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Golden Observation 丨 Stablecoins are unstable? The story behind investors selling FEI



Jinse Finance Blockchain, April 16 News Fei Protocol, a stablecoin project supported by many mainstream venture capitalists, hopes to build a stablecoin anchored 1:1 with the U.S. dollar and create a stablecoin protocol that will directly use its token Bitcoin to buy assets instead of using them as collateral for loans. However, just a week after its launch, the price of FEI could not be accurately anchored to $1. According to data from Coingecko, the price of FEI has been falling sharply since April 7, and even hit an all-time low of $0.734329, a drop of more than 25%. At present, it seems that FEI's goal has not been achieved, which can be described as a bad start. Its team seems to have underestimated the market participation. Not only that, many people who "jumped into" the project in a hurry did not have a deep understanding of Fei's "direct incentive" method of price stability. But this actually shows that any newly launched decentralized finance (DeFi) protocol is not the only way to "easy money". Judging from the previous situation, retail investors have realized that they must enter the market more cautiously. It is easy to make mistakes in the encryption market if you are too eager for quick success instead of focusing on long-term development goals. Golden Evening News| List of important news on the evening of June 25: 12:00-21:00 Keywords: Austria, Monaco, Wirecard, European Union 1. Austrian regulators issued warnings to four financial companies, two of which provided digital currency trading services; 2. Opinion: The encrypted data bill proposed by the Republican Party of the United States will endanger the security of ordinary users; 3. The Bank for International Settlements: The private institution’s stable currency proposal is not a key factor in promoting the central bank’s CBDC issuance; 4. Monaco began to approve the security token financing plan to support Government environmental and social governance projects; 5. Deribit holds about 63% of the open contracts and occupies a dominant position in the BTC options market; 6. The Cardano team suggests continuing to develop incentive testnets to be used as rapid testnets; 7. Shanghai will launch district 8. Ebang International will be listed tomorrow: Q1 loss of 2.5 million US dollars Hu Dong has 92% voting rights; 9. Wirecard, an encrypted debit card issuer, has filed for bankruptcy; 10. The European Commission plans to develop strong regulatory rules for global cryptocurrencies such as Libra. [2020/6/25] How does FEI work? By creating a system, Fei Protocol allows users to purchase stablecoins directly from an agreement. This agreement can own assets to purchase stablecoins, thus creating a set of decentralized stablecoins coin model. The fourth course of "Open Trading Course" jointly produced by BiKi and Jinse Finance will start tonight: The fourth course of "Open Trading Course" jointly produced by BiKi and Jinse Finance will start online at 20:00 on March 26. "Contract Trading Profit Strategy", taught by the cousin of the T.K team. The cousin of the lecturer of this course is the chief gold medal teaching consultant of BiKi Trading Academy, a BiKi gold medal broker, and a technical analyst of currency market, stock market, and futures for 10 years. The T.K team was founded in 2015 and is committed to the research and development of financial fields such as the currency market, stock market, and futures. The BiKi perpetual contract is now open for BTC, ETH, EOS, XRP, BCH perpetual contract transactions, and other currency transactions will be opened soon. [2020/3/25] In simple terms, the model is that the user provides FEI Protocol with $100 worth of Ethereum (ETH, currently the second largest cryptocurrency in market value) under the smart contract. The wallet sending Ether sends FEI worth $100. There is no upper limit to the issuance of FEI tokens. Only when the purchase of FEI transactions occurs, the smart contract will mint FEI tokens. In other words, FEI is a stablecoin that is minted on demand, rather than from a pre-set supply. Basically, there is no big problem with this model. At this stage, the basic idea of FEI is like this. Unlike FEI's main competitor, the stablecoin protocol MakerDAO, the biggest innovation brought by FEI is that the funds invested in the Fei protocol belong to Fei, because Fei tokens are not minted based on debt, but based on transactions. casting. According to the MakerDAO protocol, when a user has a loan demand, the DAI stable currency will be created, and then the user will use DAI as loan collateral, but the value of the assets that can be accessed is at most two-thirds of the collateral value. Not only that, but for the lender, eventually they must pay off the interest on the loan, otherwise they will not be able to recover the collateral. From this