FEI-TRIBE stabilisation thoughts
To say that the FEI (TRIBE) launch has been a little bit rocky is a bit of an understatement. To help fix the problem, there has been a developer led proposal to use the $1.2 billion in the ETH PCV as a Reserve Stabilisation for FEI. I will talk about the details and my thoughts about it nearer to the end of this post.
The idea of a crypto-native algorithmic stablecoin is sorely needed in DeFi, but there hasn't been a single project that has managed to crack the problem yet. Ampleforth (AMPL) is another project that is having a crack, but they are not focussing on being a stable coin, rather an opting to behave as elastic money supply instead.
Meanwhile, stablecoins like Tether (USDT) and USDC fail to make a break with the existing banking and financial systems and inherit all the transparency problems of that sector. Collateral based stablecoins like DAI have their own set of different problems as well, mainly to do with the capital efficiency of over-collateralised loans.
Unfortunately, the economic incentives of the genesis launch encouraged people to take the 100% FEI option (plus a small TRIBE airdrop). This led to a massive dump of FEI (and TRIBE) at genesis (bots...), which resulted in a nice profit for those who managed to do this. Plus, they could buy back in their positions if they wanted to as the price of the FEI-TRIBE pair plummeted.
Part of the FEI algorithm for maintaining the peg was the quadratic penalty for selling under the peg (and the corresponding bonus for purchasing below the peg). This combined with the lack of FEI use cases (apart from the FEI-TRIBE LP) led to no-one buying... and sellers were just trying to exit regardless of the magnified penalty. In fact, at one point, you would even take a 100% penalty!
Currently, the PCV is used to reweight the FEI-TRIBE pool. The current proposal from the developers is to use a portion of the PCV to directly support a direct FEI redemption. The options would be would:
- $1 redemption
- $0.9 redemption
- no redemption
Now it would appear at first glance that the $1 option is the "noble" option as it allows FEI holders to immediately redeem the equivalent fiat value in ETH (at a small loss denominated in ETH due to the price movement of ETH in the last week). However, remember that the many of the 100% FEI options were immediately dumped to game the system and collect the TRIBE airdrop as well. So, these people are not the noble ones... however, it is debatable if those who are still holding FEI are those who did it to game the system or were just too slow to dump!
The second option takes this into account, that the FEI holders are ALSO recipients of the TRIBE airdrop, and thus don't need to be redeemed 1:1 on FEI and leave with a profit after aping into a risky launch. This is the very definition moral hazard.... it shouldn't have been done with bankers and financial cowboys who brought about the GFT of 2008 (hello BTC genesis!), and it shouldn't be done with DeFi either.
The last option is the no redemption. This is being preferred by some of the TRIBE holders (who will be voting on the proposal) as the other two options essentially penalise TRIBE holders who pre-swapped the FEI tokens for TRIBE on the genesis block. TRIBE holders are the long term supporters of the protocol, whilst FEI holders are the short term users of the protocol (or the ones who aped in hoping for a quick profit...). So, there are a number of TRIBE holders who are opting for this option unless there is an equivalent support for the "real" supporters of the protocol.
Personally, I'm not really too fussed one way or the other. I am leaning more towards options c or b, and pretty against option a. I preswapped fully into TRIBE with the knowledge that it was a risky long-term support... so, what happens in the first week is not really of much concern to me... although, a smoother launch would have been nicer!
It is a bit amusing to notice that the mere mention and proposal of a redemption has pushed the price of FEI up as the looters come in to try and get some tasty arbitrage... if they purchase on Uniswap now, it is around 0.7-0.8 dollars! So, there is now surfacing some talk of making a distinction between FEI genesis holders and non-genesis holders! Anyway, perhaps the problem will fix itself as the greedy ape in again! That would be the best!
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