good PR from the broader community, until the mechanisms have been proven to work for stability. Why does this matter? Because FEI will not have increased demand, or wider ecosystem integrations until people believe the system works.
Interoperability is one of the key components of a successful DeFi protocol.
Yes - having frequent reweights will attract arbitragers. However, I fail to see how this a bad thing in the short-term, while natural demand is lacking? FEI needs arbitragers as ecosystem actors in the long run, it’s a core component of the system. They’ll be attracted to FEI if such an opportunity arises and will restore the peg for us.
Reflexer (RAI) had this same issue and managed to fix it in the first few days by aligning incentives with the arbitragers.
How does this work? Well, people’s confidence becomes high in the system, and they start buying up the FEI (RAI in the real world example) when it goes below peg because they believe it’ll be restored. This naturally leads to the system stabilizing, and pure competition arbitragers literally cut themselves out, and overall FEI benefits.
Clearly, the market is telling us the current incentives are not enough to support the peg - however, in my opinion, proving the system mechanics works through option 1. or 3. show they do and therefore restore confidence.
Currently, large members of the crypto community are enjoying a good troll of FEI. I’d like to show everyone a quick and strong response to communicate the type of community TRIBE is, and regain lost trust.
Overall, the PCV is over-collateralized (even post reweight) due to large amounts of FEI being burnt. It’s very little cost to TRIBE to burn some “revenue” in order to spur growth through confidence restoration.
Any good business is willing to burn money short-term for long-term growth. Besides that - with $1B in assets I’m confident the PCV will be making strong DeFi yields soon, which will probably completely cover the cost of a few reweights to get us past the first couple of weeks.
Absolutely right on your points about arbitragers.
Actions need to be taken to restore confidence as soon as possible.
Generating demand for Fei has been mentioned a handful of times but integrations are not a short term fix.
Not sure if this is possible or a dumb idea, but can we pull staking rewards forward to start at midnight tonight to drive shorter term demand for Fei? Could this be used in conjunction with any of the other options listed?
There is no urgency here. We really need to wait until after staking begins to know whether any of these adjustments are even necessary. I vote for leaving the mechanisms alone for at least a few weeks and focus on creating demand for FEI. Staking is going to come out of the gate at a 25% APR+. That will change a lot of Apes’ perspective. Can you get it listed on Compound too?
25% apy isn’t going to change anybody’s mind or drive sufficient demand for fei to fix the sell pressure