ARC: Add support for $FEI as a deposit currency

Thanks for your comment, we’ll definitely want to see a risk assessment as well.

Because we are a newer project, the proposal would not have FEI listed as a collateral asset, and the risk to Aave is minimized. Also FEI-ETH is the most liquid pool on Uniswap V2, and Aave users would benefit greatly from the ability to lever on ETH using this liquidity, in addition to any future Fei Protocol sponsored liquidity pools.

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The fact that the entire Fei project is managed by a DAO is pretty amazing to see in action. The fact that they raised $1.2B in ETH just shows that there is a large group of users that want to use FEI.

Note, I’m not a FEI or FEI-ETH holder at this time, and I am not an investor in Fei Labs.

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my vote is Yes!
I believe in the project. FEI is a prime example of a decentralized system and stablecoin

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Fei is quite stable nowadays, it has much potential in the future, we hope Fei can be listed on aave. Thanks.

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Voted YES

$FEI + $AAVE = Powerful DEFI Lending Currency Combination

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yes!
FEI is the only truly decentralized stablecoin which is “working” so far. Despite a difficult start and some economics not well anticipated for the genesis, the team has been able to take the right decisions and put the project on the right track. Aave integration will obviously provide huge benefits for FEI, but also provide to Aave borrowers a real serious alternative to the big ones (USDC, DAI…).

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FEI Risk Assessment

FEI is one of the few truly decentralized stablecoins, currently backed solely by ETH. Fei Protocol’s PCV holds $521MM of ETH, providing a 281% collateralization ratio for all circulating FEI. FEI’s total supply stands at 367MM with 182MM FEI controlled by the protocol and 185MM FEI in circulation, falling in the top 10 largest stablecoins by total supply.

While relatively new, the FEI protocol and community have made significant progress on the peg stabilization mechanisms. FEI remains one of the most liquid stablecoins, with $345MM in liquidity available on Uniswap v2. Current liquidity dynamics enable $1MM trades with <0.50bps slippage.

As Aave seeks to expand the numbers of assets supported in a safe manner, FEI has the potential to introduce new lending and borrowing activity to the protocol. As one of the largest decentralized stablecoins, FEI holders have been actively seeking yield opportunities. A FEI market on Aave establishes a robust credit market for FEI lenders and borrowers with the potential to bring new users to Aave.

Unique to FEI, the protocol manages a $521MM PCV. In the future, the FEI community can choose to allocate PCV resources toward Aave.

Smart Contract Risk - B

Fei completed its Genesis event on April 3, 2021, raising 639k ETH for the PCV. Fei has completed 2 audits with Open Zeppelin and Consensys Diligence. In the case of time sensitive issues, the Fei Guardian can pause the system - held by the Fei Core Team in a multisig with the intention of either renouncing the role or transitioning to a community held multi-sig, but has no mint/issue abilities. The Fei Guardian is currently controlled by the Fei team with plans to transition to a community multisig in the coming months. The Guardian can revoke any role from any contract, pause/unpause contracts, and force a reweight.

Counterparty Risk - C

FEI holders can sell FEI for ETH on DEXs or choose to redeem from the protocol at $0.95. FEI ownership remains highly concentrated on Uniswap, with 46.9% held in the Uniswap FEI-ETH pool and 44.8% held in the Uniswap FEI-TRIBE pool. 3,856 unique addresses hold FEI.

Market Risk - B+

FEI has become a top 10 stablecoin with a total supply of 367MM. With $345MM in liquidity, FEI can support multi-million dollar swaps with minimal slippage. Given the PCV, FEI maintains a stable base of liquidity for FEI holders in all market conditions, unlike other stablecoins dependent on individual LPs. This enables liquidators to have plenty of access to FEI liquidity when needed.

While FEI struggled to maintain its peg post-Genesis, the protocol made key changes to stabilize the peg, reducing volatility.

Also, Chainlink launched FEI-ETH and TRIBE-ETH price feeds.

Proposed Risk Parameters

  • Strategy: rateStrategyStableTwo
  • Base LTV As Collateral: 0
  • Liquidation Threshold: 0
  • Liquidation Bonus: 0
  • Borrowing Enabled: true
  • Stable BorrowRate Enabled: false
  • Reserve Decimals: 18
  • Reserve Factor: 2000

Rationale

By starting FEI at a 0% collateral factor, the stablecoin can only be supplied or borrowed - not used as collateral. This limits the risk for Aave lenders, given users cannot borrow against their FEI. Over time, the community can explore raising the collateral factor.

We welcome feedback on these parameters.

