What is Fei Protocol (FEI) | What is Fei Protocol token | What is FEI token
In this article, we’ll discuss information about the Fei Protocol project and FEI token
Fei Protocol ($FEI) represents a direct incentive stablecoin which is undercollateralized and fully decentralized. The goal of the Fei Protocol is to maintain a liquid market in which ETH/FEI trades closely to the ETH/USD price. FEI achieves this via a new stability mechanism known as direct incentives. Direct incentive stablecoins use dynamic mint rewards and burn penalties on DEX trade volume to maintain the peg. FEI uses Uniswap as its incentivized DEX at launch. Governance can add and update DEX integrations and other incentives as needed.
The Inspiration for Fei
Stablecoins are a staple of DeFi. Users want to access dapps like Compound and Aave without worrying about volatility. However, each existing stablecoin model has a critical fault. Fiat-collateralized stablecoins like USDC and USDT are centrally controlled. This represents a regulatory risk and a point of failure for apps wishing to be truly decentralized. Crypto-collateralized stablecoins like DAI have scalability issues due to capital inefficiency. In other words, generating crypto-collateralized stablecoins requires an excess of collateral. They also require demand for debt or leverage to grow. Seigniorage models like ESD and Basis Cash centralize supply expansion rewards. This creates an unfair distribution in the growth of the stablecoin. In addition, liquidity providers are incentivized to withdraw at the first sign of danger.
Fei Protocol was born in an attempt to solve all these issues. The inspiration for the vision of Fei Protocol comes from an ancient stone currency — Rai, or Fei, of the Micronesian island of Yap. We hope that the FEI stablecoin exhibits the same stability, simplicity, and ubiquity as its stone counterpart.
How FEI Supply Expands
The FEI stablecoin has an uncapped supply that tracks demand. FEI enters circulation via sale along a bonding curve. This curve approaches and fixes at the $1 peg. When new demand for FEI arises, users can acquire it by buying on the bonding curve. The price function will start low to reward early adopters for purchasing FEI. Fei Protocol will support the creation of bonding curves denominated in any ERC20. The launch will contain only a single curve denominated in ETH.
The mission of Fei Protocol is to create an entirely decentralized stablecoin. Therefore it is critical that no tokens issued by trusted third-parties (e.g. USDC, USDT, wBTC) be used as collateral on the bonding curve. This is a stance the development team hopes will be shared by the governance community post-launch.
The ETH bonding curve will have a target FEI supply for bootstrapping before fixing the price at $1. This target is known as Scale; reaching Scale will denote the end of the bootstrapping phase. Scale will be set to 250,000,000 FEI, to be large enough to merit integration with other DeFi protocols. We also believe it is small enough to hit within a short time frame to minimize the bootstrap period. Post-Scale, the bonding curve price will fix at a governance-able buffer above the peg. This price creates a ceiling throughout the ecosystem. Arbitrageurs can buy on the bonding curve and sell on secondary markets if the price is higher elsewhere.
Users cannot sell FEI on the bonding curve. Instead, the protocol retains the incoming ETH as Protocol Controlled Value (PCV). Fei Protocol deploys the PCV to create a liquid secondary market where users can sell FEI back into ETH. We will explore below how PCV supports the FEI ecosystem.
Protocol Controlled Value
Most DeFi platforms use a user-owned Total Value Locked (TVL) model. In these platforms, users receive an IOU and can withdraw assets at any time; lockups are increasingly common. Protocols can incentivize TVL via token distribution rewards. While this can lead to massive amounts of capital, it also creates the problem of mercenary capital: when liquidity is incentivized, DeFi platforms need to inflate and offer heavy rewards to maintain it. Deposited capital is then only loyal as long as the rewards are active. This is not sustainable long term as shiny new yield opportunities arise daily. There is a constant fear of rug-pulling when the rewards dry up and capital moves elsewhere.
