Recently, the words “escape” and “run” are often seen in the currency circle.
Shenyu posted a blog yesterday: “It was the trumpet that woke me up.”
Why do people in the currency circle want to escape? Fei Protocol, the algorithmic stable currency project, is the most pointed.
Some people have discovered the origin of Fei, Fei is a real existence in the world, it is the stone coin of Yap State in Micronesia. The stone coins used for land and house trading transactions have a diameter of 4 meters and a weight of up to 5 tons. Stone coins like this are difficult to carry around and are mostly stored in the open air. So some netizens joked: “So this is the reason why I can’t sell FEI?”
The ridicule revealed a trace of helplessness, just because he was trapped in FEI’s “water prison”. Uniswap price data show that since April 4, the price of FEI has been consistently below US$1, and the price once fell to US$0.76. The liquidity of the FEI-ETH pool in Uniswap dropped from the highest of US$2.6 billion to US$1.97 billion.
To make matters worse, FEI’s minting rewards have been closed. Users can not get rewards for participating in FEI mining. Selling FEI at the current price will inevitably lose money. When the collective “water” will appear to be a long way off.
When FEI has fallen into the current predicament, we have to start with the process of its creation.
The creation of the world, originally scheduled for March 23, Beijing time, was postponed to April 1, but it did not affect the enthusiasm for community participation. Within 24 hours of the creation of the world, 92,000 ETH participated, and 639,000 ETH participated in 3 days, and a total of 1.3 billion US dollars of FEI tokens were minted.
After the launch of the creation, the FEI-ETH liquidity pool brought Uniswap US$2.6 billion in liquidity, which not only became Uniswap’s largest liquidity pool, but also helped Uniswap’s liquidity reach a record high.
From the data point of view, FEI is about to lead a new wave of algorithmic stablecoins and become the newcomer of algorithmic stablecoins. But the whale’s departure after the creation of the world planted the seeds of FEI’s plight.
At 3:36 on April 4th, Beijing time, 36 minutes after the end of the creation period, a creation period participant who invested 3000 ETH successfully exchanged for 3650.7 ETH through Uniswap. For this reason, the participant set the Gas rate to 10001 Gwei and spent about 5 ETH in the miner’s fee to complete the transaction.
There are many types of whales, and whales eager to switch to ETH are the majority of the whales in the creation period. According to statistics from Dune Analytics, among the players who participated in the amount of more than 1000 ETH, about 60% did not choose Pre-swap, the purpose is to obtain TRIBE, and then change TRIBE to FEI, if conditions permit, to ETH. However, the price and burn mechanism of FEI make this operation difficult to achieve, especially the burn mechanism.
The burn mechanism is easy to understand. When FEI has a negative premium, selling FEI will destroy a certain amount of FEI, and the amount of burn is the square of the negative premium value. If the current FEI price is $0.95, then if you want to sell the FEI, then the value will be discounted by 25%. If the price of FEI is $0.9, then you sell FEI and lose 100% of its value, and you have to pay the Gas fee. Such a strict burn mechanism makes many people who want to sell lose their motivation to sell.
At around 7pm on April 7, the price of FEI on Uniswap dropped to US$0.9, and the burn volume reached 100%. At this time, Uniswap stopped the FEI trading pair trading to protect the rights and interests of FEI currency holders. The FEI “dungeon” has become airtight, and people trapped in the “dungeon” can only expect the price of FEI to return to an acceptable position.
And just the day before, Fei Labs announced that it would stop FEI’s casting rewards. The reason is that the team fixed a loophole found in Fei’s incentive calculation. According to Fei Protocol’s reward mechanism, if a user purchases FEI at a position below $1, he will receive a certain percentage of minting rewards.
This decision is an important reason for the rapid decline in FEI’s liquidity. As of now, the casting reward has not been restored.
Yesterday Fei Labs said via Twitter: In addition to stopping the casting of rewards, it also stopped the burn mechanism. The community can use more than $1 billion in PCV to support FEI and TRIBE. Closing the burn mechanism will also release selling pressure, help the price of FEI to rebound, and re-anchor the US dollar. In the future, we will support proposals that reward TRIBE holders.
This tweet was released around 7 o’clock, and the impact on FEI prices and trading volume was immediate. PCV injected liquidity into FEI’s liquidity pool, and the price of FEI quickly rebounded to around $0.99 in a short period of time. But the good times did not last long. The trapped investors quickly exchanged FEI for ETH and left the market, and the price of FEI immediately fell back to around 0.8 US dollars.
In order to reduce selling pressure and retain currency holders, Fei Protocol used reweight to make the FEI price anchored to $1, and used PCV to inject liquidity into Uniswap’s liquidity pool. However, reweighting and canceling the burn mechanism alone cannot completely solve the problem. For investors trapped in the “water prison”, the willingness to sell FEI for ETH is very strong. Fei Protocol needs to think of other ways to save itself.
Reaching a balance between “I really want to escape, but can’t escape” and “Stay” is an issue that needs to be considered inside and outside FEI’s “water prison” at this stage.
Author/ Translator: Jamie Kim
Bio: Jamie Kim is a technology journalist. Raised in Hong Kong and always vocal at heart. She aims to share her expertise with the readers at blockreview.net. Kim is a Bitcoin maximalist who believes with unwavering conviction that Bitcoin is the only cryptocurrency – in fact, currency – worth caring about.