fUSD Branding and Migration Proposal

[Sam]

As part of Fantom’s continuous evolution toward decentralization, we are proud to bring to a governance vote for the future of fUSD, Fantom’s native stablecoin. After extensive conversations with various teams, we have found that the OINDAO team is ready to provide a solution: they propose to take over the management of fUSD and help migrate fUSD holders over to their collateralization model.

If this change is implemented and fUSD fails to maintain a stable peg (>20% of its value) for more than two cumulative weeks, another governance proposal will be implemented for the network to vote on whether a new team should take over fUSD or whether the previously elected team should continue.

Please find below a series of Q&As with the OINDAO team to provide further clarity on their fUSD deployment plan.

1. Why is OIN best positioned to do this on Fantom?

We provide a turnkey solution to a protocol’s stablecoin needs. In addition to deploying a stablecoin issuance protocol, we are focused on integrating the product into Fantom and building utilities within the ecosystem.

OINDAO - a robust CDP-based stablecoin minting platform:

• OINDAO - a unique crypto-backed stablecoin with a unique Stability Pool to aid liquidations. The Stability Pool provides the resources for liquidations, and distributes proceeds of the collateral to the stakers. Users take staking rewards and liquidation proceeds from staking the minted stablecoin into the Pool
• The Stability Pool leads in: 1. Speed, efficiency, and deployability of settlement funds in liquidations 2. Democratization of liquidation (in addition to bots and institutional funds, ordinary users can now also have access to low-risk liquidation profits)
• Built with future multi-chain composability in mind, but with the intention to maintain chain-specific autonomy and to keep risks on different chains segregated

OIN Finance - an experienced stablecoin team:

• Track record of working with reputable investors and partners (with audited deployments) such as Harmony, NEAR, with more upcoming such as Aurora, Moonbeam, and others unannounced
• The long-term plan is to enable cross-chain stablecoin bridges and explore a meta-stablecoin that links all OIN stablecoins together, creating a connected & seamless experience across different applications. Also allows us to target integration with enterprise solutions.
• Benefits and value created will be recaptured and kept within the ecosystem. e.g., protocol revenue generated on Fantom will be distributed to OIN token holders on Fantom, and chain-specific governance decisions will also be made exclusively by OIN token holders on that specific chain

2. What method will OIN use to keep peg?

Outside of traditional peg-keeping mechanisms of collateralized stablecoins (e.g. overcollateralization, arbitrage, etc.), we maintain 4 main pillars to the peg.

1. Maintain a deep fUSD stablepair liquidity pool to minimize slippage via liquidity incentives

2. Stability Fees are charged per stablecoin minted per block. This controls the money supply akin to a central bank’s interest rates, growing or constricting supply, thus the “price”, and thus the peg

3. The Stability Pool provides 2 main mechanisms - 1. Locks fUSD in staking contracts to decrease a possible selloff, 2. If the fUSD rises above $1, stakers in the Stability Pool may take less gains from liquidations, or even incur losses. This incentivizes them to unstake, increasing the amount of fUSD in circulation and potentially arbitrage through DEXs until the peg is restored; The opposite happens when the price is too low

4. Cap on total issuable stablecoins controls the max circulating supply that can prevent overselling due to leverage. Can be adjusted via governance, and is dependent on the depth of the stablepair liquidity pool

5. What benefits will this bring to the Fantom network and its validators?

Key benefits to the Fantom network: 1) a unique crypto-backed stablecoin protocol that is native to Fantom, but well positioned for a multi-chain future; 2) The fUSD brand will be maintained, and the token price will be tightly pegged to the USD; 3) It allows protocol revenue, risks, and governance all kept within the Fantom community, but still maintaining future potential for multi-chain composability.

