The DeFi industry seeks to offer the best possible financial solution to users of digital assets in all categories. But today, DeFi users are left with choosing between discouraging options when they need decentralized stable coins.
This is due to faults or issues associated with stable coins like scalability and volatility, etc. The FEI Protocol offers a solution to these issues by providing a simple, stable, and readily available stable coin.
The project seeks to imitate the vision of the Rai or FEI, an ancient stone digital currency of Yap Island. This review is a guide for DeFi users who wish to access stable coins. It explains what the FEI protocol is all about, its crypto assets, the team, founders, the protocols technology, and its value.
The Founders of FEI Protocol
A team in Bay Area Joey Santoro, Sebastian Delgado, and Brianna Montgomery founded the decentralized Stable coin platform FEI Protocol. Joey Santoro is the Chief Executive Officer of FEI Labs; he has a strong background in software engineering.
He graduated from the computer science department of the University of Duke in 2019 and helped businesses run digital identities. Before founding FEI, he has worked in the software company Okta Inc. as a software engineer.
Joey Santoro has also worked as co-president and research assistant of a local Blockchain Lab. The second team member Brianna Montgomery is the FEI protocol’s project business lead.
She has gained a lot of experience as the business lead in a blockchain studio that integrates projects on Ethereum ConsenSys. She has also performed similar job roles in other companies, including DefenseStorm, Coriant, and nCino.
Brianna studied in Wilmington at the University of North Carolina, where she obtained a magna cum laude degree in three fields. Brianna’s course of study includes marketing, business administration, and economics.
Delgado, the third team member of the FEI protocol, is a degree holder in computer and cognitive science from UС Berkeley. For over two years, he has served as a software engineer in Uber and Dharma Labs, a DeFi project.
The FEI protocol project has the backing of many top VC funds. They include Coinbase Ventures, Nascent Capital, Andreessen Horowitz, and Naval Ravikant, the internet celebrity guru. The project team founded the decentralized FEI platform in 2020 and launched it on March 31st, 2021.
What Is FEI Protocol (FEI)?
FEI protocol is a blockchain algorithmic stable coin for decentralized finance. It offers a sweet spot technological solution between existing centralized unpredictable algorithmic stable coin and rigid overcollateralized traditional stable coin.
The protocol was launched in March 2021 and offers two digital assets; Tribe governance token and FEI stable coin. The protocol’s technology is based on direct incentives, a kind of stable coin mechanism.
FEI protocol technology is designed to be decentralized, more capital-efficient, and offer a fair distribution mechanism. The protocol maintains liquid secondary markets with the valve that it controls.
FEI attracted a lot of interest in the crypto industry shortly after it was developed in December 2020. This attraction led to an investment worth $19 million in March 2021 with support from Coinbase and Framework Ventures etc.
The project had an initial DEX offering launch (IDO) between the ending of March and April 3rd, 2021. 639,000 ETH coins were used in minting the FEI stable coin during the IDO, amounting to almost $1.3 billion.
Unfortunately, the stable coin price started dropping shortly afterward; this revealed the level of the public’s misunderstanding of the protocol’s mechanism. It also shows a total misjudge of the incentive structure by the general public.
More so, the algorithm only worsens the matter each time it tries to discourage the selling of FEI by adjusting the rates. The FEI traded pennies on 1 dollar during the crisis. It’s yet to meet the 1:1 peg even weeks after it.
Only ETH can buy FEI, and the initial bootstrapping phase remains valid till 250million FEI is distributed through ETH bonding. After this Scale period, the price of the bonding curve fixes at a price above the peg as determined by the community.
FEI Supply Expansion
The FEI stable coin supply is unlimited. It tracks demand and circulates through sales across a bonding curve. This bonding curve fixes at the peg of a dollar once it gets to it.
Users can then buy from the bonding cure when there is a new demand for FEI. The FEI protocol supports developing any ERC20 bonding curve, and the price mechanism will reasonably reward early buyers.
The protocol is on a mission to create a stable coin that is entirely decentralized. Hence, third-party tokens are essentially not used as collateral on the bonding curve, including USDC, wBTC, and USDT. The launch will maintain just a single bonding curve controlled in ETH.
Before pegging the price at 1 dollar, the Ethereum coin bonding curve will have a proposed FEI supply for bootstrapping. This supply target is referred to as Scale, which will mark the end for each bootstrapping phase.
The Scale is usually set at 250million FEI to make it large enough to integrate with the DeFi protocols. In the post-scale, the curve price fixes above the peg point at a buffer that can be governed.
