✅ [RFC] Fei Protocol & Ondo Finance LaaS Opportunity

Summary

Fei Protocol recently teamed up with Ondo Finance in order to introduce a Liquidity-as-a-Service model to the ecosystem, and it is suggested that the mStable Asset Management subDAO use this service in order to increase the liquidity of MTA via a protocol-owned MTA/FEI pool on Uniswap v2.

Abstract

With the recent liquidation of the MTA/DAI position on Uniswap v3, there is now a lack of a stablecoin pairing for MTA to allow for easy access and exit on Ethereum Mainnet, and it is suggested to take advantage of the offering from Fei Protocol & Ondo to create a new MTA/FEI pair on Uniswap v2 for this purpose.

An amount of $1,000,000 worth of MTA is suggested, which would be matched with FEI 1:1 from Fei Protocol. It is suggested to source this liquidity by removing MTA from the existing MTA/BNT pair on Bancor (410k MTA), as well as utilize the BadgerDAO loan from the Funding subDAO that is due in 3 weeks (400k MTA), and the remaining MTA sourced directly from the mStable Treasury (TBD on MTA price at time of deployment).

This amount will also qualify mStable to receive additional TRIBE incentives (at the time of writing roughly 10,000 TRIBE per week) from Fei Protocol, which would subsequently be deposited on their Rari Fuse Pool to then engage in further opportunities for the Asset Management subDAO, while diversifying the treasury and building rapport with Fei Protocol for further mutually beneficial endeavours down the line.

Motivation

In an effort to consolidate liquidity for MTA related pairs, we recently redeployed liquidity for MTA/ETH into an actively managed position on Visor Finance.

To further this idea, it is now suggested to re-allocate MTA that are already deployed in the ecosystem (namely from Bancor and the upcoming loan repayment from BadgerDAO) to create a new MTA/FEI pair on Uniswap v2 to re-enable an MTA-to-stablecoin pairing on Ethereum Mainnet that carries much better upside than the previous one.

This endeavor will also allow us to take advantage of TRIBE incentives that Fei Protocol generously disburses to ecosystem launch group participants, which the Asset Management subDAO intends to hold and utilize in perpetuity for further TRIBE rewards, and to create the ability to leverage these rewards on the Rari Fuse Pool for further asset management ventures in the ecosystem.

Pros

  • Create a sufficiently liquid stablecoin pair for MTA that perfectly matches the existing MTA/ETH and soon-to-be-released mUSD/FEI Feeder Pool pairing, while only requiring to upfront the MTA portion of the pair
  • Build further rapport with Fei Protocol to allow for easy entering and exiting into FEI-related pairings across the ecosystem (Fei has been aggressively deploying on many protocols in the last couple of weeks)
  • Earn TRIBE rewards that can be used for collateral on their Rari Fuse Pool to earn further TRIBE rewards and allow the Asset Management subDAO to compound TRIBE & leverage the collateral via stablecoin borrowing for further opportunities in the ecosystem

Cons

  • The use case of FEI is not yet as readily established as other stablecoins, like the ones used in our own basket.
  • Any impermanent loss of the pair will be carried by the subDAO

Next Steps

It is suggested that the community comment on this RFC in the coming days, and bearing no significant opposition or change in ideation, we would move ahead with this RFC next week and create a formal draft proposal on Github to be used for review.

Meta Governors are encouraged to provide as much feedback as possible until then, so we can create the best possible outcome for mStable and its users.

3 Likes

I have no particular tokenomics qualifications, so feel free to ignore me. I’m just going to think in public. None of what follows is a rebuttal, refutation, or even a criticism. I’m going to just say what comes to mind.

When the MTA/DAI position was abandoned in favor of moving the DAI around to something more interesting, I had assumed that the MTA/ETH pairing was going to be the main trading pair. So I’m a little surprised that we’re considering a new MTA/stable pairing. If we found such a pairing desirable, why wouldn’t we have just done some swapping and re-created the MTA/DAI pair elsewhere?

I’m further confused about why we’re reaching out of protocol. We have yet to gauge user interest with FEI with a long-running feeder.

I guess, basically, why FEI? Are they the only option because they’re willing to provide the other half of the pair plus the farming incentives?

