It’s official. Algorithmic stablecoin Fei Protocol is set to merge with Rari Capital, a DeFi protocol that facilitates permissionless lending markets, after both communities voted overwhelmingly in favour of the deal.
The result: a player mustering $2B in liquidity.
RGT tokens will be exchangeable for TRIBE at the rate of 10 RGT = 267 TRIBE. Fei will also assume Rari’s liabilities stemming from the $10M exploit in May 2021. The merger proposal won the support of 90% of TRIBE voters. TRIBE is Fei’s governance token.
“I think the broader community really sees the vision of the proposal as reflected in the massively in-favor and high participation on-chain votes,” Fei co-founder Joey Santoro told The Defiant. “Tribe is no longer about FEI or Fuse alone, but rather building tightly integrated DeFi solutions for DAOs such as LaaS and new upcoming offerings such as Turbo.”
The Rari community also cheered the move, with 93% of votes cast in favour.
Fei is one of many protocols aiming to solve one of DeFi’s perennial problems — bootstrapping liquidity for new projects. Most new projects tend to stick with traditional liquidity mining despite the risks of such programs, which include excessive token inflation and so-called “predatory liquidity” or “farm-and-dumpers”.
In October 2021, Fei announced a Liquidity-as-a-Service (LaaS) program in partnership with Ondo, a liquidity risk tranching protocol.
Under the program, DeFi protocols can deposit their native tokens in an Ondo liquidity vault for a predetermined term. These tokens are then paired with an equivalent amount of FEI and deployed as liquidity on DEXs like Uniswap and Sushiswap, giving the subject protocol immediate access to deep liquidity for its token.
At the end of the term, the FEI is paid back with a fee added, and the remaining native tokens are returned to the project. The project retains all trading fees but also assumes all the risks of impermanent loss.
Rari Capital allows the creation of permissionless lending pools, called Fuse pools, that permit anyone to create a pool to supply and borrow any ERC-20 asset.
According to the merger proposal, “the main bottlenecks to Fuse’s growth are bootstrapping pools with initial liquidity, and ensuring manipulation resistant oracles for long-tail assets. The Fei DAO can easily provide this initial FEI liquidity to solve the chicken-and-egg problem, and has already done so in 15 Fuse pools, including 8 of the top 10.”
This makes sense since even the most adventurous DeFi users will usually balk at providing liquidity for new tokens without a sizeable incentive. By seeding the Fuse pool with FEI liquidity, protocols will be able to easily set up usable lending markets for their tokens.
When asked for more details about the ‘Turbo’ product, Santoro called it “the lending equivalent of LaaS for Fuse pools.” Santoro declined to comment further.
Overall, the merger seems to make sense given the ongoing close collaboration between the protocols, as the proposal goes on to note.
“I think the merger is positive for Fei, and can help build its utilitarian value by allowing a deeper integration with Rari’s core lending product. The Rari and Fei core-teams get along extremely well, which I believe is a large understated positive,” Ashwin Ramachandran, General Partner at Dragonfly Capital, told The Defiant.
Disclosure: The author holds TRIBE tokens.