With the launch of @feiprotocol you’ve probably been hearing a lot about Protocol Controlled Value (PCV).
PCV is a powerful concept that’s core to of many of the latest decentralized stablecoins including $FEI, $OHM, $FLOAT, and $FRAX.
But what is it and why does it matter?
1/
PCV is a powerful concept that’s core to of many of the latest decentralized stablecoins including $FEI, $OHM, $FLOAT, and $FRAX.
But what is it and why does it matter?
1/
PCV is a fairly simple idea.
It basically just means a protocol itself taking ownership of the collateral it receives when users mint new stablecoins.
This means collateral is not redeemable like it is in MakerDAO.
It basically just means a protocol itself taking ownership of the collateral it receives when users mint new stablecoins.
This means collateral is not redeemable like it is in MakerDAO.
FEI Genesis participants just found this out the hard way.
The ETH they deposited into Fei's bonding curve is not redeemable.
They can only get their ETH back by selling FEI to the protocol on the protocol's terms (currently at a massive discount).
The ETH they deposited into Fei's bonding curve is not redeemable.
They can only get their ETH back by selling FEI to the protocol on the protocol's terms (currently at a massive discount).
https://twitter.com/RyanWatkins_/status/1378430733270794246?s=20
The idea of PCV isn’t exactly novel either.
It’s not much different than a protocol owned treasury or insurance fund.
It’s not much different than a protocol owned treasury or insurance fund.
In fact any protocol that owns external assets (not their own token) in their treasury has PCV.
The difference is how that PCV is used and how it applies to decentralized stablecoins specifically.
The difference is how that PCV is used and how it applies to decentralized stablecoins specifically.
What $FEI, $OHM, $FLOAT, and $FRAX use their PCV for is market operations.
Just like how central banks use their balance sheets to regulate money supplies, these protocols operate similarly.
Just like how central banks use their balance sheets to regulate money supplies, these protocols operate similarly.
This is extremely powerful as it allows protocols to reduce dependence on third party actors to manage their currencies.
@ohmzeus of @OlympusDAO summarizes the power perfectly here.
Below is also a helpful visual to illustrate this.
@ohmzeus of @OlympusDAO summarizes the power perfectly here.
Below is also a helpful visual to illustrate this.
https://twitter.com/ohmzeus/status/1378756204369960969?s=20
Now let’s use Fei Protocol to highlight how PCV works.
Fei Protocol uses its PCV that it raised through its Genesis offering to provide $FEI liquidity on Uniswap.
This is powerful considering that Fei not only earns fees from $FEI trading, but also gains the ability to manage its own liquidity and strongly influence $FEI’s price.
This is powerful considering that Fei not only earns fees from $FEI trading, but also gains the ability to manage its own liquidity and strongly influence $FEI’s price.
In extreme scenarios where FEI is below its peg for an extended period of time, the protocol can use its PCV to buy back FEI and burn FEI from the market.
Fei calls this “reweighting” and it does this through the following trade:
Fei calls this “reweighting” and it does this through the following trade:
In its Genesis offering Fei raised a warchest $1.3 billion.
Upon close of the offering it deployed its capital to Uniswap and instantly became the largest Uniswap LP by far!
Fei Protocol is now the single largest liquidity provider on Ethereum.
Upon close of the offering it deployed its capital to Uniswap and instantly became the largest Uniswap LP by far!
Fei Protocol is now the single largest liquidity provider on Ethereum.
Still, market operations are only scratching the surface of what protocols may do with PCV.
$FRAX for example also uses its PCV to earn yield in other DeFi protocols like Compound, Aave, and Yearn.
$OHM will soon also deposit its PCV into Rari Capital.
$FRAX for example also uses its PCV to earn yield in other DeFi protocols like Compound, Aave, and Yearn.
$OHM will soon also deposit its PCV into Rari Capital.
But even still that’s just scratching the surface.
Eventually Fei Protocol may add new bonding curves with governance tokens instead of ETH, potentially allow it to enter the game of meta-governance.
Eventually Fei Protocol may add new bonding curves with governance tokens instead of ETH, potentially allow it to enter the game of meta-governance.
Ex: Imagine if Fei added a bonding curve for $SUSHI.
It could use the $SUSHI it accrued through the bonding curve to participate in SushiSwap governance and influence votes.
It’s also entirely possible that Fei could stake and gain protocol fees as well 🤯
It could use the $SUSHI it accrued through the bonding curve to participate in SushiSwap governance and influence votes.
It’s also entirely possible that Fei could stake and gain protocol fees as well 🤯
PCV is an exciting new design space that will play a critical role in the next stage of decentralized stablecoins.
Highly recommend checking out our two latest deep dives on the topic to learn more.
messari.io/article/the-ar…
Highly recommend checking out our two latest deep dives on the topic to learn more.
messari.io/article/the-ar…
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