Key benefits to Fantom validators: the Fantom Foundation will direct its liquidation profit it gains during the initial liquidity bootstrapping period to the special-fee-contract (SFC). In addition, OINDAO normally takes 2% from liquidation profits to the system Treasury, 50% of which will now also be directed to the SFC on Fantom to ensure a strong community establishment of the fUSD on Fantom. This arrangement will apply to all vaults that take FTM-related tokens as collateral, including staked FTM, wFTM, and FTM-related ibtkns, but exclude non-FTM related tokens, such as LP tokens.

4. What does OIN see as the biggest risks to taking on this endeavor?

There are three obvious risks that are inherent to collateralized stablecoins and blockchain projects:

1. System solvency

2. Fluctuation of the dollar-peg

3. Security

Key risk mitigation levers we implement:

1. System solvency risk is mitigated through OINDAO’s proven dual-step liquidation mechanism. It is worth mentioning that the recent market crash arrived in less than 1 week since our deployment on Harmony. The system still remained solvent and maintained high liquidation efficiency throughout the recent events.

2. The peg is managed as detailed in question 2, and backstopped by the value of the underlying assets and liquidation mechanisms. They provide a floor for the inherent value of the stablecoin, giving arbitrage opportunities to savvy users.

3. Our smart contracts have been audited by CertiK and Slowmist. New versions are independently audited by different auditors to ensure that nothing is overlooked, and each version is secure. We will also implement a bounty programme for our system.

4. How will OIN migrate current fUSD holders?

Our concern mainly lies in current fUSD holders that have purchased fUSD at a higher price, and are now waiting for the price of fUSD to return to its peg. Our plan is to incentivize fMint users to repay their debt first. This should reduce the supply of the original fUSD in the market and in turn pushes up the price of the fUSD closer to its peg, reducing disruptions to the people that purchased fUSD.

Migration plan should involve the following steps:

1. FTM Foundation to make official announcements that cover the following topics:

2. The transition and changes to be made to the old system (see detailed proposed changes in Q8)

3. Advantages of the new system

4. Encourage the community to pay back when the price of fUSD is still attractive (at the time of writing ~$0.57)

5. Stop the 6% APY that goes out to vaults with 500%+ C-Ratio

6. OIN to educate the community on how to navigate the new system, liquidity incentives, upcoming plans via AMAs, partnerships, announcements, and articles

7. Will OIN provide liquid staking?

No, we will not provide liquid staking for the following reasons:

1. We want to remain focused on collateralized stablecoins

2. Stablecoin projects have a high requirement for the liquidity of the underlying collateral, therefore liquidity incentives will be required to ensure a strong 1:1 peg for sFTM-FTM, a task big enough for a standalone liquid staking project.

3. We believe in protocol composability. Synergies between projects are stronger than one large project on a protocol.

We will however, explore partnerships with liquid staking solutions on Fantom e.g., taking in the liquid staking token as collateral.

7. What is OIN’s timeline for deployment?

OIN will be able to deploy 2 to 3 weeks after a governance decision has been made.

This time will be used for gathering logistics e.g., liquidity, as well as community announcements and engagement.

8. Please provide an in-depth overview of OIN’s fUSD implementation (long forum):

System UI

The new system will be positioned as a new co-branded fMint system that’s powered by the OINDAO. The system UI will also be customized to Fantom blue, see below example:

Collateral

The new system will initially accept wFTM as collateral. The system will explore additional collateral types such as liquid staking tokens, interest-bearing tokens, and LP tokens.

Key criteria for accepting new collateral would be i) existing liquidity of the collateral; ii) demand for the collateral; iii) volatility of the collateral

Future collateral will be added based on decisions of the Fantom community once OIN begins DAO governance.

Stability Pool incentives

To encourage some users to become Stability Providers to help maintain system solvency, 2% OIN tokens will be initially allocated to the Stability Pool as incentives.

Liquidity incentives

We are negotiating with DEXs to provide liquidity incentives for the initial 2 months.

We will apply for the Fantom Incentive Programme, and allocate 80% of the incentives received to fund the subsequent incentives.

