Add Market: FEI

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Fei Protocol is a rapidly growing algorithmic stablecoin built natively for the Defi ecosystem. Fei Protocol has growing support across DeFi, and its governance token, TRIBE, has recently been listed on leading exchanges including Coinbase, Binance, Huobi, etc.

The Fei community (Tribe) has demonstrated strong partnership with Compound by depositing more than 75k ETH and 50M DAI to date, a significant portion of our PCV (Protocol Controlled Value).

Fei Protocol:

FEI is a highly scalable and decentralized algorithmic stablecoin that utilizes protocol controlled value (PCV) for peg stabilization, while maintaining highly liquid secondary markets. Users can mint FEI from ETH and other bonding curves, while FEI is always redeemable at $1 USD (with a 1% fee) for ETH at the peg price. Fei Protocol consists of two tokens, FEI the stablecoin, and TRIBE, the governance token, governing the PCV currently valued at $850 million at the time of writing.

Fei Protocol continuously develops both technical and security improvements through a well-defined governance methodology for Fei Improvement Proposals (FIP), which uses the same governance infrastructure as Compound. The same FIP methodology also extends into management of PCV (Protocol Controlled Value) and development of additional use cases and applications.

Why FEI:

FEI is one of the most decentralized and scalable stablecoins in DeFi. As a matter of its monetary policy, Fei Protocol is actively subsidizing and bootstrapping liquidity to its partner protocols with the aim of lowering rates and increasing traffic. The FEI community’s deep commitment has been already evidenced by its supply of 75,000 ETH (~$283 M) and 50m DAI into Compound. The Fei DAO can support FEI markets on Compound by providing FEI liquidity, and has already signaled approval to bootstrap 25-50m worth (Snapshot). Traders would be able to tap into the large FEI-ETH liquidity on Uni V2 ($330 million) as well as any future protocol owned or incentivized liquidity pools.

Following the example of FEI’s listing on other lending protocols; upon listing of $FEI on Compound, the Fei will be committed to introduce a proposal for a liquidity injection of FEI. Fei protocol has already deployed over 20M FEI between Rari, Kashi, and CREAM.

The inclusion of FEI will allow Fei and Compound’s dedicated and robust communities to increase their exposure and utility.

Market Details:

  • User circulating FEI: 240,956,125
  • Protocol Owned FEI: 193,051,159
  • Protocol Controlled Value: $885,761,132
  • Collateralization Ratio 368.7%

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FEI protocol’s IDO was one of the seminal events of Defi this year, plagued with early price fluctuations and liquidity issues. But through robust DAO action and community voting, FEI firmly restored its peg and pursued many integrations that have allowed its ecosystem to flourish.

FEI’s peg has remained steadfast through multiple market downturns, and there is now a reserve stabilizer fund in place to buy back FEI at $0.99. Currently the protocol can redeem all FEI three and a half times over, and with the inclusion of other assets to hedge against an ETH plunge, the risk of continued departure from peg is minimal.

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Fei Protocol has been the subject of multiple professional audits by premier firms such as Open Zeppelin and ConsenSys Diligence, and subject to further extensive auditing throughout its security updates.

Fei Protocol also maintains an active bug bounty program which offers up to $1.1M for critical vulnerabilities to the smart contract.

Asset Onboarding Framework Collateral Information:

  1. How much liquidity is there on each of these venues?

2048×454 133 KB

  1. How has that liquidity changed over time? One way to show this is with rolling 30/60/90 averages.

1424×844 161 KB
1416×806 127 KB
1440×816 140 KB
1436×824 137 KB

1436×810 143 KB
1412×820 162 KB

Source: Dune Analytics

  1. What is the historical volatility of this asset?

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  • Decentralization

    1. How is this asset distributed amongst token holders?
    • GINI Coefficient
      • Low (highly distributed asset)
    • Largest 10 positions and the percent of total float they constitute
      • Float = 250M FEI
    1. How is the supply of this currency controlled?
    • Mint: User minted via bonding curve purchase, protocol deployments
    • Burn: Stabilizer (guaranteed $1 redemption), Reweights
    1. Centralization scale (Centrally Backed → Permisionless)
    • Permisionless

