[Proposal] Buying Bankless BED

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FIP-x

Title: Buying Bankless BED Index (BED)

Status: Discussion

Author: @Bruno @Fifilechien @Matthew_Graham

Basic Summary

The following is a proposal to invest $2M, which represents ~0.3% of PCV, into the Bankless BED Index. We also propose creating a $4M BED-FEI pool on Sushiswap.

The BED is an index, created by Bankless and Index Coop, that represents Crypto’s most investable assets, 33.3% BTC, 33.3% ETH, and 33.3% DeFi Pulse Index (DPI).

Motivation

The main purpose for purchasing $2M of BED is to increase on-chain FEI liquidity and utility, helping to drive FEI adoption.

The BED-FEI pool will be the largest BED pool trading on a decentralised exchange.

Providing liquidity for BED-FEI can strengthen the partnership between Fei Protocol and Index Coop. It can also establish a new partnership with the Bankless DAO, which is well recognized for their educational content and their cultural influence over the industry.

The partnership with Bankless could increase Fei awareness and adoption, and help to make FEI the stablecoin for Defi. The Bankless DAO is an inventive and leading edge DAOs, mixing on-chain and off-chain initiatives. It was born by and for the large community behind the Bankless podcast which has strong brand and marketing channels, with 75k followers on Twitter and almost 70k loyal subscribers on Youtube.

By holding BED-FEI LP Token, we can have additional exposure to DeFi through DPI and also to Bitcoin that is one of the less volatile crypto assets. BED is a vehicle that captures equal-weighted upside from the most promising use cases and themes in crypto: store of value, programmable money, and decentralized finance. It also rebalances to keep the exposure ratio over the long term.

We are proposing a small initial amount that could be increased in the future.

In parallel to this forum discussion, we have opened dialogue with the Bankless DAO to see how we can make this proposal a real step towards a DAO to DAO collaboration and a commitment of people for a common good.

This would be the occasion for a coordinated and combined marketing campaign with the Index Coop and Bankless DAO to make sure everyone in the space is made aware of the collaboration. The ideas are plenty (for example NFTs, BANK token drop for extra PCV diversification, programmed social network communication, etc) so we can see what’s the most exciting and the most impactful for the communities.

Risk Analysis

Smart Contract Risk:

BED uses Set Protocol smart contracts that was audited by OpenZeppelin in September, 2020.

Despite its recent launch on 07/21/2021, BED has less smart contract risks because it uses the contracts from Set Protocol.

Counterparty Risk:

BED holders have no governance influence on Index Coop or the protocol within the index. The BED utilises TokenSets V2 smart contract that has privilege roles in many of the contracts.

There is a multisig responsible for initiating rebalances, performing meta-governance, adding / removing new protocol functionality. It does not have the ability to arbitrarily move underlying assets, mint tokens, etc. The signers are currently members of the Set team with the intention to add Index Coop community signers over time. While the multisig can’t arbitrarily move assets, it theoretically could rebalance assets into a fake token. The mitigating factors for these risks are the Set Labs, Bankless and individuals personal reputation.

Liquidity Risk:

Minting and redeeming BED represent the primary market of the indices, but many users can buy and sell indices on the secondary markets. The price on the secondary markets are kept at Net Asset Value (the market value of all the underlying components) through a network of market makers that redeem the tokens when price is below NAV and vice versa.

When considering liquidity, the average daily trading volume is $400,000, based on the last 18 days. However, as BED holders have the option to mint/redeem the underlying tokens within BED, it draws on the liquidity of the underlying assets and also allows for any deviation from NAV to be arbitraged away by traders. So liquidity goes beyond the secondary market for BED.

Market Risk:

As BED is a basket of tokens, it has less volatility than the component assets by themselves.

As BED just started a few weeks ago, we calibrated the risk exposure by proposing a small deployment relative to the PCV.

Specification

$2M of BED can be purchased via an OTC deal with Index Coop with more details to emerge over the coming weeks.

