In the pursuit of stone currencies that are generally stable, simple and universal, can FEI Protocol make waves on the stablecoin track?

A Pit of Poplar Trees

A poplar tree

On January 4, OCC (the office of the comptroller of the currency) to encourage positive remarks banking system adopts a stable currency, is already means that a stable currency themselves crazy issue after 2020 and DeFi under the background of the surge in demand, has entered a new stage of development, then either in the depth of the binding to use encryption world, or "broken ring out" cross-border payment process, will play a more important role.

However, the dizzyingly fast iteration of the Defi world also demands a higher standard for the stablecoin project. Despite the name "stable", the stablecoin track has seen several rounds of innovation in order to meet a wider range of usage scenarios, and many solutions have their own features:

The anchored fiat stabletoins represented by USDT appeared at the earliest stage and have the largest market share at present, but they gained their own credit guarantee at the expense of centralized issuers and accepting supervision.

Although the asset-backed stablecoins represented by DAI have achieved decentralization to some extent, they cannot avoid the ensuing over-mortgage and the possible debt liquidation problem under extreme market conditions (see 3.12).

Stable currency even though the latest fire algorithm only through market supply and demand to establish a monetary system, the maximum extent, realized the "decentralization", but is the "spiral deflation and inflation" volatility is too big, and the allocation mechanism to ridicule, so far has not been true stability, more like a gambling game based on call options.

In view of this, decentralized Fei, stable currency agreement Protocol announced in the first quarter in the form of a decentralized autonomous (DAO), in order to realize the extensibility, high liquidity, equity and low volatility, the stability of the currency design to solve the algorithm of the existence of the stable currency volatility and existence problems and mortgage stable currency reward concentration excess mortgage and scalability issues.

What is the FEI Protocol?

The FEI Protocol supports the creation of a decentralized, extensible, and fair etherium-based stablecoin, taking its name from the famous stone currency (FEI) on the island of Yap -- hoping that the FEI will demonstrate the same stability, simplicity, and universality as the stone currency.

FEI has adopted a new stabilization implementation mechanism called Direct Incentives, which is more capital efficient, fairly distributed, and fully decentralized. The agreement uses the asset values controlled by the agreement (PCV, new concept, more on this below) to maintain liquidity in the secondary market, and to achieve FEI linked issuance and value stability.

How does the FEI Protocol work?

FEI supply is based on user demand, there is no upper limit, it will follow the joint curve, in the form of sales into circulation.

The union curve keeps getting closer and finally stays fixed at $1, so when FEI has new needs, users can purchase them by combining the union curve, and the initial price is less than $1 to reward users who buy FEI early.

FEI Protocol will support the creation of federated curves in any ERC20 in the future, and for the time being this release will include only one curve in ETH denominations, with one note:

FEI Protocol's vision is to create a completely decentralized stablecoin solution. Therefore, tokens issued by trusted third parties (such as USDC, USDT, WBTC) cannot be used as collateral on the union curve (which is significantly different from DAI). At the same time, in order to ensure a fair start, FEI Protocol will include a two - to three-day "creation period" in which early adopters will be able to place their ETH into a pool (the early adopter Group will be called the Genesis Group, with incentives for the TRIBE token mentioned below) during this joint curve release.

Specifically, the ETH joint curve will be in the "Bootstrap" phase -- the FEI supply scale will be 250 million pieces to meet the integration requirements with other DEFI protocols -- before the price is approaching and finally fixed at $1.

After the "Bootstrap" phase, the joint curve price will be fixed in a governable buffer and set an upper limit. Arbitrageurs can buy on the union curve and sell on the secondary market, while users cannot sell FEI on the union curve.

Instead, FEI Protocol saves the received ETH as a Protocol controlled asset value (PCV), and FEI Protocol deploys the PCV to create a mobile secondary market where users can sell FEI as ETH.

A New Stabilization Mechanism Design -- Protocol Controlled Asset Value (PCV)

Instead of TVL (Total Vape Locked), which DEFI players are most familiar with, FEI Protocol uses PCV (Protocol Controlled Value) as the underlying stabilization mechanism for FEI.

As far as FEI Protocol is concerned, the mechanism design of traditional DEFI Protocol is IOU (I Owe You), that is to say, users who deposit assets are equivalent to making IOUs with DEFI Protocol. Users can not only get the corresponding distribution reward of DEFI tokens, but also withdraw the assets they deposit at any time.

Although it is possible the size of the growth solutions - does bring TVL surge, but also creates the paradox of speculative capital: when had abundant liquidity to inspire, DeFi platform of assets (TVL) do rapid expansion, but this is not sustainable, because money itself is not "lock" in the true sense, once the new high yield opportunity arises, or the incentive in the original agreement after certain TVL size cannot be maintained, the money transfer quickly and flexibly.

So FEI Protocol has designed a Protocol controlled asset value (PCV) model to address these issues, which is a subset of the TVL concept, essentially referring to assets directly owned by the DEFI Protocol that are completely "locked" into the DEFI Protocol. In FEI Protocol's view, the PCV will give the DEFI Protocol greater flexibility to pursue non-profit activities and be aligned with the long-term goals of the project.