In addition, starting in May-June 2022, OIN will begin DAO governance. ~20% of total OIN tokens will be allocated to each network that the OINDAO is deployed on proportionate to the total volume of the stablecoin minted. The tokens will be distributed on a weekly basis for a duration of 3 years. OIN token holders on each network will be able to vote on where to allocate the weekly distribution.

Liquidity bootstrapping support needed from Fantom Foundation

We ask the Foundation to support us with $2m (in FTM & USDC) to help us bootstrap the initial liquidity. The liquidity will stay in the Foundation wallet, and will be used to help us to maintain a relatively strong system solvency and dollar peg from the very beginning of implementation.

We propose the following breakdown for the liquidity:

• Total liquidity support: $2m($1.714m FTM + $286k USDC)
• fUSD-USDC liquidity: $572k (this would need $714k FTM to mint 286k fUSD at 250% C-ratio and $286k USDC)
• Stability Pool: 400k fUSD (this would need $1m FTM to mint 400k fUSD at 250% C-ratio)

Changes that will be made to current fUSD model

We also ask the Foundation to make the following adjustments to the existing fMint system as operational support for the migration:

Discourage minting of the (old model) fUSD by:

1.1 Adjusting the borrowing fees to 100%

1.2 Terminating 6% APY rewards for vaults with C-Ratio above 500%

Encourage repayment of the fUSD by:

2.1 Announcing that UX support for fMint will be terminated in 3 months -

2.2 Activating interest rate module (if applicable)

2.3 Activating liquidation module (if applicable)

3. Monitor the fUSD price by:

3.1 Being prepared to step in with fUSD supplies in case of market price manipulation in the repayment process with the old fUSD

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It is now up to you, the fantom community, to determine whether this change goes into effect.

To vote on the proposal, please head to https://fwallet.fantom.network/, and find Proposal #19 in the Governance tab.

The OIN team will host an AMA on March 22nd, 11:00AM EST. For further announcements, please follow them on Twitter @FinanceOIN.

[FTM]

@Sam

3. Monitor the fUSD price by:

3.1 Being prepared to step in with fUSD supplies in case of market price manipulation in the repayment process with the old fUSD

I am generally in support of this proposal, but this part needs to go, without compromise.

The foundation has allowed fUSD to trade below $1 for multiple years; the idea that there would be any stepping in should it trade above $1 is absurd.

Firstly, on a practical level, market expectations apply. If people know that the foundation will infinitely mint fUSD to sell if it reaches any price above $1 means that there is no incentive to pay back what is owed immediately. The point of this migration plan is to create a sense of urgency, and encourage people to repay ASAP. If you are telling people that they can just wait and the Foundation will always step in to cap the fUSD price, then this will not work.

Secondly, on a more ethical level: The foundation has, in the past, refused to intervene. Citing market forces as the reason - that they should not interfere with the price that fUSD is trading at, both for ethical and legal reasons. Why does that suddenly change when it’s above $1 instead of below? It’s extremely questionable that the Foundation should suddenly change its stance on this point after years of refusing to step in, despite having the funds to do so.

Thirdly, fUSD minters have had a great deal; free leverage without liquidation risk on an asset that has appreciated 1000x. The idea that their losses should need to be capped by capping the price of fUSD is laughable. Any price above $1 that fUSD trades at should be a result of market forces, and attributable to interest on a loan provided by fUSD holders to fUSD minters.

[Pxpxbt]

Completely agree with the above. Foundation needs to be consistent in their reasoning and this provision can’t be included in good faith. Fully onboard with the migration otherwise.

[rabbit]

I agree and this is why I am for DEUS. DEUS won’t allow this to happen.

