Forum discussion

https://tribe.fei.money/t/fip-6-pcv-initial-stable-coin-investment/3249

Basic Summary

This proposal is to invest 40k ETH from the PCV into stablecoins.

This FIP has been prepared by @eswak and @bruno. We would like to thank @siddharth for initially pointing to the urgency of diversifying into stable coins and for the valuable feedback from other community members such as @pavel, @arcology and @ferdinand_fuzzgellan. We would also like to thank @countvidal and @Matthew_Graham for the initial discussions about stablecoins investment, and the core team for helping us draft this formal proposal.

Motivation

There has been numerous discussions on how to diversify the PCV on the community channels (Discord, Discourse), and the channel #fip-6-stablecoin-diversification has been quite active recently.

We presented scenarios considering investments from 10% to 25% of PCV into stablecoins, and the community started discussing what would be the appropriate size. We think there is a middle ground in the community at 40k ETH to buy stablecoins.

There are currently 266 M FEI in circulation, of which 135 M are timelocked. Assuming 2500$/ETH, the 40k ETH allocation would make the PCV acquire US$ 100M of stablecoins. Those stablecoins would hedge the risk for ~75% of the circulating non-timelocked FEI. The PCV is currently sitting at ~276k ETH, so by converting 40k ETH, we would be converting 14.5% of the PCV.

This investment would reduce the daily volatility of PCV from 6.5% to 5.5% and reduce the Expected Shortfall from 15.9% to 13.6%, as discussed in the forum posts.

After discussions with the community, we selected two possible options of stablecoin investments, DAI and USDC, for the following reasons:

• Highly liquid trading pools on Uniswap and SushiSwap. USDC is the most liquid centralized stablecoin and DAI the most liquid decentralized stablecoin.
• They are the most used in the lending protocols and in stable pools
• In the risk assessment done by lending protocols, USDC is the less risky centralized stablecoin and DAI the less risky decentralized stablecoin

Our updated risk analysis for each cryptoasset provided the results shared on the Discourse post : https://tribe.fei.money/t/fip-6-pcv-initial-stable-coin-investment/3249/22?u=bruno

So here is a snapshot to confirm the community's interest on this investment, and finalize the choice of stablecoins to acquire.

Specification

This proposal adds a new “PCV Swapper'' contract to the protocol. This contract can swap ETH or ERC20s held in the PCV to other ERC20s or ETH, using Uniswap v2 or Sushiswap markets. Anyone can call the swap() function after a certain time has passed to help the protocol swap its PCV assets, and receive a FEI incentive to cover gas costs.

The code has been reviewed by the core team and audited by Consensys Diligence. The audit and code changes should be done this week, and we plan a DAO vote 48 hours after the start of snapshot vote, if it is successful.

Swaps will happen on Sushiswap market, in chunks of 40 ETH every 10 minutes. The incentive to call the swapper will be 50 FEI. That should make the PCV Swapper(s) acquire the ~1M stablecoins over the course of 1 week. A slippage protection of 1% will be used based on the Chainlink ETH/USD oracle.

Steps included in the DAO proposal:

• Grant PCV Swapper(s) the minter role to enable the FEI incentive on swap() call.
• Call setReceivingAddress() on the PCV Swapper(s) to make them target themselves when swapping tokens. They will hold the tokens until a next proposal re-affects them to different contracts of the protocol.
• Withdraw 40,000 ETH from the EthPCVDripper to the PCV Swapper(s). The dripper currently holds 127k ETH.
• Call wrapETH() to wrap PCV ETH to WETH and allow swapping

Voting Rules

Voting will last 2 days.

This is a non-binding signal vote. Please keep in mind that snapshot votes can be changed but not withdrawn until the end of the voting period.

The three options to vote on are:

• 40k ETH @ 100% DAI
• 40k ETH @ 50% DAI, 50% USDC
• No stablecoin purchase

This is an approval vote. You can check multiple options if you are comfortable with multiple choices. The option with the most votes will be proposed to the DAO. If option 3 wins, we will not submit the proposal to the DAO and continue discussions.