Fei Protocol developed a Protocol Controlled Value (PCV) model to solve these issues. PCV is a subset of the concept of TVL, in which a platform outright owns the assets locked into the smart contracts. This is a stronger use case than the IOU common to most TVL applications, as the PCV is permanent. PCV gives the protocol more flexibility to engage in activities that are not profit-oriented. These activities can align with more fundamental goals, such as maintaining stability in the peg. As we have defined it, common use cases such as governance treasuries and insurance funds are types of PCV. Other possibilities include guaranteed liquidity or a price backstop for DeFi users. Unlike the IOU model, PCV is irrevocable. Governance tokens in a PCV platform accrue deeper value capture and corresponding responsibility.
User Controlled TVL approach vs a PCV approach to collateralization
Fei Protocol is the ideal application for generalized PCV. Bonding curves and other incentives fund a PCV pool that is approximately as large as the entire user circulating amount of FEI. It will initially allocate 100% of the PCV funded by the ETH bonding curve to a Uniswap pool denominated in ETH/FEI. The development team chose Uniswap due to the lower barrier to entry and higher level of familiarity for the average DeFi user. While Balancer and other alternatives have great value propositions, we feel that Uniswap is the right approach for v1. Governance can reallocate PCV to other platforms in the future if the use case is clear. The protocol mints and owns the FEI needed for this liquidity. This additional protocol-owned FEI is paired with each unit of FEI bought by users on the bonding curve. Therefore, the depth of this market liquidity should be on par with the total remaining circulating FEI. This approach has two key advantages over stability mechanisms that rely on external liquidity provision:
- Guaranteed Liquidity — FEI holders can rest easy knowing that no whale can pull out the protocol owned liquidity. It is funded by the bonding curve and put into the Uniswap ETH/FEI pair.
- Peg Reweights — In the event of extended periods below the peg, the Fei Protocol can reweight the Uniswap price back to the peg. It achieves this by executing the following atomic trade: 1. Withdraw all protocol owned liquidity, 2. Buy FEI with the withdrawn ETH to bring price up to peg. 3. Resupply remaining PCV as liquidity. 4. Burn the excess FEI. Any keeper can trigger a peg reweight when the price has been low for a certain period. The protocol rewards keepers with a FEI mint incentive.
PCV reweights of FEI/ETH Uniswap pool to peg price
Through governance, future use cases for PCV can be even more creative. The protocol can maintain a collateral balance in a lending platform such as Aave. It can then adjust interest rates in the FEI market by supplying and borrowing FEI tokens. Fei Protocol can even maintain balances in governance tokens of integrating platforms. It can leverage these tokens to contribute to the governance process throughout the ecosystem.
Bonding curve purchase of FEI with ETH PCV deployment
Direct Incentives
FEI is stabilized by a new mechanism we call Direct Incentives.
From the Fei Protocol white paper:
A direct incentive stablecoin is one in which both the trading activity and usage of the stablecoin are incentivized, where rewards and penalties drive the price towards the peg. In general this would include at least one incentivized exchange acting as a hub. All other exchanges and secondary markets can arbitrage with the incentivized exchanges. This helps maintain the peg throughout the ecosystem.
Fei Protocol achieves this goal by incentivizing Uniswap trading volume with mints and burns. These incentives apply directly to the trader’s balance, in proportion to the distance from the peg. This means that a larger sell incurs a larger burn. The protocol incentivizes traders via mint to return the price back up to the peg. The formulas used ensure that all volatility below the peg is net deflationary. This will help bring the supply down to the right level relative to the current demand.
Direct incentives to maintain peg price on incentivized exchange
The incentives only apply to trades when the spot price is below the peg. The side above the peg is taken care of by the arbitrage loop with the bonding curve.
Arbitrage loop maintaining price above peg
The direct incentive implementation of Fei Protocol is like a cousin of rebasing tokens (e.g. AMPL and YAM). It does directly operate on user balances, but only those of the users who actively engage in the incentivized behaviors. This has nice game theoretic properties when coupled with the protocol reweight price backstop. In the event of high FEI sell pressure, the sellers incur the associated deflation costs. Holders can rest confidently in the protocol backstopping the price if no trader restores the price. The long term ability to backstop is assisted by the deflation. These novel properties lead to a high fidelity peg for FEI.