Simply put, TVL allows the user to control the value of the corresponding assets. In this way, a certain amount of profit must be guaranteed -- otherwise, users will simply withdraw their assets, such as AVE, MakerDAO, Compound, etc. The PCV protocol controls the value of the assets, which gives the DEFI protocol more flexibility to engage in non-profit activities such as managing treasuries, insurance funds, guaranteeing liquidity, or providing price support to DEFI users.

In short, unlike IOUs under TVL, Chinese users in PCV cannot withdraw the assets they deposit at any time. Of course, governance tokens in PCV can accumulate deeper value capture and assume corresponding responsibilities.

FEI Protocol is the ideal application for PCV. The joint curve and other incentives fund the PCV pool, which is approximately equal to the FEI's entire user flux, and which allocates 100% of the PCVs funded by the ETH joint curve to the ETH/FEI Uniswap pool (not precluding the reallocation of PCVs to other platforms in the future).

Uniswap has the FEI required for this liquidity and is paired with each FEI purchased by the user on the union curve. Therefore, the depth of liquidity in this market should be equal to the total amount of remaining circulation FEI. This approach has two key advantages over stabilisation mechanisms that rely on external liquidity provision:

Guaranteed Liquidity - FEI holders can rest assured that no whale will be able to drain the liquidity the agreement has. It is supported by the joint curve and is put into the Uniswap ETH/FEI pair;

Anchoring adjustments - If the price is at a "discount" for a long period of time, FEI Protocol can re-anchor adjustments through Uniswap, which it does by performing the following atomic trades:

Withdrawal of all liquidity held by the agreement;

FEI is purchased with withdrawn ETH to raise the price to the anchored target.

Supply surplus PCVs as liquidity;

Destroy the extra FEI. When the price is low for a certain period of time, any guardian can trigger the hook to rebalance. The agreement rewards the Guardians with Fei Mint.

At the same time, with the help of the governance mechanism, the future use scenario of PCV can be more imaginative: it can maintain the collateral balance in the lending platform such as AVE, it can adjust the market interest rate by offering and borrowing FEI tokens, and it can even make use of these governance tokens to contribute to the governance process of the whole ecosystem.

How to design the "direct incentive" mechanism of FEI Protocol?

FEI has adopted a new stability realization mechanism of "direct incentives" : direct incentives are actions that motivate stablecoin trading activity and stablecoin use, with rewards and penalties that push prices toward anchored targets. Typically this would include at least one incentivized exchange as a hub through which all other exchanges and secondary markets could arbitrage, helping stablecoin to maintain a link throughout the ecosystem.

FEI Protocol promotes the anchoring target by imposing direct price rewards and penalties on both Mint and Burn ($1, the same below) in conjunction with the currency price. This setting is intuitive to the user and is proportional to the anchored price distance -- as shown in the figure below, selling the FEI token at a discount results in a greater loss, while buying provides a direct gain, and FEI Protocol uses this method to stabilize the price near the anchored target.

If there is a significant price premium, then the joint curve can also be used to profit, and this will naturally give the currency an incentive to move back to the anchor price when it is on the side above the anchor target.

That Fei agreement directly affects only actively participate in the incentive behavior of users, if Fei, sales pressure is very big, the seller should bear the corresponding cost of deflation, and restore the price if there is no traders, holder can safely use also support the price agreement, because long-term support ability supported by deflation, these new features lead to Fei, anchor driven basic can real time stay in arbitrage.

Tribe token is?

FEI Protocol will start with a fully decentralized DAO from the start, and the TRIBE token will be the governance certificate for the DAO. Tribe Holders may vote on the following governance proposals:

Add a union curve to a new token or adjust the price function of an existing union curve

Adjust PVC allocations to accommodate new funds or existing PCVs

FEI Protocol's DAO follows the principle of governance minimization and does not actively seek any active intervention from governance. Instead, it adopts more autonomous and algorithmic mechanisms to avoid rigidity and excessive reliance on governance.

FEI Protocol will also allocate a portion of the Tribe token to FEI betting pools, which users can deposit into FEI, and distribute the Tribe on a pro ratie basis, with the development team and investors keeping the other portion. The team will then also discuss assigning a percentage between the Genesis Group and the original Defi product, with the rest of the Tribe kept in the Treasury controlled by the DAO.

Genesis Group's Tribe Award

Genesis Group members will receive a share of the Tribe in the initial Union Curve transaction similar to the Hegic IBCO, which will open the earliest FEI sales on the Union Curve to all with equal opportunity, and as an additional bonus, Genesis Group will earn 10% of the Tribe's total supply.

Completion of Genesis Group will initiate the initial offering of TRIBE tokens, which will be offered simultaneously by FEI and TRIBE at Uniswap, and the fully diluted valuation of TRIBE will be set at the same value as the amount of ETH raised by Genesis Group. And the tokens will be stored in a development fund, which will be linearly unlocked over four years to ensure sufficient liquidity.

Mechanism design "new" to the flying FEI Protocol, what kind of waves will it bring to the stablecoin market? Let's wait and see.

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