Forum Thread

https://tribe.fei.money/t/fip-26-raise-reserve-stabilizer-backstop-to-0-995/3508

Executive Summary

Raise the reserve stabilizer redemption floor from $0.99 to $0.995.

Motivation + Context

Direct redemption is the simplest and most desirable guarantee for a stablecoin. Holders want to know that at any point in time, a stablecoin can be exchanged for its face value. A direct redemption mechanism is the simplest way to make this happen.

Many stablecoins such as FEI, FRAX, and LUSD use a redemption system as part of peg maintenance. FEI’s other peg maintenance mechanism, reweights, suffers from a number of drawbacks such as high implementation complexity, delayed response times to price shocks, and allowing some MEV through sandwiching. As such, Fei V2 will remove reweights in favor of direct redemptions.

Redemption will thus take on the full burden of peg maintenance. The primary way that redemptions are currently used is in risk-free atomic arbitrage. When FEI is trading below $0.99, arbitrageurs can buy FEI and redeem it for $0.99. However, standard DEX fees of 0.3% make this trade less efficient, and only risk-free when FEI is $0.987 or below. As such, keeping FEI above $0.99 requires raising the redemption value to at least $0.993.

Beyond peg maintenance, there are also utility and narrative benefits to raising the redemption floor. A stablecoin is more useful if it can be redeemed more closely to its face value. Raising this backstop would make FEI more competitive with other stablecoins that have similar redemption mechanisms.

Proposed Changes

Raise the reserve stabilizer redemption floor from $0.99 to $0.995.

Voting Rules

Voting will last 2 days and will have a quorum of 10M TRIBE.

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 Please keep in mind that snapshot votes can be changed but not withdrawn until the end of the voting period.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 two options for voting:

1. Yes, raise backstop to $0.995
2. No, keep backstop at $0.99