Summary of the FEI peg maintenance dynamics and where they kick in
TRIBE and Fei Protocol Governance
Fei Protocol will launch with a fully decentralized DAO on day one. The TRIBE token controls the DAO. TRIBE holders can vote on the following actions among others:
- Adding new bonding curves in new tokens or adjusting price functions of existing curve(s)
- Adjusting the allocation of PCV for new incoming funding or existing PCV
The Fei Protocol DAO will be both powerful and governance-minimized. FEI stability does not require any active intervention by governance. The development team encourages mechanisms that are autonomous and algorithmic over those that are rigid and reliant on governance. We believe this governance-minimized approach creates a more predictable and efficient system.
The protocol allocates a portion of the TRIBE token to a FEI staking pool. Users can deposit FEI and receive a pro-rata percentage of the TRIBE drip into the pool. The development team and investors retain another portion. A percentage will be split between the Genesis Group and Initial DeFi Offering we discuss below. The remaining TRIBE stays in a treasury controlled by governance.
Genesis Group and Initial DeFi Offering
The earliest portion of the bonding curve will offer attractive prices for FEI. To mitigate frontrunning and unequal early distributions, Fei Protocol will include a “Genesis Period.” The Genesis Period will be a time period of 2–3 days in which early adopters can pool their ETH. This group will be known as the Genesis Group. Members of the Genesis Group earn a shared pro-rata percentage of the first bonding curve transaction. This is similar to the Hegic IBCO. Using this approach, access to the earliest FEI on the bonding curve will be open to all with equal opportunity. As an additional reward, the Genesis Group earns 10% of the total TRIBE supply pro-rata.
The Genesis Group completion will kick off an Initial DeFi Offering of the TRIBE token. The listing will be on Uniswap, denominated in FEI and TRIBE. The FEI for the IDO is minted by the protocol. The circulating FEI and TRIBE from the Genesis Group can be used in the IDO for efficient price discovery. The fully diluted valuation of TRIBE will be set to the same value as the amount of ETH raised in the Genesis Group. The Uniswap liquidity tokens for this IDO will be stored in a development fund. It will have linear vesting over 4 years to guarantee the liquidity for a sufficient period. The IDO allows for open price discovery and access to TRIBE immediately at the close of the Genesis Period.
As we get closer to launch later in Q1 2021, we will release more details on how to participate in the Genesis Group!
FEI and the Future of Stablecoins
As discussed above, the FEI Protocol has key advantages over existing stablecoin models. These advantages can allow it to become a core decentralized stablecoin in DeFi. It is designed to have irrevocable and deep liquidity, and strong mechanisms for maintaining the peg. All deflation costs are offloaded to traders selling below the peg, so holders can be confident in the long term $1 price. The funding controlled as PCV by the protocol is deployed to benefit the FEI ecosystem, not locked in a vault. The Genesis Group and Initial DeFi Offering allow for broad and fair access to TRIBE. All the benefits of inflation are socialized rather than centralized in the hands of an equity minority. We believe FEI presents a strong value proposition over alternative stablecoins, namely decentralization, capital efficiency, and fair supply expansion distribution. We are excited to share the Fei Protocol with the DeFi community.
The total initial supply of TRIBE is 1 billion. The token distribution breaks down as follows, with Team and Investors rounded to the nearest percent:
- 40% DAO Treasury
- 20% Initial DEX Offering (IDO)
- 13% FEI Core Team
- 10% Genesis Group
- 10% Staking Rewards
- 5% Investors
- 2% Grants
A critical consideration is that the community of TRIBE holders collectively maintains the ability to inflate the TRIBE supply. This may be of interest to the community for numerous reasons, including creating enhancements such as a backstopping feature for deflating in black swan scenarios, like the MKR debt auction feature of MakerDAO.
Liquidity Timeline
Time-lock for key TRIBE allocations
One of the biggest problems with DeFi projects today is the early access to liquidity. Investors and team members at some of the biggest projects have been getting unfathomably rich way too quickly. In startups, employees and investors are illiquid for many years and build towards a liquidity event.
Early developers and investors have agreed to lock-ups which are intended to incentivize them to continue to support the ecosystem along with new developers. This will also ensure prioritization of the Community having instant liquidity in TRIBE.
This is the way.
