Hard to Fly (FEI)

Recently, the words "escape" and "run" are often seen in the currency circle.

Shenyu posted on her blog yesterday: "What woke me up was the sound of the trumpet to escape."

Why do people in the currency circle want to escape? The algorithmic stablecoin project Fei Protocol pointed the most, and some people even posted this picture on Weibo.

"Good guy, isn't this a 'water dungeon'? It turned out that I was hinted at a long time ago."

Some people have found out the origin of Fei. Fei is a real thing in the world, and it is a stone coin from Yap, Micronesia. The stone coins used for land and house transactions can be up to 4 meters in diameter and 5 tons in weight. 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?"

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A trace of helplessness was revealed in the ridicule, just because he was trapped in FEI's "water prison". Uniswap price data shows that since April 4, the price of FEI has been continuously below $1, and the price once fell to $0.76. The FEI-ETH pool liquidity in Uniswap dropped from a peak of $2.6 billion to $1.97 billion.

To add insult to injury, FEI's minting rewards have been shut down. Users will not be rewarded for participating in FEI mining, and they will inevitably lose money if they sell FEI at the current price.

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FEI has fallen into the current predicament, and it has to start from the process of genesis.

The genesis launch, which was originally scheduled for March 23, Beijing time, was postponed to April 1, but it did not affect the enthusiasm of the community in the slightest. 92,000 ETHs participated within 24 hours of Genesis, and 639,000 ETHs participated within 3 days, minting a total of 1.3 billion US dollars of FEI tokens.

After completing the genesis launch, the FEI-ETH liquidity mining pool brought Uniswap $2.6 billion in liquidity, not only becoming Uniswap's largest liquidity pool, but also helping Uniswap's liquidity hit a record high.

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From the data point of view, FEI is about to lead a new wave of algorithmic stablecoins and become an upstart in algorithmic stablecoins. But the departure of the whales after Genesis kicked in sowed the seeds for FEI's plight.

At 3:36 on April 4, Beijing time, that is, 36 minutes after the end of the genesis period, a genesis participant who invested 3,000 ETH successfully exchanged 3650.7 ETH through Uniswap. For this reason, the participant set the Gas rate to 10001 Gwei, and spent about 5 ETH as a miner's fee to complete the transaction.

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There are many kinds of whales, and the whales eager to switch to ETH are the majority of the whales in the creation period. According to statistics from Dune Analytics, about 60% of players with a participation amount of more than 1,000 ETH did not choose Pre-swap. The purpose is to obtain TRIBE, and then replace TRIBE with FEI, or ETH if conditions permit. But FEI's price and burn mechanism 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 destroyed is the square of the negative premium value. If the current FEI price is $0.95, then if you were to sell FEI, the value would be discounted by 25%. If the price of FEI is $0.9, then if you sell FEI, the value will be discounted by 100%, and you will have to pay Gas fees. Such a strict burn mechanism makes many people who want to sell lose the motivation to sell.

At around 7:00 p.m. on April 7, the price of FEI on Uniswap dropped to $0.9, and the burning volume reached 100%. At this time, Uniswap stopped trading FEI trading pairs to protect the rights and interests of FEI holders. The FEI "water prison" has become airtight, and people trapped in the "water prison" can only hope that FEI prices will return to an acceptable position.

And just the day before, Fei Labs announced that it would stop FEI’s minting rewards. The reason is that the team fixed a bug found in the Fei incentive calculation. According to the reward mechanism of Fei Protocol, if the user purchases FEI below $1, he will get a certain percentage of minting rewards.

This decision is an important reason for the rapid decline in FEI's liquidity. As of now, minting rewards are still not restored.

Fei Labs tweeted yesterday: In addition to stopping casting rewards, it also stopped the burn mechanism. The community can mobilize over $1 billion in PCV to support FEI and TRIBE. Closing the burn mechanism will also release selling pressure, helping FEI prices recover and re-anchor to $1. In the future, we will support proposals that reward TRIBE holders.

The tweet was posted around 7 and the impact on FEI price and volume was immediate. PCV injected liquidity into FEI's liquidity pool, and the price of FEI quickly rose to around $0.99 in a short period of time. But the good times didn't 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.

In order to reduce the selling pressure and retain the currency holders, Fei Protocol has used its brains. It uses reweight to anchor the price of FEI at $1, and uses PCV to inject liquidity into Uniswap's liquidity pool. But relying on reweight 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.

Achieving a balance between "I really want to escape, but I can't escape" and "stay" is an issue that needs to be considered inside and outside the "water prison" of FEI at this stage.

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