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Editor of this issue | Colin Wu
1. Unstable stablecoins
On March 31, the algorithmic stablecoin project fei started fundraising and ended on April 4. During this period, fei raised a total of 639,000 eth, worth nearly 1.3 billion U.S. dollars, making it the most fund-raising DeFi project in history. At the same time, the project party airdropped TRIBE, the governance token of the project, to the participants in proportion to the amount of eth provided by the participants. After the fundraising, FEI-ETH became the first trading pair on Uniswap with a liquidity of 2.6 billion US dollars. In contrast, the liquidity of the second-ranked trading pair WBTC-ETH was 320 million US dollars. During this period, the price of eth also reached an all-time high at one point.
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2. Fei's unique stabilization mechanism
Simply put, fei has designed a mechanism similar to the central bank, called Protocol Controlled Value (PCV), and all the eth raised this time have entered PCV, and PCV is similar to grayscale funds , only in and out, that is, users can buy newly issued fei from it, but they cannot redeem eth from it. If users want to exchange fei in their hands for eth, they can only exchange it in the secondary market.
But when fei is in a state of negative premium, if the user wants to exchange it for eth, because such an approach will further reduce the value of fei, so the fei protocol sets a penalty mechanism for this practice, and the penalty amount is a negative premium Square, that is to say, when the negative premium of fei is 3%, you will lose 9% if you sell fei. That is to say, at this time, when fei is exchanged for eth, each fei can only be used as 0.91 US dollars, and other parts of fei will be lost. be destroyed.
This has caused most users who invest in fei to be in a state of book losses, because compared with the square of the current negative premium, the value of the airdropped TRIBE is insignificant. What can be done at present, besides waiting for the price of fei to return to 1 dollar slowly, can also continue to buy fei in the secondary market, and the agreement has also designed a reward mechanism for such "rescue" behavior. If you buy fei from the secondary market, you can get an additional 1.5% reward.
Under the above measures, if the price of fei fails to return to 1 dollar for a long time, PCV will use the mechanism of the central bank (this mechanism is called reweight by fei) to buy fei from the market and bring its value back According to the information on the fei official website (https://app.fei.money/analytics), the next reweight is likely to occur at noon on April 6, Beijing time.
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3. Can the future of fei be stable?
As the latest algorithmic stable currency, fei has made great achievements. The liquidity of 2.6 billion US dollars alone is almost the same as that of DAI, which has been developed for many years. USDC still faces the problem of centralization. The decentralization of stablecoins is an inevitable trend, but the development of FEI is still facing a test. So far, although FEI's trading pairs have the best liquidity on uniswap, they have not The market force pulls its value back to the normal range of 1 dollar, and the negative premium from 1 dollar is too much, and the severe punishment mechanism will make it impossible for people to use it at all.
However, if excessive reliance on PCV pulls the price back, it will still cause people to sell fei when there is no need to be punished, which will cause a negative premium again, and start the reweight of PCV, forming a vicious circle and depleting the assets of PCV.
Fei has just been born, and the future direction is still difficult to judge, but if the negative premium cannot be changed for a long time and it cannot be used, it is necessary for the development team to make improvements at the protocol level.