I also think about the MTA/BNT pool we have. Doesn’t this kinda already do what we want, from a raw “allow MTA to exit to something non-ETH” sense? Is the combination of $1M FEI and the implied liquidity worth it? I feel like BNT is a stronger farm target for the treasury than TRIBE. Plus the impermanent loss protection built-in. And the existing liquidity is pretty decent and could be improved.

Additionally, in an aesthetic sense, the lack of a ‘main’ MTA/mUSD pair is odd. Why aren’t we the primary source of exit liquidity, where we can benefit from the trade? MTA/BNT is close, but we could do more.

When farmers would sell off MTA, we earn fees.
When MTA interest drives buy pressure, we earn fees.
When MTA is traded for mUSD and that mUSD is decomposed into stables, we earn fees.

(I think we should earn fees on mint, honestly, but that’s another discussion I guess)

Essentially, we should set ourselves up to benefit maximally from entry and exit. When it comes to MTA pairings specifically on stables, our raison d’être, I admit that my first impulse is not to go out-of-protocol for the solution. To the extent we do go out of protocol, I think our existing arrangement is better.

$.02

2 Likes

On first pass, I support this, as it satisfies for some goals which I think are important for the protocol at present.

  • It redistributes public MTA liquidity in a way which is probably more efficient (as FEI is provided on the other side, giving the contribution more LP mileage)
  • Accrues TRIBE to the DAO which will then be PCV.
  • Builds rapport with FEI which could be useful for future tasks or collaborations (such as swapping FEI into the mUSD basket to replace a “centralised” stablecoin such as USDT)

The impermanent loss is a risk here, but I think is worth the potential upside of improved MTA liquidity and PCV.

I note your comments @trustindistrust which are valid. I think our liquidity is a bit fragmented at present as we are trying to accomplish multiple goals with the Treasury DAOs warchest, perhaps at the expense of logical things like a strong mUSD/MTA pair. I’m still thinking through the pros and cons of this proposal to be candid, so am coming with my pre-conceived notions of what I think the protocol needs.

In terms of why FEI, it is exactly that - they’re willing to provide the other half of the pair plus farming incentives. Perhaps the cons should be weighed more in depth.

2 Likes

I think this is a very compelling offer. I would also love to see the MTA in Bancor being better utilized. I don’t see it as something that provides us currently with a lot of value. So I am for moving that position there and taking the funding from the BadgerDAO loan once it expires. More than that I would say we should not allocate.

The Tribe rewards are especially for a DAO something interesting, as it would give us future value participation in the Tribe.

As I said, very compelling offer.

2 Likes

Fair enough folks, this is why I was just thinking out loud. Needed more answers and think I see where you all are coming from. :slight_smile:

2 Likes

If the $FEI/$TRIBE protocol is reaching out and incentivizing and providing liquidity, that seems like too good an offer to pass. It is a protocol held in good regard for the undercollateralized stable coin class. Although IMO Frax seems to be crushing it (Gauges, Vesting, Frax/ETH bonds, FXS leading asset in Tokemak, upcoming Frax pool on Tokemak, massive CVX supply). I loved how much everyone in this thread is about getting and MTA/mUSD pair. My current hypothesis is that you want to pair mUSD to assets that are going to increase in price as much as possible, but it has to be protocol owned. Ideally this would be MTA’s price going up pulling in supply of mUSD and thus driving up protocol revenue in a flywheel, but any means of doing is good by me. If MTA is tied to FEI we’d be incentivized to vote for them in a TOKE reactor. Meanwhile we could also be pushing for an mUSD reactor or I saw PickaCrypto say he felt Ohmie vibes of bonding mUSD. That would be so dope. I’m just here for the vibes and hope I can learn some dope blockchain shit off of you big brains.

2 Likes

Hi all,

Thank you very much for all the valuable feedback and concerns raised. I definitely agree on the point you raised @trustindistrust and would love to eventually see a proper MTA/mUSD pair on an AMM. I feel we can tackle this once we’ve raised enough liquidity via additional Olympus Pro Bonds, and then should re-visit this topic in greater detail.

Also very happy the remaining concerns got addressed, and additional benefits pointed out. Definitely eager to write up a more formal TDP now, which will be posted soon.

1 Like