Genesis Group
Before launch, we will share a post that describes how to participate in the Genesis Group and IDO. The Genesis Group will receive 10% of the initial TRIBE supply. It is important to note that this allocation is distributed pro-rata (based on ETH) to all participants in the Genesis Group. If the total raised is 100,000 ETH and you put in 100 ETH, you will receive 0.1% of the Genesis Group TRIBE. This would be 0.01% of the total initial supply. This TRIBE is a bonus in addition to the FEI received from the bonding curve; see more in the IDO section below.
Initial DEX Offering (IDO)
The IDO will be a direct listing of FEI-TRIBE on Uniswap. It is available immediately at Genesis Period completion. The IDO will receive 20% of the initial TRIBE supply. As we discussed in the Fei Protocol Announcement, the FEI for this IDO is minted by the protocol at Genesis Period completion. The liquidity (Uniswap v2 LP tokens) for this IDO are time-locked and owned collectively by the Fei Core Team and investors. The timelock follows the same four-year linear vesting as the investor allocation discussed below. This allocation strategy allows for both deep TRIBE liquidity at launch and additional incentives for the development team to support the protocol. A win-win.
The listing price of the IDO is determined as follows: take the fully diluted valuation of TRIBE at Genesis and set it equal to the amount of FEI purchased on the bonding curve at Genesis. Therefore the 20% of the TRIBE in the IDO will be listed with the equivalent amount of FEI as 20% of the FEI purchased by the Genesis Group.
This FEI is minted by the protocol and not taken out of the Genesis Group’s stake. This sets the valuation at approximately a multiple of 1x on the ETH Protocol Controlled Value (PCV) raised in the Genesis Group. This price is used as a security floor on attackers being able to 51% attack Fei Protocol to withdraw all of the PCV. As a refresher, PCV refers to the assets that are algorithmically owned and deployed by Fei Protocol to help support the peg.
IDO Pre-Commitment
An important concern brought up by the Community is the ability of bots to front-run the IDO at the expense of prospective investors. We are proud to announce a feature enhancement to the Genesis Group functionality to address this concern! Genesis participants can “pre-commit” their FEI from the bonding curve to go straight to the IDO to purchase TRIBE at Genesis completion. As long as you are in the Genesis Group at any time, you can be the first purchaser on the IDO before any bots get a chance! The pre-commit feature allows you to commit any percentage of your stake in Genesis.
To illustrate the pre-commit feature, let’s say you personally have 1% of Genesis ETH staked and pre-commit half of it. Now the Genesis Group closes with enough ETH to purchase 100m FEI on the bonding curve. Without the pre-commitment, you would be entitled to 1m FEI and 1% of the Genesis TRIBE. With the pre-commitment, you get 500k FEI and the remaining 500k goes to the IDO to purchase TRIBE.
All pre-committed FEI get the same TRIBE price and the very first transaction on the IDO.
Staking Rewards
Fei Protocol will set aside 10% of the TRIBE supply for staking rewards. The staked asset will be FEI-TRIBE Uniswap LP tokens. This provides a way for users to deploy their FEI post-Genesis to earn more of a share in Fei Protocol governance. It also increases the liquidity of TRIBE for potential buyers.
The staking rewards will follow a linearly decreasing schedule over two years. The staking contract was specially designed by the Fei Protocol team to be completely fluid with no epochs or lockups. We will publish another post on Fei Protocol staking and its novel mechanisms before the Genesis
Period.
DAO Treasury
The remaining TRIBE holders control the DAO Treasury with 40% of the initial supply. The rationale behind such a large treasury is for two main reasons. First, we as the development team feel that the Community will be great stewards and partners with us when deciding where best to allocate these TRIBE tokens. Second, we want to seriously prioritize ways to distribute governance into the hands of users in a non-capital dependent way. The Genesis Group and IDO, while designed to be fair in a proportional way, still favor users with more capital. We feel an appropriate balance between capital dependent and non-capital dependent rewards will create a robust and incentive-aligned Community.
Fei Core Team
We care about attracting people to the protocol who think long-term. That is why we are back-weighting the distribution of tokens to the team. Approximately 13% of the initial TRIBE supply belongs to the Fei Core Team.