[Luke]

What Will happen for those accounts for which c ratio Is below 300%? Will there be any kind of forced liquidation/need to repay fUSD despite being in loss? I am referring to the case where minted fUSD has been used in order to get more wFTM but then wFTM price went down

[Peggington]

Totally agree with the first reply. What they call “price manipulation” is actually called supply and demand, and what they call “price monitoring” is actually price manipulation. Changing words won’t change facts.

If the Foundation accepts to intervene the market, why would it stop there? Who guarantees there won’t be intervention in FTM price to also keep it down to prevent minting?

[fje401k]

This is what i want to know.

[OIN_Finance]

Hey, thank you for your valuable input. You are correct that this is a challenging situation, but there seems to be a misconception regarding the “monitoring for manipulation” point. In principle, market forces will still apply in the migration, meaning that the price of FUSD could still go above $1, though within a reasonable range.

It is important to note that healthy market forces will only apply if a correct-functioning system is in place. As the saying goes “You do not rise to the level of your goals. You fall to the level of your systems.” While we are all strong believers of a market-driven economy, we have all seen what happened with the FUSD depegging when there was a failing system. And we certainly don’t want to repeat this in the other direction during the migration when the supply of FUSD is completely turned off, resulting in a situation that is prone to price gouging, due to highly limited token circulation.

One of the key focus in the migration plan that we have agreed with the Foundation is to ensure a smooth and orderly transition to the new system, and we certainly want to avoid causing panic in the community. As a result, interventions from the Foundation only acts as the last resort when the migration process is clearly being attacked by malicious players and causing extremely distressed scenarios.

But you are correct that we need to create a sense of urgency in the process. As mentioned, price of FUSD can still go above $1, just can’t go crazy such that the situation is clearly being taken advantage of, and it will be combined with activation of the liquidation module if necessary (confirmed with the Foundation), and a countdown on fMint frontend termination. We believe this will be sufficient to create the urgency needed.

Hope this helps, happy to discuss further.

[OIN_Finance]

Kindly see our response to the first message - hope it helps!

[OIN_Finance]

Hey, the liquidation module is likely to be activated towards the final weeks of the migration period.

[Peggington]

Isn’t the price limit naturally set by the collateral whence the fUSD was minted?

It won’t be profitable to pay more than that, so there’s no possibility to abuse the system by malicious players. Fair price is guaranteed without intervention.

[FTM]

Thanks for the explanation. While I still have reservations about the Foundation changing its tune on intervention, in the interests of transparency and to ensure that the community knows exactly what it’s voting on, these referenced parameters should be made public. At what point is the upwards volatility ‘too much’ that the Foundation should get involved? As a reminder, they refused to do so even when fUSD traded at $0.15 previously. Should this then translate to the same deviation above peg ($6.67 per fUSD)?

If we’re voting on this proposal, this seems to be such a key part of it to consider that it must be communicated to those voting before people can vote in an informed way.

Thank you for your continued efforts

[fanties]

fusd holders held for years while fantom moons they deserve it finally plus interests. dont cuck them with fusd price controls. its dumb

[phantasmal]

I do agree that transparency is important in this proposal, but also feels like measures of volatility would kinda be wasted here. Giving any real measures of volatility would constrain the factors too much (not to mention that there’s no way to get information for a lot of types of measures e.g. beta, derivatives such as options), with others not really being applicable in turbulent times with direct causes for violent upward swings (st.dev and var).

Then there’s the risk that giving a defined upper bound also might signal “hey, we’ll tolerate manipulation until this price.”

They’re in a bit of a pickle. Giving 100% transparency is hard for the reasons above, but as users we’d like to be informed.

I’m thinking the risk we take in getting a bit less transparency is outweighed by them actually just getting it over with, and fixing the fusd for good.

[phantasmal]

Depends on how the liquidation works I guess. It could still force massive losses for the vaults if the price of fusd goes out of control.

[FTM]

Measures of volatility, standard deviation, beta, etc. have nothing to do with this conversation - the topic at hand is clearly only about an upper bound on price. The price at which intervention comes in is the only variable of interest in this thread, so I don’t consider the high complexity of calculating volatility, standard deviation, and beta to be relevant.