perspective, MakerDAO brings a feeling to the borrower that even if I lend the assets, it seems that these assets still belong to the borrower. Golden Morning News | Director of the International Finance Department of Shanghai Finance: Official digital currency will usher in development opportunities BMW and blockchain companies jointly develop customer loan solutions: 1. World Economic Forum: The introduction of blockchain environmental protection should establish a responsible and Ecosystem 2. Co-founder of Coinbase: digital currency creates strong tribalism 3. Tsinghua University has launched legal digital currency application test 4. Director of International Finance Department of Shanghai University of Finance and Economics: official digital currency will usher in development opportunities 5. Cyprus Securities Regulation The organization launches a blockchain innovation center6. Encryption mining company CEO: The main problem affecting the development of the industry is the misunderstanding of the industry7. Guangdong Province seizes the blockchain highland Guangzhou City increases 200 million annual fiscal expenditures to support industry development8. Canada District Blockchain company cooperates with Soluna to help it create wind power plants to provide cheap mining energy 9. BMW and blockchain company jointly develop customer loan solutions 10. V God: How to allocate resources fairly and effectively depends on the credibility of mechanism design [2018/9/16] How does FEI mortgage? The ETH that Fei currently owns comes from the project’s launch activities. Early supporters invest in ETH and get the stablecoin FEI at a discounted price (the process is very complicated). In this way, FEI Secured over $1 billion worth of ETH collateral. Therefore, the wallets of the early project supporters now have FEI, and then the agreement launched the Uniswap liquidity pool, where 1 FEI = ETH worth 1 US dollar. Analysis | Golden disk: ETH/USD rebounded close to the middle track for 1 hour: comprehensive analysis of the golden disk: ETH/USD approached the middle track of the Bollinger Band after rebounding from a low level, pay attention to trading risks. [2018/8/26] In theory, the Fei protocol should always maintain the above connection, but the problem is that the deposits in the Uniswap pool come from FEI minting, so PCV (protocol control value) deposits must specify FEI Core as the minting party, The minted quantity of FEI is equivalent to the amount of ETH multiplied by the spot price of FEI/ETH in the Uniswap pool. In other words, FEI just mints more FEI and then matches the corresponding value of ETH in the Uniswap pool. So to put it simply, 1 billion FEI was minted to the buyer. In fact, it was endorsed with ETH worth 1 billion US dollars, but then FEI minted another 1 billion FEI. The ETH is matched as a trading pair. So some people may say that these FEI were minted in Uniswap in anticipation of demand, and did not really circulate. In terms of on-chain computing ("gas") fees, it seems more efficient for users to buy Fei on Uniswap this way, so FEI tokens on Uniswap are not really FEI in a sense unless someone goes to buy these tokens. This is why the market value of FEI's tokens is actually about 2.2 billion US dollars, while the Fei analysis page only shows a protocol control value (PCV) of 1.3 billion US dollars, which is actually the asset locked by the FEI smart contract. Jinse Finance live report Wu Bo, CEO of Bonanza Overseas Exchange: The development of the blockchain industry should be based on compliance: Jinse Finance live report, at the World Blockchain Conference · Three O’clock Summit, Wu Bo, CEO of Bonanza Overseas Exchange Give a live presentation. The blockchain is the value chain of the Internet, and the blockchain is essentially divided into a technical layer and a community layer. In order for the community to function better, we need an economic model. A successful blockchain application is inseparable from a better design. In these successful applications, the blockchain is completely distributed. In the entire blockchain ecosystem, centralized exchanges play an important role. In the future, exchanges will develop in a distributed direction, and the development of the blockchain industry must be based on compliance. [2018/4/25] On the other hand, the FEI in the Uniswap liquidity pool is not completely a circulating supply, and any other assets existing inside can be regarded as part of the circulating supply. For the Fei protocol, with $1 billion worth of ETH in hand, some newly minted FEI could have been purchased from the market to create a Uniswap pool. The size of this pool may be relatively small, but don’t forget that FEI itself is also a new tokens. Stablecoins are unstable? Stablecoins in the "traditional sense" have proven to be very valuable in the cryptocurrency market, especially for traders. With the "help" of stablecoins, traders can quickly exit short-term