There is the potential for a joint Bankless, Index Coop and Fei deployment on Polygon which could receive SUSHI rewards and potentially other opportunities. More on this as information comes to hand.

Voting Rules

We would like to gather feedback from the community about this post and invite communities to discuss how BED purchase could benefit Fei Protocol.

  • Purchase $2M of BED
  • Do Not Purchase of $2M of BED

0 voters

Disclosure: In addition to being a contributor to Fei Protocol @Matthew_Graham is also a core contributor at Index Coop.

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I’m not a fan of BED index’s fee structure. In addition to the 0.95% fee paid on the DPI portion of the index (comprising a 1/3 share, so around 0.3% of total assets per year), there is also a 0.25% fee on the BED index itself (so the total fee is 0.55% per year).

I completely understand the DPI fee, as this index requires some work to maintain and construct. But I don’t think it makes sense to pay 0.25% annually for an index as simple as BED (just 1/3 each of WBTC, ETH, and DPI, rebalanced monthly).

The cost is fairly small so probably not a dealbreaker for onboarding into the PCV if the community feels it offers an attractive risk/reward or other partnership benefits. Just my two cents :slight_smile:

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Hey folks - Repping BanklessDAO here.

As a media DAO, I like to think in terms of narratives, and I like the narrative this builds. Right now, the only stablecoin BED pool is USDC (link). While USDC is well recognized, it’s still a digital dollar controlled by a crypto bank (Coinbase). I would much rather see a stablecoin pool with a purely crypto dollar, like FEI. By creating a FEI-BED pool, we can set precedent that future LPs will this FEI pool, as it would already have depth and fee volume.

Furthermore, I’m inspired by Fei Protocol’s journey from a shaky launch, de-pegging, and back to stabilization through decentralized governance. Imagine the stories we could tell together! I firmly believe this initiative would lay the foundation for a strong relationship with BanklessDAO while also diversifying the Fei Protocol treasury.

Just some thoughts to munch on.
:frog::monkey_face:

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Thanks @monet-supply for your feedback. It’s true that from an educated investor / pro trader perspective the fees can hurt as they add up to more than half a %, as you can absolutely track your portfolio and develop strategies to take profits on the over-performing assets yourself, but the BED (in my opinion) has two great markets: the DAOs as a treasury management and diversification tool, and the retail investors, especially those interested by Defi. A DAO gets benefits from the infrastructure and the automatic rebalances, and that justifies the small annual fee, not mentioning the fact that behind it there’s a good amount of work from Index Coop and Bankless DAO that needs compensation. And in the case of Fei, with this precious advantage that the protocol doesn’t have to just hodl, but can create deep and attractive liquidity pools, those fees would be more than compensated by the trading fees. BED has had great organic demand since launch, considering there’s no liquidity mining going on and it’s only present on Uniswap and Set Protocol.

BED and FEI have in common the ambition to be go-to defi tools. Why have bitcoin, ether, and a bunch of defi tokens on an custodial CEX, when you can own BED? Why use USDC and earn yield on Cefi, when you can use FEI?
What if FEI is the stablecoin for Defi in act, what if the best way to buy BED is to buy it with FEI?

And of course how are new investors going to learn about all this, make the jump into Defi and know what to do ? Who’s going to teach them about the crucial importance of decentralization, about why BED is today the most efficient and resilient crypto portfolio, about how investing in BED and using FEI as a preferred stablecoin follows the same patterns and reflects the same values? The ressources, podcasts, programs, the education, the mentoring of Bankless DAO… Its ability to create cultural resonance through NFT campaigns, memes, reach on social media, and the narratives in general.
About that, thanks @frogmonkee for joining in, don’t hesitate to relay and contribute, this forum discussion is a chance to develop and makes ideas spark, like a community brainstorm before we get to working on a campaign and the potential ideas that will make consensus :slight_smile:

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I’m in support of this proposal. This allows for some level of diversification of PCV yield, which is great. More importantly, however, is the exposure that Fei will get from partnering with Bankless. As others have noted, Bankless has a robust social media presence, and can function as a way to have more DeFi users exposed to Fei as another alternative to DAI/USDC. Speaking from personal experience, the Bankless newsletter & podcast are resources that quite a few first-time DeFi users turn to, and it’s useful to have them be aware of Fei from day one.

