FIP-1: Reserve Stabilization

Forum Discussion

https://tribe.fei.money/t/reserve-stabilization/1793

Basic Summary

Fei Protocol is currently paused while the vulnerabilities in the direct incentive and reweight system are addressed. This proposal aims to allow for direct redemption of FEI for ETH from the PCV to release sell pressure to support the peg.

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.

Proposal

The mechanism of this proposal would withdraw 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 vote to allocate more PCV to the same contract in a subsequent proposal.

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 at least 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.

This proposal will also send 127,629 FEI to Ocean-x to effectively undo this transaction: https://etherscan.io/tx/0xdcfe606b9ed3acc596b8a2b58a1e3fd8b0b6be343526e4d6ed861f52b83850e0

Specification The reserve stabilizer implementation would be an OracleRef pointing to the UniswapOracle so that it can price the FEI exchange rate. There will be an additional discount rate which will be either 90% or 100% if $0.90 or $1.00 per FEI passes, respectively.

The steps included in the DAO proposal:

1. Set the timelock to a PCVController indefinitely (to allow PCV movement through governance)
2. Withdraw 300,000 ETH from the EthUniswapPCVDeposit
3. Deposit 300,000 ETH to the EthReserveStabilizer
4. Set the EthReserveStabilizer to a Burner (so that FEI transfers don’t need approval from the caller)
5. Set the timelock to a Minter indefinitely (to allow DAO payments in FEI)
6. Send 127,629.12841 FEI to 0x6a595d87edd494c6d0fd1e80c1aeee52e22bab66 to effectively undo this transaction: https://etherscan.io/tx/0xdcfe606b9ed3acc596b8a2b58a1e3fd8b0b6be343526e4d6ed861f52b83850e0

Voting Rules

Voting will last 3 days. This is a non-binding signal vote.

There are 3 options to vote for:

$1.00 / FEI $0.90 / FEI No change

If the “No change” option does not have a majority, the vote will be won by whichever of the two remaining options has the most votes. Subsequently the implementation would be audited and taken to a DAO vote on-chain.