The new Decentral Finance (Defi) stablecoin project called Fei had some problems this week after the 1: 1 USD-pegged token fell well below its targeted value of USD 1. The Fei project was supposed to be similar to Maker DAO’s algorithmic DAI stablecoin and was backed by large venture capital firms.
The market price for the Fei protocol drops to $ 0.73 and the bid for stablecoin Fei drops to $ 0.136
On social media and forums, crypto advocates have discussed the Defi project called Fei after it lost its peg to the US dollar this week. Currently, a single Fei (FEI) is trading hands for $ 0.76 per unit, but the price has fallen below current exchange rates. Coingecko data shows that a single FEI has fallen to a market price low of $ 0.73 per token on April 7, 2021.
1 FEI = $ 0.136, @rleshner is down 80% from its bullish purchase price. I think a takeaway is that big names mean nothing. pic.twitter.com/xGiwKqUUON
– banteg (@bantg) April 7, 2021
However, the Fei Protocol’s bid hit $ 0.136 and crypto backers began talk about the situation. Avalanche manager Emin Gün Sirer noticed that the coin was depreciating significantly and talked a lot about the concept.
“FEI fell to $ 0.136. It should have taught everyone a few lessons about designing stable coins and possibly investing in crypto, ”said Emin Gün Sirer tweeted. FEI / TRIBE was an algorithmic stablecoin with two coins and a twist. The twist was flawed from the start and it should have been predictable that this idea wouldn’t work, ”he added.
Avalanche’s founder and CEO continued:
In a typical algorithmic two-coin stable coin, you have one coin, FEI, that tries to hold the pen while the other is in use [to] absorb the volatility. Algorithmic stablecoins work very well when the demand for the coin is so high that it is above the tenon: they simply mint more FEI to bring the price down on the tenon. The real challenge is what to do when demand lags and the price is low.
Not the first stablecoin to drop the hook
The greatest job of a stablecoin is to maintain its bond. If it doesn’t, it can be a disaster in the market. In the spring of 2019, Bitcoin.com reported on how the algorithmic stablecoin DAI struggled with its bond. Other popular stablecoins like Tether (USDT) and USDC fluctuate, but only by a few cents or so, either over or under depending on demand.
There have been other stable coin failures in the past, such as when investors with nubits (USNBT) lost money. The token remained pegged to the USD for some time after the launch until June 9, 2016 when it fell well below the dollar peg. Today, the so-called stablecoin nubits (USNBT) are only worth $ 0.22 per unit.
More recently, in November 2020, the OUSD stablecoin issuer Origin Protocol suffered a flash credit attack and the coin lost its peg. At the time of going to press, Coingecko statistics show that fei (FEI) has a fully diluted valuation of around $ 1.8 billion. Fei supporters and investors are confident that the $ 1 target will be set in a timely manner.
What do you think of the problems with the Fei protocol stablecoin and how did it lose its peg to the USD? Let us know what you think on this matter in the comments section below.
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