What if Fei (FEI)?
Fei USD (FEI) is an algorithmic stablecoin developed by Fei Labs. It’s an ERC-20 token, meaning that the FEI price is always pegged by the US dollar. The FEI token uses a unique mechanism known as Protocol Controlled Value (PCV). It’s described as a scalable DeFi-native stablecoin protocol.
Who Developed Fei?
The Fei Protocol was co-founded by Joey Santoro, Sebastian Delgado, and Brianna Montgomery. Santoro is a software engineer and the CEO of Fei Labs. Delgado is a software engineer who’s also worked with data engineering at Uber. Montgomery is the Business Lead at Fei Labs with prior experience in this role at ConsenSys.
The idea to develop the Fei Protocol arose from the lack of practical utility of crypto. Many stores and services, both brick-and-mortar and digital, do not accept cryptocurrencies as a payment method. Users are required to convert their crypto assets to fiat currency, often with unfavorable exchange rates, leading to high transaction costs.
The goal of FEI coins is to act as a volatility-free asset that can be exchanged for the US dollar at a 1:1 rate. It offers scalability and complete decentralization.
The protocol was officially launched in March 2021 and raised $1.25 billion. At the time, it was the largest token launch for any Ethereum-based DeFi protocol. Soon after its launch, in April, the incentive mechanism malfunctioned due to several bugs that had been undiscovered, and the token briefly lost its peg, with the FEI price dropping to $0.70.
However, once the system vulnerabilities were discovered, the peg was restored to the 1:1 rate with the USD in May. The FEI price has remained stable and successfully maintained by the algorithm. This means that the asset experiences little to no volatility, particularly compared to most non-stablecoins in the crypto market.
How Does Fei Work?
There is no maximum supply set for Fei tokens, as the asset is a stablecoin. Instead, its supply depends solely on its collateral backing. As a stablecoin, it maintains a consistent value where the Fei USD price is equal to the USD. The supply is automatically burned and minted to avoid over- or undervaluation of Fei USD.
The Fei USD crypto protocol uses the Protocol Controlled Value (PCV) mechanism. The PCV tokens are owned by the protocol, from which users can purchase them. The amount that was purchased turns into Protocol Controlled Value. This mechanism provides FEI with liquidity and aims to encourage mass adoption of the stablecoin.
The main goals of deploying Protocol Controlled Value are:
- Ensuring the stability of the FEI:USD peg;
- Providing liquidity and utility to FEI and the protocol’s governance token, TRIBE;
- Enable yield farming.
While FEI is the primary token, it’s not used for governance purposes. Instead, the decentralized autonomous organization (DAO) uses the TRIBE token. The Tribe DAO ensures that the network remains fully decentralized. Unlike Fei USD, the governance token is not a stablecoin. Therefore, the FEI price for TRIBE can vary based on the exchange rate.
Tribe DAO determines the course of the protocol and the community as a whole. In late 2021, the DAO held a vote on the protocol’s merger with Rari Capital. The community voted in favor of the proposal, leading to one of the biggest DeFi mergers in the history of crypto.