Fei Protocol's Discord Seized By San Francisco Court Amid Class Action Suit
Class Action Lawsuit is Proposing a Settlement of $17.85M for FEI and TRIBE Token Holders.
By: Jeremy Nation •DeFi News
Usually when a crypto project loses control of its associated Discord server, a hacker is to blame, but for Fei Protocol, San Francisco Courts appear to be behind the server seizure.
Fei protocol, which is no longer in development and proposed a decentralized stablecoin, is facing a class action lawsuit that claims its FEI and TRIBE tokens were unregistered securities.
A court authorized notice published July 7 indicated that the proposed settlement “will provide $17,850,000.00 to pay claims to persons and entities who purchased FEI or TRIBE tokens in the Genesis Event.” The post on Discord alerted FEI and TRIBE holders that “a class action settlement may affect your rights.”
“This is the first I've personally seen courts take over a discord, is this common?” asked Swivel Finance Founder, Julian Traverse, who shared an image of a notice related to the class action suit’s proposed settlement on the Fei Protocol server.
Following the deduction of various attorney fees and court costs, the proposal said a Net Settlement Fund will be distributed on a pro rata basis to class members who submit claims. The fund is expected to be valued at $13 million, subject to approvals.
Those who are qualified are invited to submit a claim form to obtain a portion of the settlement, raise an objection, or opt out and retain the ability to file a separate lawsuit against Fei Protocol, apart from the class action.
Fei Protocol denies any wrongdoing and courts have yet to rule on the matter.
Bugs, Hacks, and Lawsuits
Fei Protocol launched in spring 2021 introducing the notion of a purely crypto backed algorithmic stablecoins pegged via deep pools of protocol managed liquidity.
It was not a smooth deployment. A contract bug resulted in loss of dollar parity for the FEI stablecoin. To deal with the situation the protocol halted rewards for minting new FEI, and penalized those who sold below $1. Still, FEI token managed to pull in $1.3B in ETH that served as liquidity against a FEI-ETH pool deployed to Uniswap. At the time it was the DEX’s largest pool.
Following FEI token’s deployment, in a complaint dated April 1, 2022, attorneys representing plaintiff Jonathan Shomroni and the putative class alleged defendants including Fei Labs violated federal regulations by selling unregistered securities in the form of TRIBE and FEI tokens.
In late April 2022, the protocol’s lending pools were drained for $80M in a reentrancy exploit when Fei Protocol’s parent company, TribeDao, combined with distributed lending protocol Rari Capital and gave RARI holders an opportunity to swap them for TRIBE tokens.
Despite the community’s widespread support to repay newly created debt from the exploit, the Fei team itself voted down a proposal to do so, claiming a previous vote on the subject by the community was held off-chain and therefore non-binding.
In August 2022 a proposal to make hacking victims whole via a pool of 57M TRIBE tokens was met with mixed responses.
The court overseeing the class action suit will hold a hearing on Oct. 27 to consider whether to approve the settlement.