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 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.
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 idea of PCV isn’t exactly novel either.

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.
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.
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.
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.
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:
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.
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.
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.
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 🤯
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…

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More from @RyanWatkins_

6 Apr
Application specific blockchains are going to surprise people over the coming months.

Many have much better value capture and clearer paths to adoption than all the general purpose smart contracting platforms which have poor value capture and face an uphill battle vs Ethereum.
@terra_money and @THORChain are early examples of this.

Expect these two to continue gaining attention over the coming months, and expect more like them to emerge.

The smart contracting market is saturated, and there’s a ton of value being created at the base layer elsewhere.
In the future I imagine many smart contract platforms may specialize and become defacto application specific chains.

Others will ultimately function like branch offices for protocols that are headquartered on Ethereum.
Read 5 tweets
25 Mar
Ethereum is an emerging digital economy in the early stages of a multi-decade economic boom.

The Problem?

Dollar-pegged stablecoins dominate Ethereum and the dollar is controlled by the Federal Reserve...

But what if we had stablecoins not pegged to fiat currencies at all?

1/
This is the idea at the heart of the latest wave of decentralized stablecoins.

These novel projects offer a radical opportunity for Ethereum’s monetary system to achieve stability while eliminating dependence on fiat currencies.
messari.io/article/the-ar…
It's not surprising that Ethereum has dollarized.

Many developing economies dollarize due to monetary instability.

Stablecoins allow Ethereum to overcome ETH’s volatility, which would otherwise handicap economic growth.
Read 13 tweets
10 Mar
Maker is the most under appreciated DeFi blue chip.

- By far the most profitable DeFi protocol adjusted for token subsidies ($100mm run-rate rev) and growing 📈

- Has one of the strongest moats in DeFi (most widely integrated)

- Use cases are expanding rapidly (more $$$)
Dai is far from perfect.

It doesn’t scale perfectly.

It has centralized collateral.

It is governance heavy.

The buyback and burn token model is suboptimal.

These are all reasons why I believe there is an opening for new decentralized stablecoin competitors.
But overcoming Dai will be not be easy by any measure.

The MakerDAO system is reliable, stable, secure, and proven. Just like anything at the base of the monetary system should be.

Key reasons why the moat is so strong.
Read 6 tweets
3 Mar
Remember algorithmic stablecoins?

Following their mini hype cycle in Q4’20, they’ve entered violent death spirals and effectively broke.

But what if told you that they’re going through a Renaissance, powered by the idea of protocol owned collateral?

1/ Image
In our first of two reports on the future of central banking on blockchains we cover algorithmic stablecoin’s:

- market potential
- issues
- renaissance
- most promising projects

This is also the first of our new Enterprise Research offering 👀
messari.io/article/the-ar…
Why should you care about algorithmic stablecoins in the first place?

A sneak preview 👇🏾
Read 14 tweets
12 Feb
Messari Enterprise just launched.

What makes it so special?

It's all about automating information flows and the evolution of the crypto investor.

1/
Currently if you want updates on assets outside the top 10 you’re out of luck if you only follow crypto news publications and twitter.

The result is you have to follow all these projects manually.
The problem of course is that staying on top of all these projects is an extremely time consuming process that requires scouring a wide range of disparate and idiosyncratic sources for high signal information.
Read 8 tweets
10 Feb
What is the holy grail of token design?

To me it is when a protocol is designed from the ground up so that its token is an integral part of the protocol and involved in the value creation process, rather than just serving to extract rent.

1/
Over the past year in DeFi there’s been a renewed interest among the community in value accrual mechanisms for tokens.

messari.io/article/govern…
This is for a good reason.

Due to a combination of opportunism and naivete, the 2017 ICO era was flush with utility tokens that attempted to jam useless tokens into new projects.
Read 8 tweets

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