Stablecoins are a reasonable alternative for people who want to use crypto tokens for certain transactions but have some concerns about the extreme volatility of the crypto market. The stablecoins are usually pegged to a physical asset or another crypto token that helps with retaining its value over time.
FEI protocol is one of the leading stablecoins that enable users to take advantage of the blockchain industry without worrying about their investments.
What is FEI?
FEI is a decentralized stablecoin that uses an innovative technology called “Protocol Controlled Value” to maintain its value over time. FEI protocol also uses a Uniswap-based liquidity pool to keep the FEI token’s price close to the U.S Dollar. The users are required to lock their ETH tokens in the FEI/ETH liquidity pool to get their desired amount of FEI tokens.
FEI vs Other Stablecoins
As it’s mentioned, most stablecoins are pegged to U.S dollars. The companies need to maintain an equal amount of physical assets while issuing stablecoins. It doesn’t only affect the decentralized nature of the token but it also raises concerns about the platform’s reliability.
Some developers introduced algorithmic stablecoins to fix this issue. In this model, a crypto asset is used to maintain the value of the stablecoin. The significant drop in TerraUSD also raised concerns about this model because the stablecoin couldn’t maintain its value when a token holder sold a huge amount of TUSD tokens within a day.
In this situation, FEI appears as a useful solution because it’s directly backed by the FEI protocol. The FEI protocol uses liquidity to keep the token’s price at a fixed level if the price goes below the standard. Furthermore, it eliminates the need for dealing with a centralized authority.
FEI Protocol Brief History
FEI protocol was launched by Sebastian Delgado, Brianna Montgomery, and Joey Santoro in March 2021. Several major industry venture capital firms invested $19 million in this project during the initial coin offering. The team offered 100 million FEI tokens at a discounted price of $0.50 and up.
It played a vital role in integrating FEI into other Decentralized Finance protocols. The FEI token’s price was raised to $1.01 by the end of the discount phase. It means the users could get $1 worth of FEI tokens by investing $1.01. Thus, the FEI team managed to introduce the stablecoin with a large amount of ETH reserves.
How Does FEI Protocol Work?
FEI protocol uses two innovative mechanisms to smoothly run its operations.
Protocol Controlled Value
FEI uses a refined form of user-owned total value locking mechanism that is adopted by several other stablecoins. The total value locked model issues IOU whenever a user deposits some amount in the project. And it allows users to withdraw their funds whenever they want.
This kind of model can be a bit harmful to the project because the token’s value won’t sustain if a vast majority of people withdrew their funds within a short span of time. The price Controlled Value (PCV) model, on the other hand, permanently locks the user-deposited funds.
Thus, the team doesn’t have to worry about users withdrawing their funds at once. It ultimately helps them with exploring new ways to grow the project.
The PCV model withdraws 99% of the liquidity from Uniswap’s FEI/ETH LP position if the FEI’s price is going below the set value. Once FEI’s value has reached the fixed price, the remaining PCV is resupplied as liquidity.
Similarly, the PCV model starts issuing new FEI tokens if FEI’s price is above the fixed price. The production of new coins stops once the price reaches the set level.
The FEI protocol carries out this operation every four hours to maintain the price of the FEI token. Thus, the token holders can’t take advantage of the fluctuation in this project because the price of the FEI token remains constant.
However, when an investor withdraws funds from the project, a part of FEI tokens are burnt to maintain the price. However, the traders can take advantage of the price difference during the 4-hour time window. FEI protocol only creates or burns FEI tokens depending on the weightage of the FEI token every four hours.
FEI Tokenomics
FEI is an ERC-20 token designed to prevent the fluctuation of the crypto market. FEI token is pegged to the U.S Dollar. Thus, it enables users to store their assets in a decentralized environment. The users can also buy products and services using this token.
With a circulating supply of 424.9 million tokens, FEI has a market cap of $421 million. It ranks among the 100 best cryptocurrencies in terms of market cap. Unlike most cryptocurrencies, FEI has an unlimited supply because the PCV model needs to inject more tokens if the price is going above $1.
Conclusion
FEI is a decentralized stablecoin designed to tackle the problems that are found in existing stablecoins. It uses innovative technology (priced controlled value) to maintain the value of the stablecoin over time. FEI uses its ETH reserves to stabilize the coin’s value whenever its price goes below the set price.
Furthermore, it increases the FEI’s supply if the price goes above $1. If you need more information about how the FEI protocol works, feel free to get in touch with us.
