- The latest DeFi project Fei is an algorithmic stablecoin
- Since its birth, Fei is below parity of the U.S dollar
- The Fei team discloses the method of “Reweighting” to bring back the value of the token
The decentralized financing protocols have been a major highlight due to their advanced security provisions. However, the risk associated with an investment in the same can prove to be troublesome if not successful.
One such illustration is of the Fei algorithmic stablecoin. Due to a bug in its launch, the Fei has been below parity to the U.S dollar. The $ 1.2 billion project has further deteriorated the problem of its keepers who wish to sell it.
The Intention behind its launch
The working of an algorithmic stable coin is based on sing incentives for keeping the coin in parity to a fiat currency as that of the U.S dollar in the case of Fei. Using the carrot and stick approach the one who tries to sell it below is fined and rewarding the ones buying it. This creates an incentive leading people to buy and bring its value back.
Emin Gün Sirer a Turkish-American computer scientist known for SPIN however opposes this incentive system of Fei as explained that a fall in demand and supply, when the price is low offered by Fei, can further create a threat to the coin’s value.
Since its launch on 4th April 2020, the coin has struggled to move back to its fiat currency’s mark. Due to a fall in its value as a result of a failed incentive system, it has become even harder to sell the coin. The price has taken such a deep dive now even if someone tries to sell it the penalty absorbs all the receivable income.
Disabled coin squad
The Fei team later disclosed that its bug bounty program had warned about the risk-reward ratio. The team also decided to eradicate mint rewards which were offered for buying Fei, howsoever this resulted even in an awful reaction leading to a higher fall in the token price.
The overcollateralized Fei can recover its value using the method of Reweighting claims the team but with $1.2 billion on the verge, nothing can be promised.