The launch of the Ethereum-backed Fei stablecoin provided nearly $ 1 billion in ETH at the time of its creation. However, for some liquidity providers, the launch did not go as planned.
The protocol that kicked off the Genesis event on April 1 introduced a stable currency, partly powered by Ethereum, that uses correlation curves along with direct incentives to maintain proper peg. These direct incentives punish price fluctuations that lead to deviations from good deals and bonuses that lead to lower prices.
Messari researcher Ryan Watkins noted a formation event that included pressure from liquidity providers. More than $ 1 billion has been credited to Ethereum thanks to this protocol mechanic.
He noted that most early investors would liquidate in order to get ETH back and make money, Watkins said: “The problem with the FEI at the moment is that most people want to sell it for ETH, but that requires serious fines. Finally, the Fei will return the weight to bring the FEI back to a Wedge setting, but what next? There is no real demand for the FEI and most of them are still looking for results. ”
However, liquidation penalties are tied to a direct incentive mechanism that uses a dynamic fire system to influence price. The protocol explained:
“This means that if you need to sell the FEI at short notice during a period of high selling pressure, you may incur a severe burn penalty. FEI stability mechanisms aim at long term storage. ”
The researcher added: “I believe that many of the people who participated in the show were surprised at the impossibility of replacing the International Equestrian Federation with its guarantees.”
The FEI will have an uncertain supply that tracks demand, with coins traded through sales along a correlation curve near the $ 1 stick.
The protocol uses a concept called Controlled Value Protocol (PCV), which means that when users deposit collateral, capital is owned and managed by the protocol so that only cash cannot be withdrawn. This makes it more decentralized than other coins in the stack like Tether, USDC, or BUSD.
To launch the Genesis event, the protocol allowed users to subtract the FEI from the ETH correlation curve with a starting discount of $ 0.50. The supply-driven growth rate will lead to a stable peg when sufficient collateral is placed.
The Genesis Group was formed as an early follower and investor to participate in the launch. The start-up will also include resetting a control code called TRIBE. On April 1, protocol co-founder Sebastian Delgado tweeted:
“In the first two hours of the Genesis @ feiprotocols protocol, enough ETH was raised to reach the $ 100 million target traded by the FEI.”
However, it did not end there, and by April 4, $ 1 billion was entered into the ETH protocol, when the FEI proposal rose to 2.5 billion. Those chasing quick money and air crashes now have no choice but to keep the FEI until it gets back to the point.
Watkins also noted that the launch also pushed Uniswap (where the FEI / ETH pair was traded) to $ 8 billion in liquidity.