The post-scale price creates a benchmark in the entire FEI ecosystem. Arbitrageur investors can buy cheaper from the bonding curve and sell at higher rates on the secondary or other markets.
The FEI protocol absorbs all ETH entering the platform as (PVC) Protocol Controlled Value; users can’t sell on the curve. Instead, the protocol utilizes the PVC to develop a secondary market where users sell their FEI for ETH.
Protocol Controlled Value (PVC)
The FEI protocol uses a PVC model, unlike most DeFi platforms that adopt the (TVL) model -Total Value Locked. In the TVL platforms, investors are issued an IOU, and they have free withdrawal access at all times. Such protocols are known to incentivize TVL through coin distribution rewards, and lockups are common too. This can make the platform have huge capital but can also make them have a mercenary capital challenge.
The problem of Mercenary capital is caused when DeFi platforms inflate and give huge rewards to maintain an incentivized liquidity. Although the capitals deposited can be maintained once these rewards exist, this isn’t a sustainable venture as better opportunities emerge daily.
Investors are bound to pull out their capitals to another yielding platform once the rewards go down. The FEI PVC is a subgroup of the TVL concept that uses a smart contract.
In PVC, the assets locked in the smart contracts are outrightly owned by the platform, and it’s better. With the PCV, the protocol can easily engage in non-profit-oriented activities that align with basic goals like maintaining peg stability.
The types of PCV are Insurance funds, governance treasuries, price backstop for DeFi users, and guaranteed liquidity. In addition, the PCV governance token accrues more corresponding responsibility and value capture.
FEI remains the ideal platform that implements PCV. It allocates all the ETH-funded PCV to ETH/FEI-dominated Uniswap pool. The FEI project team adopted Uniswap because of its higher familiarity level and a low entry barrier for DeFi users.
The FEI protocol governance may later allocate PCV to other trading platforms if the real-world case is good. It mints and controls the FEI liquidity token, paired with every FEI that users buy from the bonding curve.
This mechanism has two major advantages more than the stability mechanism as follows;
The FEI protocol liquidity receives its fund from the bonding curve and store in Uniswap ETH/FEI pair. Hence, FEI holders are confident that the protocol’s owned liquidity is intact- there is nothing like pull-out.
FEI can return the Uniswap price to the peg price if the below price peg delays via these trades.
- Withdrawal of all liquidity owned by the protocol.
- Bringing the FEI price up by buying the FEI coin with the ETH withdrawn.
- Resupplying the remaining PCV as liquidity.
- Burn excess FEI.
You can browse through the FEI protocol website for more information on the PCV.
FEI Direct Incentives
FEI Protocol uses the direct incentives mechanism in its operation. It runs a platform where trading activity and token usage are incentivized. This naturally pushes the investors to drive the FEI price to its price peg.
To implement the direct incentives, at least one incentivized exchange will stand as a hub. Other secondary markets and exchanges will arbitrage alongside the incentivized exchange. Thus, the entire ecosystem will sustain the peg.
To achieve its goal, FEI Protocol uses mints and burns to incentivizes Uniswap trading transactions. The trader’s balance receives a direct impartation of the incentives depending on its distance from the peg. The implication lies on the trend that the larger the sell, the larger the burn. The traders get mint from the protocol, which propels them to move back the price to the peg.
The incentivizing formulae ensure a net deflationary for volatility beneath the peg. This maintains a balance between demand and supply in the protocol. So the supply comes to the appropriate level with the current demand.
FEI protocol incentives can only apply to transactions that have the spot price lower than the peg. This is because higher prices are controlled by an arbitrage loop with the bonding curve.
The implementation of FEI Protocol’s direct incentives is like a rebasing token such as YAM and AMPL. The eligible users are the ones that align to incentivized behaviors. The theoretical properties are quite engaging together with the reweighting of the protocol’s price backstop.
Sellers are likely to experience deflation costs with a situation of increased FEI sell pressure. Where there’s no trader to restore to price to peg, the token holders can confidently relax as the protocol backstops the price.
Deflation plays a vital role in the process of price backstops for long-term holding in the protocol. The general characteristics of the incentivizing approach create a high confident peg for FEI.
What Makes FEI Protocol Unique?
Stablecoins are digital assets that maintain a pegged value targeted, usually with the USD or other preferred fiat currency. Crypto enthusiasts that wish to protect their funds from undesired market fluctuations and volatility go for a stable coin. It doesn’t have a central bank or any digital currency; it has an effective but independent design.
