Fei Protocol is fighting to make a comeback.
Back in April, the project’s stablecoin, meant to maintain a $1 peg, dropped as low as $0.92 after raising 639,000 ETH, worth $1.3B, in its highly anticipated launch.
The Andreessen Horowitz-backed project is still swinging however, and has just launched a v2 with a few key changes.
First up is a change in the peg mechanism. Whereas Fei’s v1 relied on direct incentives and reweights to maintain the peg of FEI, the project’s stablecoin, in v2 $1 of FEI can be redeemed for $1 of the assets the Fei protocol controls.
Joey Santoro, founder of the Fei Protocol, said that the 1:1 redeemability of FEI will keep the stablecoin tightly pegged to its $1 target value on an Oct. 7 Twitter Space.
Get no-shill, daily DeFi news in your inbox, free:
Fei pioneered the mechanism of protocol-controlled value (PCV). This means that the protocol controls assets users lend out. So Fei can trade assets it holds, like ETH, to seek yield on its assets and maximize PCV.
This connects to v2’s second change. If the PCV appreciates, some of it will be used to buy back TRIBE, Fei’s governance token. The goal is that TRIBE holders will be incentivized to maximize the PCV through governance in order to increase TRIBE’s value.
In v2’s final change, Fei will control risk by allocating more of its PCV towards stable assets like DAI when the collateralization ratio approaches 100%. Fei will do this algorithmically using Balancer’s investment pool.
By allocating towards less volatile assets the closer the collateralization ratio gets to 100%, Fei aims to minimize the risk of insolvency
“We’ve been grinding to fix all the issues in the v1 mechanism,” Santoro told The Defiant over Discord. “The protocol is in really good shape now (over $600m in equity and tight peg,)” the founder said. “FEI is especially relevant for DAOs and users that care deeply about decentralization.”
FEI’s market cap of $536M makes it only the eleventh largest stablecoin, according to CoinGecko. Still, demand is rising. Its supply has jumped 24% in the past 30 days, more than any of the stablecoins ahead of it.
With a staged rollout for v2 in the works, Fei has once more entered the heated competition to become the go-to decentralized stablecoin.