  • Asset Listing Request - to be defined with COMP community

    1. Collateral Factor - will be 0 for all assets until after launch
    2. Reserve Factor (probably should start pretty high)
    3. Borrow Cap -
    4. Interest Rate Curve
    • Start with an existing interest rate curve

Engagement and Consultation Request

While expressing our desire to incorporate FEI as a collateral asset on Compound Finance’s platform, the FEI community would also like to solicit suggestion and ideas from the COMP community regarding vital details pertaining to a potential inclusion:

  • Collateral factor (we are initially applying for a 0% CF)
  • Reserve factor - 20%
  • Borrow Cap
  • Base borrow APY - 0%
    • (FEI’s interest rate at Rari has flowed beneath 3% with subsidies, averaging ~45% utilization)
  • % utilization of kink - 80%
  • APY at kink - 5%

Any comments and insights would be greatly appreciated!

Community and Resources:

FEI Contract address: 0x956F47F50A910163D8BF957Cf5846D573E7f87CA

TRIBE Contract Address: 0x514910771af9ca656af840dff83e8264ecf986ca

Fei Protocol Contract Addresses: Contract Addresses - Fei Protocol

Project Website: https://fei.money/

Documentation: http://docs.fei.money/

Discord: Discord

Community forum: https://tribe.fei.money/

Twitter: https://twitter.com/feiprotocol

Github: Fei Protocol · GitHub

Security Audits: https://docs.fei.money/audit

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Disclosure: I am an investor in FEI & TRIBE through Robot Ventures.

Historically, stablecoins have been the lifeblood of the Compound protocol, and comprise the majority of borrowing demand (and interest paid to suppliers). I personally believe that adding additional stablecoins that have achieved scale/demand to be the right course, and FEI feels ready.

The primary risk is that (@brianna correct me if I’m wrong) FEI can be infinitely minted by its protocol, bonding curves, and contracts; which poses collateral risk to other users/markets.

Given the fact that stablecoins are often borrowed and supplied to earn interest, not use as collateral, adding them to the protocol without a collateral factor is an easy decision that poses little risk, and has significant benefits.

Questions:

  • Is there price data availability for FEI on-chain, and via Chainlink?
  • Given the similarity to DAI as a collateral-backed stablecoin, does it make sense to use DAI’s rate model? Does it warrant deploying a unique rate model?
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Yes, FEI is mintable by the protocol through our governance process. The Fei DAO is forked from the Compound Governor Alpha and Timelock. For this reason, we start with a CF of 0.

There are Chainlink oracles for both FEI-USD (1% deviation threshold) and FEI-ETH (2% deviation threshold). Here are the addresses: Contract Addresses - Fei Protocol

We can use DAI’s rate model, or we can use a more conservative model if the community thinks that is appropriate, given the necessarily smaller market size during market formation.

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Here’s a price feed: FEI / USD price today | Chainlink

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FEI is a nice addition to the protocol. I reviewed their minting/upgrading functionality. Most functionality is controlled by their Governor Alpha and there is one multisig “guardian” used (0xB8f482539F2d3Ae2C9ea6076894df36D1f632775) which is a 2 of 4. We can add it with a 0 cf for now, and once we have supply caps and they secure the guardian, I think it can be moved to >0.

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FEI is also burnable by governance, which is somewhat more expansive power than other decentralized stablecoins (eg. DAI) that are also mintable - tokens could be removed from a single target address. But the risk still should be very low for adding FEI as a borrowable asset.

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Hey @getty, thanks for taking the time to review Fei’s governance functionality.

The “guardian” multisig has limited functionality intended to be used in the event of time-sensitive emergencies, like vulnerability reports. The guardian can only:

  • Revoke any role from any contract, except Governor

  • Pause and unpause contracts

  • Force a reweight

For those interested in learning more, check out our docs on the Guardian role here.

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Hi everyone! I’m from Blockchain at Berkeley, and on behalf of the organization, we’d like to announce our support for this initiative.
FEI is one of the fastest growing stable coins right now, and having it on Compound would definitely help grow Compound’s user base.