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Yeah, that’s a good point, it would be awesome to have Fei in the newsletter and in the podcast somehow. I was wondering what else could the partnership with Bankless do to help to increase Fei awareness? I think this is an important to gather support around this proposal.

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We can absolutely have FEI in the newsletter @frogmonkee is one of the leaders in our writers guild he can surely integrate fei into the newsletter.

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I’m not a fan of getting WBTC in the PCV, but given the size of the allocation & the partnership potential, why not.

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I just want to give a little update on this topic.
I believe this proposal is still a very great opportunity both for treasury diversification and marketing / reputation purposes (which is a problem that has been recently put forward in Discord discussions).

Other protocols have moved forward on similar projects.

Visor finance was the first protocol to invest in BED index (100k $) : see here. This came along with a marketing campaign.

More recently the UMA protocol also invested in the Bed index, actually minting new BED tokens on L1 without any technical issue. For 1M $, see here. This also came along with a campaign and marks the start of a partnership with BanklessDAO (see for example here)

On an other note, Tracer DAO has made a marketing campaign with the LLC (check here), that turned out to be a HUGE catalyst for getting both new community members and contributors. Of course, many BanklessDAO members followed.

We should look more into this before it becomes too classic and every DAO does it.

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Let me play devil’s advocate here.

Other than the integration and relationship-building aspect with BanklessDAO, what is the real economic reason to buy BED? The PCV contains plenty of ETH, and we have $10M of DPI. The only ‘new’ value that the token would have would be Bitcoin exposure. Does holding BED give any governance rights? Does giving us this exposure be reason enough to hold it?

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@arcology Devil’s advocates are the best :slight_smile:

The way I see it is we were naturally pushed to diversify with DPI, we will be pushed to diversify with Btc when market conditions deteriorate. We will eventually have the three assets anyways. The rebalancing of the index gives a less passive approach than holding as it re-equilibrates the portfolio to make the most of the overperforming assets of the month.

I see it as an advantage that we can use a bonding curve to acquire assets without selling the ETH of the PCV directly, since even if 100% of the FEI given out was to be sold right away it would not bring PCV down of that 100% given the investors’ diverse LP positions.
But if you feel like the adding more ETH part is not optimal there are two options: not use a bonding curve but buy BED with ETH, or assemble let’s say 1m$ of the 10m$ of DPI we have with 1m$ worth of current ETH and just buy 1m$ worth of Btc (bonding curve or with ETH).

An additional reason besides the integration and relationship building with a strong Media and Social DAO that will bring marketing, qualified members and diverse talents (which is something we would get for super cheap, see above for .55% total annual fee), is that we can actually use the acquired BED to create a deep liquidity pool with FEI, make it worth for all investors to buy BED using FEI (so they’d buy FEI first, get used to using FEI) or giving them a good rate in case they feel crypto market is bearish and they want to go back to stables (best stable to sell BED for would be FEI). This means differentiation, usage and visibility, and LP fees of course.

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Okay, so I see what you mean.

I would treat BED as another ‘form’ of DPI then. Which is, to use a bonding curve to get FEI-BED, because we probably want to get more FEI in circulation.

I haven’t worked with BanklessDAO but if they have a strong community which can help market, then that would be the real value-add in this integration. Finally, I would also suggest, like DPI, acquire some skin in the game of getting BANK tokens for meta-governance if we are really serious in pursuing an integration (like INDEX). An ambassador to BanklessDAO would be necessary (and should be probably Grant-able).

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I see the potential of FEI to be the main liquidity source of DeFi. Providing liquidity to interesting products in DeFi, such as BED, is a way to make this vision come true.

By providing liquidity to BED on Sushi, for example, we could strenghten our partnership with Index Coop and start a relationship with Bankless DAO. The purchase amount suggested of $2M is low compared to the potential benefits.

1 Like