As the underlying asset of DeFi, stablecoin has a market value of more than 50 billion US dollars and is still growing at a high speed. As a branch of stablecoins, algorithmic stablecoins are hoped to solve the centralization problem of fiat-backed stablecoins and the low utilization rate of collateralized stablecoins. However, there are currently no very successful projects on this track.
Last year's star algorithmic stablecoin projects Ampleforth (AMPL), Empty Set Dollar (ESD), Basis Cash (BAC/BAS), and Frax (FRAX/FXS) all performed mediocrely. AMPL has been maintained at a level slightly below $1 for a long time, maintaining a small deflation. ESD has basically returned to zero because the circulation is too large and the bubbles are difficult to eliminate. The bonds of Basis Cash will not expire, which will increase the difficulty of returning to more than $1, and the mechanism is not perfect. Because FRAX can redeem $1 of assets and can be integrated with DeFi applications such as Curve, the mortgage rate has not continued to decline, but for now Frax is still one of the algorithmic stablecoins most likely to be applied.
The old generation of algorithmic stable currency projects that have not made progress have gradually withdrawn from people's vision, and many new projects are emerging. This article will introduce several algorithmic stablecoin projects that will be officially launched in the near future, and explain their mechanism and gameplay in detail.
Fei Protocol
Fei Protocol has attracted a very high degree of attention before its official launch, and the investment from well-known institutions such as A16Z, Framework Ventures, and Coinbase Ventures has achieved very good publicity effects.
Fei Protocol believes that the existing DeFi projects using Total Value Locked (TVL) cannot be sustainable. Only when they can provide high rewards can they obtain a sufficiently high TVL. However, there are many opportunities in the market, and high-yield projects appear every day. The funds retained in the projects are disloyal and are likely to be transferred to other projects. Alpaca Finance and Big Data Protocol, which have been hot in the market recently, are such examples. After the withdrawal of large funds, the platform tokens were quickly sold off, which in turn prompted further funds to flee, forming a vicious circle.
In contrast, Fei Protocol proposes a protocol controlled value (Protocol Controlled Value, PCV) model. The assets stored in the contract by the user will be directly owned by the agreement, and the user cannot withdraw these assets. The agreement can use these assets more flexibly to keep in line with the basic goals . Fei Protocol uses these assets to maintain the liquidity of FEI and achieve the price stability of FEI.
price stabilization mechanism
When the price of FEI is below $1 for a long time, anyone can trigger the peg recovery to make the price go back up. The agreement will withdraw all the liquidity it owns, use the retrieved ETH to buy FEI to the linked price, re-provide liquidity with the remaining ETH plus FEI, and destroy the remaining FEI.
In addition to the active operation of the protocol, there are also some mechanisms that encourage users' voluntary behavior to anchor the price.
way of participation
way of participation
The genesis stage will be the best period for users to participate in Fei Protocol to obtain algorithmic stable currency FEI and governance token TRIBE.
The genesis phase of Fei Protocol has been extended to March 31, and will be sold through a bonding curve with a minimum price of $0.5 and a maximum of $1.01. Fei Protocol will also provide a reward of 10% of the total amount of TRIBE for users who purchase FEI at this stage. All the ETH deposited by the user from the bonding curve will be used to provide the liquidity of the Uniswap ETH/FEI trading pair, which belongs to the protocol itself and will not be taken away by the user.
In order to prevent being preempted by "scientists" when providing the initial liquidity of the FEI-TRIBE trading pair, Fei Protocol also allows users to choose to directly exchange the FEI they own in the genesis allocation for TRIBE, and users can freely choose a variety of exchange ratios . This is an atomic transaction that accompanies the initiation of the protocol and cannot be snatched away by a robot.
It is a good choice to participate in Fei Protocol at the creation stage, but of course there are risks. The buying price may be higher than $1, and if the selling price is lower than the pegged price, there is still a 4% loss. Because the project needs to participate in ETH, the price fluctuations involved in the settlement process will affect the amount of FEI obtained.
Float Protocol
Unlike Fei Protocol, Float has no financing, was built by a group of anonymous researchers, and the distribution of tokens is more community-based.
Float Protocol believes that during the period of monetary expansion, the purchasing power of legal currency will be eroded by inflation, and it does not make sense to bind stablecoins to the legal currency of a certain country. There are two types of tokens in Float, the stable currency FLOAT and BANK, which assumes the role of value stability and governance. FLOAT is defined as a low-volatility currency. The initial target price is the golden ratio of 1.618. The price is not stable and will change according to its own needs and the demand for cryptocurrencies in the vault. According to official calculations, in the case of violent fluctuations in the price of ETH in 2020, the target price of FLOAT will still fluctuate steadily.