These tokens are subject to 5-year back-weighted vesting. Team members receive in each of the 5 years 10%, 15%, 20%, 25%, and 30%, respectively. We want to be meaningfully incentivized to continue supporting this protocol for the long-term, and voluntarily chose this vesting schedule to put our money where our mouths are. We are looking to set a new standard in the DeFi space by encouraging long-term alignment.
Almost half of this allocation is earmarked for future core team members! We are always looking for more amazing and talented people to work with. If you are interested, we welcome your DMs via our Twitter or Discord.
Note: This vesting and distribution will be controlled by the company, not the smart contract, for code simplicity and accounting purposes. The contract vesting follows the 4-year linearity of the investor allocation.
Investors
We feel strongly that the right partnerships are critical to the long-term success of the protocol. The Fei Core Team raised funding ahead of Genesis to fund extensive security audits and recruit top tier talent for the protocol. We are fortunate to have a set of world-class investors who are aligned with our vision for Fei Protocol. They are ready to help with mechanism design, regulatory conversations and lobbying, and liquidity provision right alongside the Community.
We want to clearly demonstrate that the Community and protocol success are our top priorities with this token distribution. Investors are subject to a four-year linear lockup where the Community gets immediate liquidity.
The Community directly receives twice as many tokens at Genesis as investors and has access to 6x as many if including the IDO. If the Community does not have conviction in the project’s future, then they should be able to exit before the core team and investors — not the other way around.
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How and Where to Buy Fei Protocol (FEI)?
Fei Protocol is now live on the Ethereum mainnet. The token address for FEI is 0x956F47F50A910163D8BF957Cf5846D573E7f87CA. Be cautious not to purchase any other token with a smart contract different from this one (as this can be easily faked). We strongly advise to be vigilant and stay safe throughout the launch. Don’t let the excitement get the best of you.
Just be sure you have enough ETH in your wallet to cover the transaction fees.
You will have to first buy one of the major cryptocurrencies, usually either Bitcoin (BTC), Ethereum (ETH), Tether (USDT), Binance (BNB)…
We will use Binance Exchange here as it is one of the largest crypto exchanges that accept fiat deposits.
Once you finished the KYC process. You will be asked to add a payment method. Here you can either choose to provide a credit/debit card or use a bank transfer, and buy one of the major cryptocurrencies, usually either Bitcoin (BTC), Ethereum (ETH), Tether (USDT), Binance (BNB)…
Step by Step Guide : What is Binance | How to Create an account on Binance (Updated 2021)
Next step
You need a wallet address to Connect to Uniswap Decentralized Exchange, we use Metamask wallet
If you don’t have a Metamask wallet, read this article and follow the steps
☞What is Metamask wallet | How to Create a wallet and Use
Next step
Connect Metamask wallet to Uniswap Decentralized Exchange and Buy FEI token
Contract: 0x956F47F50A910163D8BF957Cf5846D573E7f87CA
Read more: What is Uniswap | Beginner’s Guide on How to Use Uniswap
The top exchange for trading in FEI token is currently Uniswap (V2), Gate.io, MXC.COM, LBank, and AEX
Apart from the exchange(s) above, there are a few popular crypto exchanges where they have decent daily trading volumes and a huge user base. This will ensure you will be able to sell your coins at any time and the fees will usually be lower. It is suggested that you also register on these exchanges since once FEI gets listed there it will attract a large amount of trading volumes from the users there, that means you will be having some great trading opportunities!
Top exchanges for token-coin trading. Follow instructions and make unlimited money
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Find more information FEI
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🔺DISCLAIMER: Trading Cryptocurrency is VERY risky. Make sure that you understand these risks if you are a beginner. The Information in the post is my OPINION and not financial advice, is intended FOR GENERAL INFORMATION PURPOSES ONLY. You are responsible for what you do with your funds
If you are a beginner, learn about Cryptocurrency in this article ☞ What You Should Know Before Investing in Cryptocurrency - For Beginner
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Wallet address:
BTC : 1FnYrvnEmov2w9fovbDQ4vX8U2dhrEc29c
USDT : 0xfee027e0acfa386809eca0276dab286900d75ad7
DOGE : DSsLMmGTwCnJ48toEyYmEF4gr2VXTa5LiZ
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