Instead, the stable coin relies on the mechanism of sophisticated market incentive to achieve a 1:1 price peg with fiat currency.
FEI protocol uses its two cryptos to protect collateral from price volatility and balance the stable coin price peg. It’s called a two-crypto algorithmic stable coin.
The FEI coin maintains the 1:1 price peg while TRIBE absorbs volatility. FEI activates its rebalancing mechanism once there is prolonged course deviation. It then uses its PCV to buy off and burn the excess FEI tokens.
The FEI PCV technology is a major unique feature as there is no such function in other algorithmic stable coins. In a situation of drop in demand, other algorithmic stable coins cannot buy back tokens. Again, FEI is based on the PCV model, which is a subset of the TVL model with an advanced feature.
The Fei protocol utilizes the direct incentive mechanism to reward trades moving to the peg and penalizes the opposite.
The structure of the Fei protocol is assembled from the following components; FEI stable coin, PCV deposits, and binding curves. Also, an access control node-FEI Core, PCV controllers, TRIBE governance token, FEI incentives, and DAO.
If FEI coin demand is high, users need to donate assets to a Uniswap pool to create more FEI coins. This process is called Fei coin minting, and it’s simple.
How Many FEI Coins Are in Circulation?
Like other stable coins, the FEI coin’s total max supply is uncapped. It’s minted or burned based on the demand. The protocol’s primary mechanism for issuing the FEI coins is the bonding curves.
These curves follow a particular pattern and may contain any parameterization. The protocol issues only bonding curves that are decentralized token denominated.
The bonding curves are only for buyers. This implies that users need to sell their FEI coins outside the curve domain. The protocol promotes PCV liquidity with all the assets it gets from the bonding curve.
However, Fei protocol second crypto TRIBE runs instant liquidity, and investors have liner time-lock. Also, the team has a back-weighted time-lock with a 5 year vesting period.
The TRIBE is distributed as follows; the community takes 80%, the team 15%, while the 5% is split among investors.
Where to Buy Fei Protocol (FEI)?
FEI coin is available on many exchanges but can be found mostly on decentralized ones. The various Exchanges trading FEI token are Ox, Uniswap (V2), 1INCH, and Gate.io. You can also buy or sell FEI token through their official website. FEI is paired with many cryptos, including Tether (USDT), Ethereum (ETH), and other cryptos.
FEI Price Live Data
As of August 9th, 2021, the live Fei Protocol price is $1.00. It’s up by 0.06%. The protocol has a total circulating supply of 2,041,429,433 FEI coins and $33,558,723 as of the 24-hour trading volume.
The live market cap of $2,048,501,348, but the maximum supply is not available.
TRIBE and Fei Protocol Governance
The TRIBE token is the Fei protocol’s second crypto. As mentioned earlier, it controls the Decentralised Autonomous Organisation. It is the governance token of the protocol, and its holders use it to do the following voting on the protocol’s platform.
- To adjust the PCV allocation for the existing and incoming funds.
- To adjust the price values of the existing bond curves or to add new curves in new cryptos.
The TRIBE is also referred to as governance minimized for peg maintenance. It manages the protocol and increases its security. In addition, it emphasizes integrations and upgrades and allows holders to decisions of issues relating to them.
Conclusion of Fei Protocol Review
The Fei protocol is an algorithmic blockchain stable coin for DeFi. It has some features, models, and mechanisms that distinguish it from other existing stable coins.
Some of them are the PCV, two crypto-assets, a strong peg maintenance mechanism, and deep and irrevocable liquidity. The Fei protocol was designed to proffer solutions to the stable coins issues of scalability and volatility in the DeFi.
The two crypto assets of the protocol include the Tribe governance token and FEI stable coin. The protocol utilizes its cryptos to protect collaterals from price volatility and balance the price peg of the stable coin.
The FEI coin maintains the 1:1 price peg with fiat currencies, usually, USD, while the TRIBE absorbs liquidity. The Fei Protocol is currently trading at $1.00 with a circulating supply of 2,041,429,433 FEI coins.
However, you can buy the FEI token on exchanges like Ox, Uniswap (V2), 1INCH, and Gate.io, among others. Most FEI fans believe that it has a strong prospect compared to other stable coins like capital efficiency.
Other FEI prospects include a fair increased supply distribution and decentralized community. You can visit the Fei protocol’s official webpage for more information and always do thorough research before investing in any crypto assets.