Signalling “hey, we’ll tolerate manipulation until this price.” is not really a problem, if they will indeed tolerate it until that price. As you say, they’re in a bit of a pickle. So defining the upper limit is as much as they can do in any case. Remember, if current holders don’t want to sell at this pre-defined upper limit, then we assume the foundation steps in and offers perfect liquidity to minters to buy there. What does that do? It allows old fUSD minters to exit, but the foundation is then the one in a pickle as it owes fUSD that has been minted against Foundation-held collateral. The root problem remains, and market forces still apply, unless the foundation decides that market forces shouldn’t apply to them and mints the required fUSD out of thin air. That would be a legally rocky position for an entity that has previously stated that intervention into this market is not feasible for them on legal grounds.

Either the parameters should be rules-based and made public, or the clause removed in its entirety. There is plenty of support in this thread towards this sentiment, and I believe it’s the only way forward for this proposal. This is reinforced by the negative sentiment shown in the voting outcome thus far.

[phantasmal]

Sorry, was just addressing volatility as it was mentioned in your reply.

Now on to the meat of the problem, they seem to be saying that they’re targeting malicious actors. This means (I hope at least) that they’re taking into account more than just inflated price; they’ll also be looking at things like account activity, significant outflow and reinjection of liquidity at varying prices, etc. All these could signal intentional manipulation to artificially inflate the price, which wouldn’t be market forces, it would just be a couple whales taking advantage of the situation. These are highly qualitative measures though, so it would likely be hard to say “these are the exact rules that we’ll apply in these exact situations.” This is why I mentioned that it would be like saying they’ll accept manipulation up to that point, as it gives free reign for malicious actors until that price even if they see obvious signs.

I can’t comment too much about exactly how the Foundation would be handling the adjustments. This I definitely agree could be cleared up and wouldn’t hurt the proposal.

[Peggington]

Doesn’t intervention allow for everyone who has minted (even those undercollateralized) to wait for the $1 peg and dump it all with the certainty of $1 max price guaranteed buy-back? That’s asking for risk-free exposure to debt, lowering fUSD demand, increasing its supply and dooming it forever.

AFAIK every player has known the endgame since fUSD creation, the buyers have willingly bought and the sellers have willingly sold. Changing those rules now will only make it worse, giving the whales more tools to take advantage of the situation.

[phantasmal]

For the people that have minted, it would be in their best interest to repay their loans when the fusd is at the lowest price. Increase in price would make it more expensive for them to pay back their debt. You’re right that it would lead to a never-ending cycle, but their proposal also stipulates a halt to minting, and liquidations if necessary. This would force the hands of the debt holders to buyback the fusd at whatever price.

That’s where the problem is coming in. For example, let’s say a user has a balance of 100 fusd in debt and $300 in FTM.

If price of fusd reaches $3, they would have to buy $300 worth of fusd on the market to “reclaim” their FTM.
If price reaches any more than that, they are literally taking a loss by repaying their debt. Much better for them to just let the account sit there without every paying back to the system.

If they can come in and prevent any intentional manipulation to get prices that high, they can keep the system from pretty much collapsing in on itself this way. I think this takes away tools for manipulators. A simple way for whales to take advantage is inflate the price by buying fusd, then inject massive liquidity into the pool to make it harder to bring the price back to peg.

[Peggington]

One of the problems is that the halt to minting comes late, the damage could already be done and be irreversible. I don’t have a sizable position but I am not planning to repay my undercollateralized debt if I can rebuy at $1, so I’m just assuming others could do the same.

Why is that scenario a problem? I only see market forces taking place. If liquidations take into account fUSD price, they will help with that.

Why should anyone come and prevent intentional manipulation upwards but not downwards? I fail to find an ethical justification. Of course we can always throw morals away, but it should be the last resort.