Dear Balancer Community,
Greetings from a rainy Sardinia, Italy.
Balancer<>Fei partnership has accelerated significantly over the past few months.
From the launch of FEI V2, which algorithmically manages volatility risk through a custom Investment Pool on Balancer, to the more recent treasury swap.
With the intention of further strengthening collaboration and aligning the interests of both protocols, I propose an incentive initiative for a FEI<>WETH pool on Balancer. This proposal, coordinated with FEI, intends to capture 90% of the liquidity currently deployed on Uniswap (300M$), and transfer it to our Protocol.
This operation would make the FEI<>WETH pool, the second largest pool on Balancer.
I see the importance of consolidating strong and long lasting relationships between DAOs. With this in mind, I consider extremely beneficial seeking and extracting any value that could potentially help the Protocol secure its position in a very competitive market. Today, more than ever, strong partnerships can help us navigate the ever evolving and highly competitive DeFi landscape.
Fei is already a strategic partner, it is our intention to consolidate this cooperation even more.
The current Tier system does not allow the Ballers (and the Liquidity Mining Committee) to make any significant change to BAL allocation, especially to Tier1 pools. These pools, also called CORE, are considered strategic and receive 15,000BAL per week in distributions (the BAL<>WETH pool has two Tier 1 allocations).
Current Tier 1 pools are:
|WBTC<>WETH - 50/50||15,000BAL|
|DAI<>WETH - 60/40||15,000BAL|
|BAL<>WETH - 80/20||30,000BAL|
The introduction of the FEI<>WETH pool would require a redesign and recalibration of the Tier 1 slot system.
This is based on the intention to allocate 6,000BAL tokens and make the FEI<>WETH a Core pool (long term, in principle untouchable, allocation)
With this in mind, I propose a drawing from the following pools:
|PAIR||QUANTITY||OLD ALLOCATION||NEW ALLOCATION|
Additionally, I propose a further allocation of 1000BAL to a new pool TRIBE<>WETH 80/20, the deal is based on a two months renewable allocation and should be coincentivised by both protocols. This allocation falls within the LM competency, but helps you have a better understanding of where we want to go with this.
The negotiation involved a preliminary conversation regarding swap fee split (50/50) between the two Protocols to help alleviate our BAL emission. This has to be discussed in more depth and will not be activated immediately. Regardless, I wanted to give you the full picture of my thinking.
So, data from the past fourteen days show the following (FEI<>WETH Uniswap trading pair Uniswap Info):
|52,285$||Average Daily Swap Fees|
The proposed BAL distribution (6000BAL per week) would represent an expenditure of 92,000$ p/w at current market valuations.
We want to strengthen the relationship with Fei. The question is, at what cost?
There are a few point I want to bring to your attention:
- The pool on Uniswap is mainly controlled by Fei, this means most of the BAL distributed will go to their treasury once deployed on Balancer. Under present conditions (Fei treasury owning 200,000BAL) it will take just over two years for them to double their voting power. This is something that goes against the principle of voting distribution and decentralisation. We need to think long term and the implications this would mean for us as a community;
- In financial terms, we are operating at a significant loss. This is in line with other pools at the moment. A revenue split on the pair has been proposed to alleviate this expenditure and to make the pool sustainable for us. Further discussions will take place around this;
- Drawing from Tier 1 pools follows the principle of a long term allocation strategy. Making the FEI<>WETH a core pool will protect it from sudden reductions in allocations, even if market conditions evolve. If we use discretionary BALs (those under the discretion of the LM Committee), we are effectively reducing our freedom to allocate BALs to where we think is best at a given time.
- A 6000BAL allocation would allow a smooth transition without impacting our current distribution schedule. APRs would suffer a reduction but not dramatic.
- The 6000BAL is an initial allocation, emission could be increased over time.
A short SWOT analysis of the deal:
Strengths: We are strengthening ties with one major Protocol. We are strongly aligned and this proposal should be seen as a natural evolution on an already strong collaboration;
Weaknesses: We are going to give Fei (single entity) an increased voting power over time;
Opportunities: Balancer will be the new home of a significant amount of liquidity and we are betting heavily on the success of the FEI stablecoin. If FEI gains sufficient adoption and market share, Balancer would benefit immensely in both reputation (main source of liquidity) and market position;
Threats: Known unknowns and a more broad market competition could make this deal an expensive exercise. Time will tell.
I want to bring you data and numbers so you can make an informed decision on something very important.
We are friends with the Fei Community. This deal should be seen as a part of the more general strategy of collaboration between Fei and Balancer. As a member of the Community, and with the future of Balancer and the DAO at heart, I negotiated conditions that would appear sustainable and sufficiently efficient with the sole intention of generating long-term sustainability.
I am personally very excited about this, it is a huge shift for both Protocols. But these shifts could bring amazing opportunities for both communities.
Looking forward to your comments.