FLOAT tokens were minted after two phases of BANK token distribution. The first phase began on February 8, and the second phase began on March 22.
Phase 1 (first 6 weeks)
Users who have participated in governance can use DAI, USDC, and USDT to mine BANK in the first stage, and the deposit limit for each token is 10,000 US dollars per address. This method has achieved good results, and BANK tokens have not been sold off. So far, the income from stablecoin mining has more than doubled.
Phase 2 (weeks 7-8)
After the first phase, BANK tokens will be distributed to the wider community. There will be no whitelist restrictions at this stage, and new non-stable currency pools will also be added. In the second stage, the liquidity mining of BANK-ETH will also be carried out in order to better discover the value of BANK.
Initial minting of FLOAT
Eight weeks after the distribution of BANK, the minting of FLAOAT will begin. Users can use ETH to purchase FLOAT tokens, and use 5% of the total amount of BANK to incentivize purchases.
Inflation and deflation of FLOAT
FLOAT is backed by the reserve assets of the treasury, and users cannot directly exchange FLOAT for reserve assets from the agreement. In the v1 version, there is only ETH in the vault. FLOAT's inflation and deflation are determined by FLOAT's time-weighted average price (TWAP) and target price by measuring the adequacy of reserves. If TWAP is higher than the target price, inflation will occur; if TWAP is lower than the target price, deflation will occur. The method of inflation and deflation is affected by the Vault Factor, which measures whether the reserve assets are sufficient. Vault Factor=ETH value locked in the vault/market value of the FLOAT target price in circulation. If Vault Factor>1, it means that the vault is in surplus; if Vault Factor<1, it is in a state of loss.
In the inflation stage, arbitrageurs pay ETH and BANK to obtain FLOAT at a price higher than the target price and lower than the market price. If it is in a state of surplus, the part other than the target price will be paid in BANK, and more BANK will be consumed; if it is in a state of loss, in addition to the target price, part of it will be paid in ETH, and the other part will be paid in BANK to supplement the treasury. Much ETH.
way of participation
way of participation
Users in the whitelist directly participate in stablecoin pledge mining with stablecoins, and can participate in the subsequent stages at zero cost.
In the second stage, use the tokens you hold for single-currency pledge mining.
Purchase BANK tokens in the early stage to prepare for the liquidity mining of BANK/ETH in the second phase. After the third phase of arbitrage begins, BANK will also have a high demand.
Participating in FLOAT arbitrage may lead to greater deviation between the previous FLOAT price and the target price, and more opportunities.
Reflexer
Reflexer is also a project invested by many institutions. Institutions such as Pantera Capital, Lemniscap, Paradigm, MetaCartel Ventures, Divergence Ventures, Standard Crypto, The LAO, and team members from Compound, a16z, Synthetix, and Aave all participated in the investment of Reflexer.
Compared to other algorithmic stablecoins, Reflexer is closer to MakerDAO. On March 12 last year, due to the rapid drop in the price of ETH, many debt positions in Maker were liquidated. Since then, in order to increase the diversity of mortgage assets, Maker has added WBTC and other assets as DAI mortgage assets. Then, the category of collateralized assets gradually extended to stablecoins collateralized by fiat currency, which also introduced counterparty risks to Maker.
Reflexer wants to create a modified version of the product, which can be understood as the low volatility ETH of RAI. Like the original DAI, the collateral of RAI is only ETH, which is generated through overcollateralization.
way of participation
way of participation
Because the mortgage assets in RAI can be redeemed, the risk is relatively low and it is suitable for a wider range of user participation. If there is a place where RAI can generate high enough returns, then RAI can be used.
Summarize
Summarize
From the above content, we can see that the current algorithmic stablecoin is more inclined to include corresponding assets in the treasury to support the price of the stablecoin. This is completely different from AMPL, ESD, BAC, etc. Relatively speaking, the current algorithmic stablecoin Projects are more transparent and more functional. Neither FLOAT nor RAI is pegged to US$1. The former starts from the golden ratio of 1.618, and the latter starts from PI of 3.14. It can be regarded as a currency with low volatility; although FEI is anchored to US$1, the price may deviate from US$1. More, but selling below $1 will destroy 4% of the mechanism, which can make the price rise better. The participation threshold of the algorithmic stablecoin project is also gradually increasing. From the beginning, the stablecoin was pledged to mine, and now the funds are not controlled by the agreement. The participating funds cannot be redeemed, and more understanding of the project is required.
