Forum Discussion: https://tribe.fei.money/t/fip-41-acquire-lusd-through-a-balancer-auction/3602

Summary

Acquire 100M LUSD through a Balancer auction and supply to LUSD stability pool. This amount represents 8.5% of Fei PCV and 14% of LUSD total supply.

Motivation

With Liquity USD pegged stablecoin (LUSD), Fei can earn yield and better protect the $FEI peg.

Lending Stablecoins have scaling challenges as they depend on demand for leverage. However, in a crash scenario, liquidations help them to hold the peg when the market is deleveraging. Lending Stablecoins are a good fit for Reserve Stablecoins like FEI, helping the latter to protect the peg in extreme scenarios.

Liquity is a decentralized borrowing protocol that allows you to draw interest-free loans against ETH used as collateral. Loans are paid out in LUSD and need to maintain a minimum collateral ratio of 110%. In addition to the collateral, the loans are secured by a Stability Pool containing LUSD and by fellow borrowers collectively acting as guarantors of last resort.

LUSD launched in April 2021, the current market cap is $710M and possesses a total collateral ratio of 290%.

Liquity is governance-free and has multiple decentralized front-end interfaces giving it more resilience and censorship resistance. It is very aligned with Fei in relation to decentralization.

By depositing LUSD to the Stability Pool, Fei can earn LQTY rewards and liquidation gains (in ETH). The APR is currently at 29%. This is an estimate of the LQTY return on the LUSD deposited to the Stability Pool over the next year, not including the ETH gains from liquidations.

Specification

Acquire 100M LUSD through a Balancer auction using minted FEI. It is a similar process to the one used for TRIBE buybacks. The acquired LUSD will be supplied to Liquity native stability pool.