Reserve Stabilization

The Problem

The FEI price has been below peg since the protocol’s launch. The excess supply created by Genesis seems to have led to the current state of high sell pressure.

Through Immunefi, whitehat hackers disclosed two vulnerabilities and a bug related to how direct incentives are calculated and reweights are triggered. Direct incentives and reweights were paused using the Guardian to address these.

In brief:

  • Reweights could have been directly arbitraged in an atomic transaction
  • The burn penalty could have been circumvented through a complex interaction with the uniswap pair
  • Mint rewards for withdrawing LP tokens were being collected by the UniswapV2Router02, not the user. These could be siphoned by the next Uniswap caller.

The PCV remains in Uniswap as the system is paused, with no reweights or direct incentives possible.

Fei Protocol is designed to use PCV and incentives flexibly to power its stability and utility. While the work continues on the development and approval of a patch of the above issues, discussion continues on potential mechanism changes to improve FEI stability, including:

Proposal

Any adjustments to the core stability mechanism should also undergo a security audit. During this process, Fei Protocol can allow for direct redemption of FEI for ETH from the PCV to support the peg and alleviate sell pressure.

Members of the Tribe community @cryptozen, @HittingBOMBS, @Bruno and others have suggested an auctioning of PCV or selling at a discount. There are currently ~2 billion FEI of which ~1.2 billion are owned by FEI Protocol and ~200 million are timelocked in the TRIBE-FEI pool. The ~$950m PCV can directly support a FEI price of up to $1 for all user redemptions, with an excess of collateral.

The Tribe community needs to decide the exchange rate to use for FEI. For simplicity, we propose 2 options, a full redemption for $1 or a discounted rate of $0.90. If the Tribe community wishes to discuss additional options, it may do so. However, we believe that reducing the decision set will allow for clear consensus to ring through. We also propose a third option to not move forward with reserve stabilization at all.

The mechanism of this proposal would withdraw 75% of the PCV (~350,000 ETH) to a contract which offers to buy outstanding FEI at the agreed upon price, 1 or .90, of ETH relative to the oracle price. If this buffer gets exhausted the Tribe community can instruct the Fei protocol can allocate more PCV in a subsequent proposal.

Ultimately, TRIBE holders are responsible for the FEI peg, and the long term vision of a scalable decentralized stablecoin is the top priority. Ideally, the peg would be restored as quickly and effectively as possible, so that existing and upcoming FEI integrations have maximum utility.

A nice gesture we can include in this proposal is to restore @oecan-x’s lost FEI.

How this proposal secures the future of Fei

With this change, we believe the Tribe community can begin to set a cultural tone for Fei Protocol of being flexible in its core mechanisms. FEI’s stability and utility should also be a priority in line with the PCV vision.

If this proposal succeeds, FEI’s stability mechanism will be temporarily altered to be reserve stabilization via ETH PCV. This would remain in effect until the existing mechanism has been improved and all changes are voted on and audited.

Reserve stabilization can become a core primitive piece of FEI’s architecture, with topping up of reserves coming from yield on PCV deployments or growth in FEI supply.

Next Steps

On Saturday at 4:00pm PT, a signaling snapshot vote will occur regarding the above. To summarize, the 3 options will be $1 reserve stabilization, $0.90 reserve stabilization, and no change.

Once the code is audited and peer reviewed it will be submitted to a Fei DAO vote.

TRIBE holders are likely affected by this proposal. On one hand, returning FEI to its peg is in the interest of the Tribe. On the other, reserve stabilization would reduce the overall size of the PCV. Other proposals to consider are to allocate at least half of the DAO TRIBE treasury to TRIBE holders over time through staking to reward long-term alignment with the Fei vision. The Tribe community should continue exploring current proposals like this one for further TRIBE staking rewards, and implement them after this proposal is complete and voted on through the Fei DAO.

46 Likes

We want full redemption of FEI at $1.00.

The PCV can easily support it. Even if 100% of people exited at FEI $1.00 (They won’t, maybe half will exit), the PCV would still have $200-300m in it.

Anything less is a scam that you profit from.

FEI is similar to a bond (no/low risk), and TRIBE similiar to a stock (more risk/more loss). Don’t punish FEI holders.

