Detailed explanation of algorithm stablecoin FEI, Float, Reflexer mechanism and gameplay differences
Source: PANews
By Jiang Haibo
Title of the original article: A New Algorithm to Understand the Three Generals of Stable Coin Fei, Float and Reflexer
The stablecoin, Defi's underlying asset, has a market value of more than $50 billion and is still growing rapidly. As a branch of stablecoin, algorithmic stablecoin is expected to solve the problem of centralization of fiat coin collateral stablecoin, as well as the problem of low capital utilization rate of collateral stablecoin. However, there have been no very successful events at the track.
Last year's star algorithm stablecoin projects, AmpleForth (AMPL), Empty Set Dollar (ESD), Basis Cash (BAC/BAS), and Frax (FRAX/FXS), were mediocre. The AMPL remained at just under $1 for a long time, maintaining a small deflation. The ESD has basically gone to zero because the circulation is too large to remove the foam. Bonds with Basis Cash do not expire, which would make it harder to get back above $1. The mechanism is not perfect. Frax's ability to redeem $1 of assets and its ability to integrate with Defi apps like Curve have not kept mortgage rates down, but for now Frax remains one of the most likely algorithmic stablecoins to be deployed.
The old generation of algorithmic stablecoin projects that didn't make any headway have faded from view, 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 lot of attention even before it was officially launched, and the investment from well-known institutions such as A16Z, Framework Ventures and Coinbase Ventures has achieved a good publicity effect.
FEI Protocol believes that existing DEFI projects with Total Value Locked (TVL) are not sustainable and that they can only achieve high enough TVL if they can provide high rewards. However, there are many opportunities in the market, and there will be high-yield projects every day. The funds retained in the projects are not loyal, and are likely to be transferred to other projects. Alpaca Finance and Big Data Protocol, which have attracted high popularity in the market recently, are such examples. After the withdrawal of large funds, the platform currency was quickly sold off, which further prompted the further flight of funds, forming a vicious circle.
In contrast, FEI Protocol proposed a Protocol Controlled Value (PCV) model, in which the user's assets stored in the contract would be directly owned by the Protocol, and the user could not withdraw these assets, and the Protocol could use these assets more flexibly to keep consistent with the basic goal. The FEI Protocol uses these assets to keep FEI liquid and to achieve price stability.
Price stabilization mechanism
When FEI prices fall below $1 for a long period of time, anyone can trigger a pegged override to bring the price back up. The agreement will withdraw all the liquidity, use the retrieved ETH to buy FEI to the peg-price, the remaining ETH plus FEI to provide liquidity again, destroy the remaining FEI.
In addition to the initiative of the protocol, there are mechanisms that enable users to act spontaneously to anchor prices.
When the price falls below the pegged price, users who sell will receive an additional 4% loss, and users who buy will receive an additional 2% bonus.
Participate in the way
The creation stage will be the best period for users to participate in FEI Protocol to obtain algorithmically stable coin FEI and governance token TRIBE.
The creation phase of FEI Protocol is from 03:01 on March 23 to 03:01 on March 25, Beijing time, and the price of the joint curve is as low as $0.5 and as high as $1.01. FEI Protocol will also offer 10% of the TRIBE total to users who purchase FEI at this stage. All the ETH deposited by the user from the union curve will be used to provide liquidity for Uniswap ETH/FEI trading pairs, which belongs to the protocol itself and will not be taken away by the user.
In order to prevent being leapfrotted by "scientists" when providing initial liquidity for Fei-tribe transactions, FEI Protocol also allows users to choose to directly exchange the FEI they own in the creation allocation into the TRIBE, and users are free to choose a variety of exchange ratios. This is the atomic trade that accompanies the launch of the agreement and is unlikely to be jumped on by robots.
Participating in the FEI Protocol during the creation phase is a good option, although there are risks involved. You can buy it for more than $1, and sell it for less than a 4% loss. Because this project requires ETH participation, the price fluctuations involved in the settlement process will affect the number of FEI awarded.
Float Protocol
Unlike FEI Protocol, Float has no funding, is built by a group of anonymous researchers, and the distribution of tokens is more communal.
Float Protocol argues that during periods of monetary expansion, the purchasing power of fiat currencies is eroded by inflation, and it makes no sense to tie stablecoins to a particular country's fiat. There are two types of tokens in Float, stablecoin Float and a BANK that takes on the role of value stabilization and governance. Float is defined as a low-volatility currency with an initial target price of 1.618 with a golden ratio. Prices are not stable and can change depending on their own needs and the demand for cryptocurrencies in the vault. According to the official calculation, FLOAT's target price will fluctuate steadily even if the ETH price fluctuates wildly in 2020.
Float tokens are minted after two stages of BANK token distribution. The first phase began on February 8 and the second on March 22.
