Partnered With:

New algorithm stablecoin FEI Protocol: the Protocol is coming online, the triple venture investors should understand first

Read this article in 9 Minutes

The team wants the community to be fully familiar with how the agreement works and the risks associated with it before deciding whether to participate.

The original author:FeiProtocol co-founder Brianna Montgomery

Easy and happy, Babbitt

FEI is highly scalable, decentralized and supported by reservesStable currency, it aims to satisfyDeFiWithout relying on centralised asset collateral. For the upcoming FEI Protocol start-up phase, the team wants the community to be fully familiar with how the Protocol works and the associated risks before deciding whether to participate.

Direct incentive

FEI agreements use direct incentives to penalize transactions that deviate from anchor pricing and reward transactions that move closer to anchor pricing, resulting in deflation and thus helping to adjust FEI supply.

新算法稳定币Fei Protocol上线在即，这三重风险你必须了解

Direct motivation is a powerful and amazing tool that you must understand deeply

Direct Incentive is a new model for DEFI, for example,UniswapThe FEI interface may show that the price to sell FEI is $0.98, but since this price deviates from the anchor rate, selling FEI at this point will burn an additional 4% of FEI stablecoins, making the actual price of the transaction $0.94. (Read more: Uniswap Incentive Sell/Burn). Note that the user cannot see the amount of burning through the Uniswap interface, but when executing a trade, the burning part is considered a slidpoint, so the slidpoint parameter setting of Uniswap indirectly prevents accidental large scale burning. Once the protocol is online, participants can access the FEI protocol app's transaction interface to determine any burn or reward conditions that might affect their transaction.

We recommend that participants use the FEI protocol applicationETH-FEI asset pairs are traded between each other to see the incentive amount.

Note that the burn penalty can be quite severe, selling FEI will result in a burn rate of up to 100% when the FEI price deviates from the anchor price by 10%, which means that if you sell FEI quickly during a period of high drop pressure, you may suffer a severe burn penalty, the FEI stability mechanism is designed to encourage long-term holding.

In other respects, direct incentives only apply to specific Uniswap ETH- Fei trading pairs, all othersexchangeThe transaction pairs and transfer behaviors are normal behaviors.

Collateral risk

At startup, the FEI protocol will only use the ETH as a reservecurrency, this design decision was taken because of the decentralized core tenet of the FEI protocol; however, fluctuations in ETH prices may lead to poor mortgage rates.

The white paper discusses the conditions under which collateral ratios continue to rise or fall as a result of selling pressure. In short, if demand falls faster than the amount of combustion captured by the direct incentive, the FEI agreement will reduce the collateral for that period. By using agreement controlled value (PCV) to buy and burn FEI, Reweights will intervene to restore the FEI price. In a serious crisis, FeiDAOIntervening may be needed to restore healthy mortgage ratios by minting the TRIBE token to burn FEI and recapitalizing it.

"If the value of ETH falls sharply and quickly, the system may not be able to function properly."

If this is the case, FEI DAO can take steps to diversify PCV by tapping into the joint curve of stabilizing decentralized assets such as DAI and RAI. In addition, FEI agreements are available through Yearn and the lending marketinvestmentThe opportunity to generate income, thus creating an additional collateral cushion.

Contract risk

OpenZeppelin has completed a 12-person week audit of the FEI protocol (the OpenZeppelin Audit Report), which identified five critical issues and three high-risk issues, and FEI Labs officials stated that fixes have been completed.

In addition, ConsenSys Diligence has conducted a secondary audit of key contract components of the FEI Agreement (ConsenSys Diligence Audit Report)

新算法稳定币Fei Protocol上线在即，这三重风险你必须了解

According to FEI Labs, the team has made a number of changes to the agreement after receiving the audit report. These changes include converting the staking contract from one written by the FEI core development team to one that is provenSynthetixStakingRewards contracts. Implementing changes to the simplicity of the agreementsecuritySex is important, and these changes are considered relatively low-risk, but are still reviewed by independent safety engineers.

However, an audit does not guarantee that the code is free of bugs and bugs, and Fei Labs officials say they will offer a bug bounty of up to $1 million to encourage white hats to submit bug reports.

In the event of a serious vulnerability report, the Guardian can suspend any risk contracts that do not have time to lock in, after which any fixes and functionality changes must be voted on and approved by the DAO. After a successful launch and a stable protocol, the Guardian will transition to multiple signatures held by the community in a few monthsThe wallet.