Letting us exit at $1.00 is the fastest, simplest, and most honest solution that would encourage people to join again in the future when trust is restored. The longer you hold our money, the higher the risk of more exploits/hacks being found and having our money stolen. It also would save us in the case Ethereum crashes from losing money also.

47 Likes

I’m not for or against any of the proposals here but:

  1. Fei was never low-risk. 100% loss was advertised.
  2. Tribe has more risk, but the whole point of tribe is for governance - e.g. to vote on things like this.
20 Likes

$1 redeem would be a move of honesty and righteousness for Tribe holders. Only then, people can have faith in the stablization of Fei Protocol, and ensure long-term growth of the project

26 Likes

A redemption of $0.9 is the best

6 Likes

It’s a $1 USD stable coin and Genesis investors paid $1.01…$1 redemption is the only reasonable vote.

Vote to restore ocean-x’s FEI (please)

13 Likes

TRIBE pre-swappers are currently in the worst spot, with up to 65% loss from pre-swap price. The FEI mechanic was never guaranteed to be $1. It has always been an algo-coin, NOT a 1:1 pegged coin. 90 cents is a fair value for exiting with zero risk while TRIBE holders have to rebuild the protocol with a tarnished image to make money back.

28 Likes

I don’t hold any FEI but I think pass full redemtion at $1.00 would be a smart move since wil restore the faith on the project.

15 Likes

$1 redemption could give the whole protocol a new start.

18 Likes

100% in favour for using the PCV to buy fei at an agreed price to remove the FUD and negativity in the community and move forward with the updated mechanisms.

However, a full redemption just gives those who jumped in just for the airdrop a profit, and leaves Tribe holders and pre-swappers footing the bill (you will be making a profit as you also received the airdrop).

This penalises believers in the project and rewards the flippers who are creating this sell pressure.

I think a more fair balance would be to offer Fei at 0.90 - 0.95 for those that want to exit and allow Tribe holders to manage the remaining PCV. Those that aped will have a small ape tax, and those that believe will get the full $1 if fei eventually reaches the peg.

I also agree with returning Ocean-x’s lost fei.

27 Likes

Let’s be real, we’re all apes. :sweat_smile:

6 Likes

I fully support this as well.

8 Likes

Redemption at 0.95 is a better compromise since Tribe preswappers are actually effected the worst. This should be executed in tandem with airdrop for those who preswapped.

6 Likes

Faith is already lost, they didnt even wanted to test their product before mainnet, these problems might showed up back then. Now it will be throwing a life guard just to see if it works, not 100% guaranteed. But its the only thing we have in this short term so we have to cross fingers.

2 Likes

why not 0.95?
that will be much better.

after all FEI is desighed as a stablecoin peg to 1$, and it is overcollaterized.

why only allow .90 refund.

Tribe holders should not be forced to stake the Pair. Many pre-swapped 100%. If you force us to stake the pair to earn rewards you are forcing us to invest more money into the project to buy Fei, or swapping current Tribe at a disasterous loss in order to accumulate enough Fei to stake.

12 Likes

It sounds TRIBE people who believed in the vision get nothing.

The FEI people get their money back. They took zero risk but would have benefited if the project worked. I don’t think that’s morally correct and the FEI team should not have caved to mob pressure. I feel worse about the team now than before. If people don’t like FEI under $1 and don’t believe that it can come back, they should sell at a loss.

33 Likes

I do not agree with this proposal. Let me Explain why.

This caters to the people who participated in the GENESIS to gain the TRIBE airdrop just to dump it on the market.

The Non swap/pre-swap was ESTIMATE to 623,000 ETH no swap and 177,000 ETH swapped.

Clearly most of the people who participated, wanted to gain the TRIBE bonus and dump on the market which they did.

If we are going to propose a 1:1 FEI to eth swap. We must Propose something similar to the people who Pre-Swapped. It’s the only way that’s fair.

25 Likes

One thing to be aware of is due to the massive size of the Pcv right now, arbitrageur can buy massive sums of fei without raising the price and still make out with a profit at the time of redemption.
If whales swoop into FEI right at this moment, it will cause a huge loss to collateralization ratios for everybody else.

11 Likes