Hello,
This is a proposal to rebalance a portion of the FEI reserves to USDC.
Context
As already explained in this proposal, the FEI team is going to withdraw their protocol-controlled agEUR and redeem these agEUR for USDC.
Originally, the FEI team had minted agEUR from FEI, which means that the protocol had a lot of user-owned FEI. Consequence if the agEUR issued by FEI are burnt for USDC, then the protocol will need to hedge itself against the FEI/EUR change risk and thus need to attract HAs on it, creating a fragmentation of the offer.
Proposal
The proposal is to simplify the balance sheet of the protocol and rebalance the user owned FEI for USDC.
As of today, 4m agEUR have been issued from FEI. The rebalancing operation consists in saying to the protocol that these 4m agEUR have not been issued from FEI but from USDC, and therefore the offering for USDC/EUR HAs will increase while HAs which own FEI/EUR perps will see their perps force closed.
As part of this rebalancing operation, we also propose to swap the FEI in the protocol for USDC. It’s only possible to swap the user brought FEI and the surplus, which means there will still be enough collateral for SLPs to withdraw their position.
Note that strategies will still be active for SLPs who’ll be able to get a yield on their FEI.
Value to Angle
While the FEI strategies will still be active, this will help the protocol concentrate the HA offer in just USDC and thus reduce some maintenance cost and overhead.
Also, USDC strategies are on average slightly more efficient and in this sense, it’ll be more profitable for the protocol to swap to USDC.
One negative impact of the process is that it will lead one perp to be force closed. Once the rebalancing operation takes place, there will no longer be opportunities for FEI HAs to keep open positions (unless other people come to massively mint from FEI).
There is one big perp that will be closed from this operation. The margin of this perp is 286k FEI and it has a position size of 1.9m FEI for a PnL of +$146k
Implementation
The rebalancing operation will be done through the governor multisig. Function to be called to rebalance is simply rebalanceStocksUsers of the StableMaster contract.
The funds to swap to USDC will then be pulled from the FEI PoolManager contract using recoverERC20. To swap the FEI to USDC, we’ll use first FEI PSM and then DAI PSM.