transactions and lock in profits with assets whose prices will not change. To date, the most successful stablecoins on the market are pegged to the U.S. dollar, which shows that even true believers in cryptocurrencies do not want to flee fiat currencies. Although FEI is a stable currency, judging from the current market performance, it is very unstable. FEI's core means of maintaining the peg with the dollar not only did not work, but got worse. This situation also highlights how difficult it is to build a purely algorithmic stablecoin. In the cryptocurrency industry, some entrepreneurs are very interested in the idea of ​​programmable currency, but now, if you look at the market performance of FEI, they may have to retreat. In fact, it is really difficult to anchor the algorithm stability to the US dollar exchange rate, and this algorithm mechanism is still in its infancy and experimental stage. Start the Reweight mechanism Although the price of FEI is still lower than the anchor price of $1 so far, it is not difficult for FEI to solve this problem, just need to deal with the other side of the "equation". FEI can encourage users to sell some FEI tokens from the Uniswap pool at any time, and then provide some incentives for these users who sell tokens, and then provide them with less tokens when users buy FEI tokens. In theory, this approach should add some buying pressure and dampen some selling pressure. But disappointingly, this method didn't work. The penalty mechanism of FEI not only makes supply disappear, but also makes demand disappear. It actually punishes both supply and demand, which greatly limits the feasibility. If you read the project documentation carefully, I believe you will find that the concept of FEI has actually gone far beyond DeFi. It is undeniable that FEI has created a brand-new stable currency mechanism. Uniswap has never displayed the listed price/stated price before. As a result, many traders find that the subsequent delivery price is sometimes lower than the listed price in the transaction. When FEI is traded, if it is sold at a low price, some FEI tokens will be destroyed, but this situation will also lead to some panic exits. In response to this mechanism, Fei launched another mechanism: Reweight. Before introducing Reweight, let’s talk about the decentralized exchange (DEX) Uniswap. Uniswap is an automated market maker that does not have assets itself, but it provides a way for all users to "make money" by depositing encrypted asset trading pairs into Uniswap. As long as users use the protocol to conduct these cryptocurrency transactions, they can get Earn a little income. The FAI protocol itself is the largest liquidity provider of the ETH/Fei liquidity pool on Uniswap. When the FEI is lower than the anchor price of $1 during the transaction, the Fei protocol will reweight the entire liquidity pool. First of all, the Fei protocol will withdraw all the ETH and FEI it controls on the DEX, and there will still be other funds deposited in the ETH/FEI pool, so Fei will deposit the "correct" funds so that the liquidity pool Funds can match 1FEI = ETH worth 1 USD. Second, deposit the remaining ETH and FEI in the Uniswap pool as much as possible to maintain the pegged exchange rate. As the market needs to reduce the supply, some FEI tokens will remain in the liquidity pool after Reweight, which is why the FEI price will be lower than the anchor price, and finally these remaining FEI tokens will be destroyed. Since many people now want to quit FEI when they get the best price of FEI, once Reweight, a large number of users will rush to quit. But this "run" frenzy will clearly lead to another plunge in value and cause the FEI to break away from the peg again. So that's why things go bad after every reweight. The most ironic thing is that each Reweight will create the best sales opportunity, but in the end it attracts more people to choose to sell. How to optimize and improve? The Fei team is already considering some means to solve the current problems encountered. The founder Joey Santoro (Joey Santoro) proposed regular reweighting, while relaxing the built-in incentives in the Uniswap pool, or letting Fei The protocol dominates the direct incentive mechanism. Some community members also pointed out that for a stablecoin, maintaining value anchoring is far more important than use cases, so it is necessary to optimize and improve the protocol to speed up the pace of Reweight. However, some people think that the reason why people choose to sell FEI may be because many people do not understand this system, but they just feel that there is a pure arbitrage opportunity suddenly. Considering that there was a large initial supply of tokens when the project was launched, it is easy to cause insufficient natural demand for FEI in the market, thus triggering selling pressure. So none of the above problems are real problems.


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