VOLT is deploying its FEI treasury to yield venues which do not apply pressure to the FEI peg. In exchange, VOLT will receive a 3% savings rate on its FEI treasury from the Tribe.
FEI Savings Rate
As agreed with the Tribe in FIP-105, VOLT will receive a 3% savings rate (yield) on its FEI treasury from the Tribe in exchange for a commitment to hold this FEI in venues that do not apply pressure to FEI’s peg such as VOLT’s FEI peg stability module (PSM), balancer pools, and not lending markets like Aave.
This allows VOLT to support FEI Protocol’s contractionary monetary policy and act as a more effective FEI sink. This agreement will last for three months and will be revisited by expiry in late August. VOLT Protocol will therefore earn a 3% savings rate on its FEI treasury in addition to the yield earned on FEI deployed into approved yield venues such as Balancer. The FEI savings rate helps to compensate for the additional yield on the FEI treasury foregone by not investing in other yield venues such as Aave.
FEI-VOLT Balancer pool
VOLT Protocol plans to deploy its FEI treasury along with unissued VOLT into a FEI-VOLT Balancer metastable pool. This pool will use the target or peg price of VOLT from the VOLT Price Oracle, instead of the market price, therefore helping to maintain VOLT’s peg.
VOLT Protocol will receive trading fees that this pool generates as users swap between FEI and VOLT and vice versa. Further, as part of FIP-105, the Tribe will vote on the FEI-VOLT gauge with 20% of its veBAL voting power. This will direct BAL emissions to the FEI-VOLT LP meaning that VOLT Protocol will receive BAL rewards in addition to swap fees, therefore increasing the yield generated by the liquidity pool position. The Tribe has agreed to purchase the BAL rewards received by VOLT Protocol for TRIBE at a 20% discount, further boosting the yield on the LP position and further aligning VOLT Protocol with the Tribe. As the VOLT deployed to the FEI-VOLT Balancer pool alongside the FEI from the VOLT treasury will be unissued, the yield accrued by the FEI-VOLT liquidity position will accrue primarily to the FEI from the treasury, therefore increasing yield on the FEI.
Outperforming inflation
While Volt Protocol may underperform inflation on its FEI in the immediate term, the TRIBE it obtains will have long term growth potential and the FEI savings rate is competitive under current market conditions for the risk level it represents. The rate may be revisited on a quarterly basis or on occasions when VOLT Protocol considers sizing adjustments for the PSM.
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