Billion Dollar Stablecoin Fei Protocol Struggles As Token Drops Below USD Peg
Barely days after the stablecoin project Fei Protocol launched, it appears to be struggling—so much so that its 1:1 USD pegged token has dropped well below its targeted $1 value. Currently at $0.7916.
Fei in Free Fall
The stablecoin project, meant to be algorithmic and without volatility, lost its peg to the U.S. dollar this week. The asset was down by almost 80% at a time.
This caused an uproar on social media, with users complaining about the project and others suggesting solutions.
“Folks are watching Fei, a project that raised $1.3B, struggle at launch. It raised way more ETH than needed; most buyers were looking to immediately sell FEI back (peg pressure); then, to top it off, a bug disabled the primary stability mechanism. Not a recipe for stability.”
Meanwhile, the company has responded via its Twitter account. It disclosed that there was a vulnerability through its bug bounty program. This made the development team suspend mint rewards on Fei buys to ensure the protocol and PCV were secured.
Mint rewards are incentives users who buy Fei get to help it return its value to the dollar.
Fei Protocol added that the protocol is still overcollateralized, meaning more cryptocurrency collateral backing the set of Fei tokens. It assured users that the token's value would return while also thanking users for their suggestions on solutions.
Fei Protocol Fighting Stablecoin Issues
Backed by many high-value investors, Fei Protocol aimed to create a stablecoin protocol that would outrightly buy assets with its token, rather than holding them as collateral for loans.
Fei had pointed out the obvious issues in already established stablecoins that were centralized and controlled by corporations with the focus of fighting them.
The stablecoin introduced the model called ‘Protocol Controlled Value' (PCV) which means when users deposit collateral, the protocol owns and manages it so that liquidity cannot just be pulled out. The PCV is a subset of TVL (total value locked), in which a platform outright owns the assets locked into the smart contracts.
However, it appears Fei Protocol did not anticipate the high demand it received.