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@getty shared with me the cToken address: cFEI.

I haven’t checked the FEI token contract’s safety.

The cFEI sim passes.

…
Result {
‘0’: ‘10000000000000000000’,
‘1’: ‘0’,
‘2’: ‘1000000004756468807’,
‘3’: ‘4756468796’,
length: 4,
cashPrior: ‘10000000000000000000’,
interestAccumulated: ‘0’,
borrowIndex: ‘1000000004756468807’,
totalBorrows: ‘4756468796’
},
undefined,
Result {
‘0’: ‘0xc803698a4BE31F0B9035B6eBA17623698f3E2F82’,
‘1’: ‘1000000000356735159’,
‘2’: ‘5000000000’,
length: 3,
redeemer: ‘0xc803698a4BE31F0B9035B6eBA17623698f3E2F82’,
redeemAmount: ‘1000000000356735159’,
redeemTokens: ‘5000000000’
}
]
Action: CToken cFEI: FeiHolder (0xc803…) redeems 5e+9 tokens
Command: Print “cFEI integration ok”
cFEI integration ok

CErc20Delegate (implementation) matches cDAI.
CErc20Delegator matches cMKR.
CErc20Delegator parameters look good:

Underlying: 0x956F47F50A910163D8BF957Cf5846D573E7f87CA
Comptroller: 0x3d9819210A31b4961b30EF54bE2aeD79B9c9Cd3B
InterestRateModel matches Dai IRM: 0xfb564da37b41b2f6b6edcc3e56fbf523bd9f2012
InitialExchangeRate: 200000000000000000000000000
Name: Compound Fei USD
Symbol: cFEI
Decimals: 8
Admin: 0x6d903f6003cca6255D85CcA4D3B5E5146dC33925
Implementation: 0xa035b9e130F2B1AedC733eEFb1C67Ba4c503491F

The oracle is the same as the oracle for the PAXOS (USDP) and MATIC proposal. The FEI price roughly matches coingecko.

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I’ve written an additional, up-to-date simulation (it passes as expected): https://github.com/TylerEther/compound-protocol/blob/add-market-fei/spec/sim/1001-add-market-fei/hypothetical_proposal.sim

The contract source code and configuration are exactly as expected.

Thanks @LawSirrah for also verifying and writing a simulation.

Time to submit this proposal on-chain!

Proposal

Comptroller._supportMarket(0x7713DD9Ca933848F6819F38B8352D9A15EA73F67)
Add the cFEI market.

cFEI._setReserveFactor(250000000000000000)
Set the reserve factor to 25%.

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Thanks @TylerEther :smile:

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I see that FEI is configured to use a variable Chainlink oracle price. This is different from other non-collateral stablecoins like USDT and USDP, which are assigned a fixed price of $1. The rationale for a fixed-price of $1 for non-collateral stablecoins is twofold:

  • The price is only used to determine the liability of a borrower, never the value of collateral.
  • The true market price is expected to never be significantly above $1.

That combination means that a fixed $1 price is conservative for protocol safety, since the protocol may overestimate a borrower’s liability but will never underestimate it.

In contrast, using an oracle price that can fall below $1 means that borrower liabilities may be marked down during a loss of peg. When a stablecoin loses its peg, its price tends to become more volatile, which means that oracle price errors are larger. If the oracle price is significantly below the true market price, the protocol becomes vulnerable: the entire pool of FEI could be borrowed against an insufficient amount of collateral that is then abandoned.

If we intend to eventually promote FEI to a collateral asset, this risk comes with the territory. But until then, is there any advantage to having a variable price? Are we concerned about a market price deviation above $1?

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Gauntlet will be voting “For” on this governance proposal to add FEI to Compound. From an economic risk perspective, FEI is safe to add to the protocol. Following this listing, Gauntlet will conduct economic risk simulations to determine whether FEI should be enabled as collateral, and if so, specify its risk parameterizations dependent on market conditions and ecosystem dynamics. From a smart contract risk perspective, we trust that the technical risks have been assessed by the FEI team and the community developers above.

2 Likes