ARC: Add support for $FEI as a lending currency

Sentence Rational

Enable $FEI for lending on Aave.

References

Link to:

Paragraph Summary

Fei introduces a community-governed reserve backed stablecoin that aims to achieve digitally-driven, governance-minimized central banking. Fei has created a new stablecoin that seeks to stabilize itself, not via IOU-based debt commitments, rather through a monetary peg-based policy on the basis of protocol controlled reserves, currently valued at $643 million. Enabling $FEI for lending on Aave would allow the $595 million circulating FEI supply to be deposited into Aave, and would also allow Fei Protocol to use the protocol-controlled value (PCV) ($643 million dollars) to create highly-liquid lending markets. Current trading volume at the time of posting of $FEI is 7D trading volume on Uni V3 $172 million and Uni V2 $361 million. In addition to the new volume and TVL that $FEI would bring to the Aave ecosystem, $FEI would provide Aave with diversification benefits, including another decentralized stablecoin.

Motivation

Add $FEI as a lending currency into Aave money markets.

Specifications

  1. What is the link between the author of the AIP and the Asset?

@Brianna is a core team member at Fei Labs focused on ecosystem development.

  1. Provide a brief high-level overview of the project and the token

FEI is a decentralized and scalable stablecoin for DeFi.

  1. Explain positioning of token in the AAVE ecosystem. Why would it be a good borrow or collateral asset?

If listed, FEI would be one of the most decentralized stablecoins on Aave. The Fei DAO can support FEI markets on Aave by providing FEI liquidity. Traders will have the ability to tap into the large FEI-ETH liquidity on Uni V2 ($561 million) Uniswap Info as well as any future protocol owned or incentivized liquidity pools.

  1. Provide a brief history of the project and the different components: DAO (is it live?), products (are they live?). How did it overcome some of the challenges it faced?

Fei Protocol launched in April 2021 with a DAO since day one, and currently has over $643 million in liquidity. Fei aligns itself with the top communities and teams in the space, including Aave, with a similar decentralization ethos. There has been a large voter turnout during important community and team lead proposals that supported stabilizing the peg after the initial launch of the protocol.

  1. How is the asset currently used?

FEI is currently being used in lending markets, including Fuse, and soon to be CREAM. FEI is growing and finding utilization in other financial service offerings in the broader DeFi ecosystem: lending, synthetics, option platforms, exchanges and AMM’s, etc.

  1. Emission schedule

There is no emission schedule.

  1. Token (& Protocol) permissions (minting) and upgradability. Is there a multisig? What can it do? Who are the signers?

Contracts within the Fei protocol have the ability to mint and burn FEI through processes that support stabilization around the 1 USD price target. The DAO controlled by TRIBE holders has the ability to mint FEI and appoint other Minter and Burner contracts.

The FEI contract itself is not upgradeable.

An additional role, the Guardian, can pause the minting of FEI. The Fei Core Team holds this role in a multi-sig, with the intention of either renouncing the role or transitioning to a community held multi-sig. More information can be read in our docs: https://docs.fei.money/governance/fei-guardian

  1. Market data (Market Cap, 24h Volume, Volatility, Exchanges, Maturity)

1. Market Cap: $527,000,000
2. 24h Volume: $70,000,000
3. Volatility: Low
4. Exchanges: Uniswap V2, Uniswap V3, Gate.io, MXC, Virgox, BiKi, etc. As reported by CoinGeicko.
5. Maturity: Early-Mid

  1. Social channels data (Size of communities, activity on Github)

27K followers on Twitter, 17k members in Discord, Github

  1. Contracts date of deployments, number of transactions, number of holders for tokens
  • Date of Deployment: March 28, 2021
  • Number of Transactions: 81,798
  • Number of Holders: 4,089
Should $FEI be added?
  • Yes
  • No

0 voters

18 Likes

Very in favor of this listing, FEI aims to be THE stablecoin for DeFi. Since reweights were reimplemented, Fei has held to its peg very tightly, and is proving itself to be stable. As Brianna states, the Fei DAO can provide large amounts of accessible liquidity for users of Aave.

10 Likes

In favor of this listing. Unlike TVL, PCV is owned 100% by the protocol and is put to use by the protocol to maintain the peg in an efficient manner.

10 Likes

I voted “yes”.

This has to be stressed. It is one of the core advantages of FEI over other stablecoins. FEI is going to be the stablecoin for DeFi.

10 Likes

I voted yes.

  • High integrity team that will help shape defi ecosystem.
  • FEI would be one of the most decentralized stablecoins on Aave.
  • PCV is owned 100% by the protocol and is put to use by the protocol to maintain the peg in an efficient manner.
  • Since reweights were reimplemented, Fei has held to its peg.
  • Fei DAO can provide large amounts of liquidity for Aave users.
11 Likes

I believe the listing of FEI could be a great start of a promising partnership between Aave and Fei, two protocols with high synergy.

FEI is already the second most liquid decentralized stable coin. After we reinstated reweights in May, FEI had very low volatility and kept the $1 peg.

A differential of FEI is the PCV, a reserve managed by FEI DAO to drive FEI utility and adoption (PCV is currently at 262,000 ETH = $621,674,038). It has the potential to be one of the greatest source of liquidity in DeFi.

9 Likes

Honestly I am not so sure about this. Fei has had some issues and while the team and community has reacted quickly (reinstating reweights and successfully keeping the $ 1 peg, I don’t think the project is mature enough. I’d love to see a risk assessment from Aave before moving forward with such a proposal.

1 Like

Voted YES, this could be a giant leap for both FEI and AAVE. PCV and the truly decentralized nature of FEI make it such an attractive lending currency. Now that the infancy issues have been resolved and the stabilization mechanisms have kept FEI very close to it’s peg for a decent duration, it’s time to get THE stablecoin for DeFi out to more people.

Looking forward to it, seems like many people share my sentiment. :relieved:

9 Likes

I voted yes.I think FEI would be one of the most decentralized stablecoins on Aave.

8 Likes

I voted yes. Really believe in this team.

7 Likes

I voted yes.
Aave liquidity coupled with a truly decentralized stablecoin like FEI, seems like a logical match to me.

7 Likes

Great efforts, I think it will be positive to introduce a decentralized stablecoin. Even if they are still early, the community has proven its very capable!

4 Likes

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.

7 Likes

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.

2 Likes

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

2 Likes

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

2 Likes

Voted YES

$FEI + $AAVE = Powerful DEFI Lending Currency Combination

1 Like

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…).

2 Likes

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

8 Likes

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