Stage 1 (first 6 weeks)
Users who have participated in the governance can use DAI, USDC and USDT to mine the BANK in the first stage, and the deposit limit of each token for each address is $10,000. This has worked well. Bank tokens have not been sold off, and stablecoin mining has more than doubled revenues so far.
Stage 2 (Weeks 7-8)
After the first phase, Bank tokens will be distributed to the wider community. At this stage, there will be no whitelisting restrictions and new pools of unstable coins will be added. The second phase will also carry out the liquidity mining of Bank-ETH to better discover the value of the Bank.
The initial coin of FLOAT
Eight weeks after the start of the BANK distribution, Flaoat coinage will begin, allowing users to buy FLOAT tokens with ETH and use 5% of the total amount of the BANK as an incentive to buy.
Float inflation versus deflation
The FLOAT is backed by the vault's reserve assets, and users cannot directly trade the FLOAT for the reserve assets from the protocol. In version 1, there is only ETH in the vault. Float inflation and deflation are determined by the measure of reserve adequacy by the time-weighted average price (TWAP) of Float and the target price. If TWAP is higher than the target price, the inflation will be carried out. Deflation occurs if the TWAP falls below the target price. The pattern of inflation and deflation is affected by the Vault Factor, which measures the adequacy of reserve assets. Vault Factor= ETH value locked in the Vault/FLOAT target price market value in circulation, if Vault Factor> 1, it means that the Treasury is in surplus; If the Vault Factor< 1, is in the red.
In the inflation phase, the arbitrageurs pay above the target price, below the market price, the ETH and the Bank buy FLOAT at the Dutch auction. If it is in surplus, all the parts except the target price are paid with Bank, which consumes more Bank. In case of loss, in addition to the target price, part of the payment will be made by ETH and part of the payment will be made by Bank to supplement more ETH for the Treasury.
In the deflationary phase, arbitragers sell Folat at below the target price and above the market price to the agreement in a reverse Dutch auction. In the case of surplus, the agreement will be paid to the user in ETH and the Bank will not be affected. In case of loss, the agreement shall pay with part of the Bank cast by ETH+ to reduce the expenditure of the agreement.
Participate in the way
Whitelist users directly participate in stablecoin pledge mining with stablecoin, and can participate in the subsequent stages at zero cost.
In the second stage, it uses its own tokens to conduct single currency pledge mining.
Bank tokens are purchased in the early stage to prepare for liquidity mining of Bank /ETH in the second stage. Bank will also have a high demand after the arbitrage in the third stage starts.
Participating in FLOAT arbitrage may lead to greater deviation between FLOAT price and target price in the early stage and more opportunities.
Reflexer
Reflexer is a project backed by a number of institutions, including Pantera Capital, Lemniscap, Paradigm, Metacartel Ventures, Divergence Ventures, Standard Crypto, The Lao, as well as The team members of Compound, A16Z, Synthetix, and Aave.
Compared with other algorithmic stablecoin, Reflexer is closer to MakerDao. On March 12 last year, due to the rapid decline of ETH price, many of Maker's debt positions were liquidated. Since then, in order to increase the diversity of mortgage assets, Maker added WBTC as DAI's mortgage assets. Then, the category of collateral assets was gradually extended to fiat backed stablecoins, which introduced counterparty risk for Maker.
Reflexer wants to create a modified version of the product, which can be understood as ETH with low volatility. Like the original DAI, RAI's collateral is only ETH, which is generated by overcollateralization.
The RAI does not anchor any currency, and the initial call price starts at Pi 3.14, reducing volatility through a number of parameters. As you can see from the official website, the redemption rate of RAI has been basically maintained around 0, which is the difference between the redemption price of RAI and the market price, so the recent price of RAI has not deviated significantly from the redemption price in the system.
Participate in the way
Because the mortgage assets in the RAI are redeemable, the risk is relatively low and suitable for a wider range of users to participate. The RAI can be used if there is a place where it can generate high enough returns.
When the FLX is released, users will be given backtracking rewards. Starting from March 8, this round of rewards will be distributed to users who cast RAI and offer Uniswap RAI/ETH fluidity. Both the coin and the fluidity must be met. Currently, RAI-ETH trading pairs are the third most liquid in Uniswap.
conclusion
From the above content, we can see that the current algorithm stablecoin is more inclined to contain the corresponding assets in the Treasury to support the price of the stablecoin, which is completely different from AMPL, ESD, BAC, etc., and the current algorithm stablecoin project is more transparent and more practical. Neither Float, which starts with a golden ratio of 1.618, nor RAI, which starts with a PI of 3.14, are anchored to a dollar, and can be seen as a low-volatility currency. FEI is anchored to $1, but the price may deviate from $1 by a large amount, but selling below $1 destroys 4% of the mechanism and can better bring the price back up. The threshold of participation in the algorithm stablecoin project is also gradually increasing. From the beginning of mining with stablecoin pledge to the present FEI fund is controlled by the agreement, and the participating funds cannot be redeemable, which requires more understanding of the project.
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