Appendix

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Correction to the Proposed Risk Parameters:

  • Strategy: rateStrategyStableTwo
  • Base LTV As Collateral: 0
  • Liquidation Threshold: 0
  • Liquidation Bonus: 0
  • Borrowing Enabled: true
  • Stable BorrowRate Enabled: false
  • Reserve Decimals: 18
  • Reserve Factor: 2000

Please delegate proposition power to: 0x77ee2b5b256f6a7a168f1c0730042c54c55edf38 !

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Few pieces are missing in the risk assessment as per the Aave’s Risk Methodology.

  1. Smart contract risk assessment is done based on maturity - days live plus transaction count. If I’m not mistaken FEI has been live less than 365 days, correct? Then this gives you D-. What is the transaction count?
  2. Market Risk is missing Liquidity assessment based on 1mo/3mo volumes as well as volatility for 1mo/3mo/6mo
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27k transactions on the FEI contract, per similar analysis I agree the smart contract risk score should be lower.

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I’ve posted a snapshot to help gauge community sentiment on this addition: go vote! Snapshot

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On behalf of Blockchain @ Berkeley, we are in strong support of adding FEI for lending on Aave, which will enable significant additional access to DeFi liquidity. Excited to see how the ecosystems can continue to work together in the future!

Thanks for setting up the Snapshot vote

I’m surprised to see you have chosen the interest rate strategy of stablecoins with medium to high liquidity such as DAI which has over $2b on Aave

The lower the liquidity the more volatile the utilisation and so the borrow rates. Meaning there is a higher need to protect liquidity to enable depositors to withdraw at anytime

I believe FEI could be a great asset to borrow on Aave, but at launch would favor a more aggressive borrowing curve with a variable slope 2 at 100% which has worked well for similar assets. As liquidity grows and utilisation stabilises, the parameters could be adjusted

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I think FEI is well-suited for a 0% LTV asset on Aave. Now that their DAO removed the incentives and penalties it’s consistently trading at 1$.

We’ve also seen that the DAO tends to mint and deposit a lot of FEI in their integrations, so I imagine it would also happen for Aave which is good

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Thanks @state for the support :)

The snapshot to add FEI has ended with the “Yes” votes winning over “More discussion needed” at 50.19% to 49.8%. “No” received 0.01%. Given the narrow margin it seems appropriate to have some more discussion before moving forward with a DAO vote.

We would also like to add three modifications that we believe will make the proposal more appealing:

  1. Fei Protocol will seed the pool with 25M FEI. This will add TVL and utility to the AAVE and FEI ecosystems and give users immediate access to borrowing FEI. This seeding is a scaled up version of the framework that Fei has been developing with other interest rate platforms (Snapshot).

  2. We will adjust the interest rate parameters to make them more conservative based on the feedback discussed above (h/t @Alex_BertoG). We will use a variableRateSlope2 of 1 instead of 0.75, in line with the most conservative stablecoin models (sUSD and BUSD). This provides additional safety for lenders and accrues reserves faster to the AAVE reserve pool at high utilization.

  3. Assuming the technical implementation can be worked out, Fei Protocol will add TRIBE incentives on both borrowing and lending FEI to drive more volume. We will discuss and commit to numbers on these via snapshot in our community before bringing any FEI proposal on-chain for AAVE.

Just to reiterate, the idea with this proposal is to add FEI to AAVE only as a non-collateral asset. This would allow lending and borrowing of FEI on AAVE but not allow FEI to serve as collateral for borrowing other assets. If this proposal proves successful then giving FEI some collateral factor might make sense later down the road.

Thanks for voting. We are eager to hear any further feedback that you might have for this proposal!

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This sounds like an amazing idea, and not just for FEI. AAVE’s reserves can essentially function as a staking vault for any asset if this could be implemented. If protocols could be convinced to have their staking vaults simply moved to AAVE where they can distribute their own rewards, that sounds like an easy way to boost AAVE’s liquidity to me, and other projects would not have to go through the trouble of making their own secure staking vault. Projects trying to distribute their governance tokens will reach a wider user base than they would otherwise. They could also distribute between borrowers and lenders as they wish, a rare power that only a few protocols like AAVE hold. Considering that this has already been done with MATIC, I’d love to know if this could work with multiple assets.

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I think that FEI could become major liquidity source for RWA, so supporting projects like this is going to improve the overal DEFI ecosystem.

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Hey everyone! Aave - Open Source Liquidity Protocol Received a tremendous amount of support :)

The Aave core team discovered an issue with the proposal payload and we determined we needed to cancel it. The root cause was following an outdated proposal deployment flow in the Aave Docs that did not include the FEI Chainlink oracle.

The proposal is now cancelled and will be resubmitted as soon as possible.

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New vote is live: Aave - Open Source Liquidity Protocol

Thanks everyone for the patience and support!