Fei Money

Summary:

Begin “Contractionary Monetary Policy” for Fei Protocol with some FEI policy changes to bolster the FEI peg and protect PCV.

Motivation:

The recent ETH downturn has placed the protocol under stress. While the FEI peg remains stable, the majority of the protocol’s DAI reserves were used on stabilization. This peg pressure comes from both exogenous and endogenous demand drivers:

• Arbitrage with secondary FEI liquidity, particularly FEI-ETH on UniV2
• FEI redemptions by external FEI holders

All protocol-owned FEI increases the “leverage” of the protocol by expanding circulating FEI through lending markets or AMM liquidity. By reducing these deposits, the protocol can contract supply and drive FEI demand to return to a greater than or equal to $1 peg rather than slightly below as in the current state.

Proposal:

• Moratorium on FEI minting and deployments from either the DAO or Optimistic Approval - only automated FEI minting for peg defense should be allowed until explicitly authorized by TRIBE holders to end the moratorium
• Authorize the Security Guardian to:
  • withdraw FEI incrementally from both volatile LP positions: FEI-ETH and FEI-DPI using PCV Guardian contract and sending assets to the DAO Timelock to await future DAO deployment. For FEI-ETH, withdrawal size will be constrained by oracle safety margins of Chainlink.
  • withdraw FEI incrementally from Curve d3 pool using PCV guardian each time FEI falls below 1:1 relative to FRAX and alUSD
  • withdraw FEI incrementally from Aave each time utilization falls below 90% back up to at most 90% utilization
  • enable and refill PSMs as needed to defend peg using PCV Guardian contract
• Begin further community discussions on additional actions to take to defend the peg and PCV

Note that the Security Guardian is already authorized to act in extreme market conditions such as this per FIP-55, but this proposal serves as an explicit description of actions to be taken.

Voting Rules:

Voting will be a binary, binding vote over 24 hours. The shortened time window is used due to the extreme market conditions. If the proposal is passing but not yet finalized, the Security Guardian may begin taking action if market conditions worsen. If passed, this will be enacted by the Security Guardian. Quorum is 10M TRIBE.