FIP-4: Remove Direct Incentives

Voting ended over 4 years agoSucceeded

Forum Discussion

https://tribe.fei.money/t/fip-4-reinstate-remove-direct-incentives/3283

Basic Summary

Remove direct incentives from Fei Protocol functionality

Motivation

Analysis and discussion in the community has demonstrated a number of drawbacks to the direct incentive approach.

Undermines the purpose of a stablecoin - Nearly all use-cases for stablecoins are based on the coin maintaining its worth at a pegged value. In particular, it is desirable for stablecoins to be redeemable at the pegged value in a highly liquid manner. Direct incentives break this model. It's easy to imagine users dismissing FEI for other stablecoins that have no threat of penalized redemption.
Inconsistent user experience - To perform FEI swaps on uniswap routing through the FEI-ETH pair, users must increase slippage on their trades. New users might not know they need to do this. They might wonder why their trades fail, and they might also wonder why the amount of FEI swapped is different from their expectations. Even for experienced users, the optimal slippage rate might be difficult to determine, and this information cannot be integrated into the uniswap user interface.
Isolated to Primary Exchange - Direct incentives only work on the UniswapV2 FEI-ETH pair. To onboard a new exchange, we would have to write new code specific to that AMM. Many new AMM designs would not support direct incentives because of complex or nondeterministic curves.
Breaks composability with other protocols - Direct incentives break standard ERC20 behavior and compromise integration into other protocols. Some price oracles cannot properly report the price of FEI. Aggregators such as Coingecko post a large warning about FEI that could be a deterrent for new users researching the protocol.

Direct incentives are currently disabled, this vote would signal support to permanently remove them. By removing direct incentives, FEI holders can be confident in a highly liquid stablecoin without the worry of incurring a penalty for selling. This would allow the protocol to move forward with the bonding curve and reweights as the primary peg maintenance mechanisms, and focus on building out the FEI ecosystem through PCV deployment.

Specification

The following action would be included in future DAO proposals until one passes, to spare an extra on-chain vote for a non-essential change. The UniswapIncentive currently has neither Minter nor Burner access so it is effectively disabled. The below change would lower gas costs for FEI traders on Uniswap.

Unset the UniswapIncentive contract from the FEI incentive map

Target: 0x956F47F50A910163D8BF957Cf5846D573E7f87CA
Method: setIncentiveContract(address)
Value: 0x0000000000000000000000000000000000000000

Voting Rules

Voting will last 3 days ending on Sunday, June 20 at 12pm PT

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 to vote on are:

Yes, remove direct incentives
No, keep direct incentives

If this vote passes with a Yes majority, the specified changes will be included in a future DAO vote. If the vote passes with a No majority, continue discussions oriented towards an implementation with potential modifications.

Off-Chain Vote

Yes, remove direct incentives

24.09M 99.9%

No, keep direct incentives

20K 0.1%

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Timeline

Jun 17, 2021Proposal created

Jun 17, 2021Proposal vote started

Jun 20, 2021Proposal vote ended

Oct 26, 2023Proposal updated

Motivation

Analysis and discussion in the community has demonstrated a number of drawbacks to the direct incentive approach.

Undermines the purpose of a stablecoin - Nearly all use-cases for stablecoins are based on the coin maintaining its worth at a pegged value. In particular, it is desirable for stablecoins to be redeemable at the pegged value in a highly liquid manner. Direct incentives break this model. It's easy to imagine users dismissing FEI for other stablecoins that have no threat of penalized redemption.

Inconsistent user experience - To perform FEI swaps on uniswap routing through the FEI-ETH pair, users must increase slippage on their trades. New users might not know they need to do this. They might wonder why their trades fail, and they might also wonder why the amount of FEI swapped is different from their expectations. Even for experienced users, the optimal slippage rate might be difficult to determine, and this information cannot be integrated into the uniswap user interface.

Isolated to Primary Exchange - Direct incentives only work on the UniswapV2 FEI-ETH pair. To onboard a new exchange, we would have to write new code specific to that AMM. Many new AMM designs would not support direct incentives because of complex or nondeterministic curves.

Breaks composability with other protocols - Direct incentives break standard ERC20 behavior and compromise integration into other protocols. Some price oracles cannot properly report the price of FEI. Aggregators such as Coingecko post a large warning about FEI that could be a deterrent for new users researching the protocol.