Fei Protocol

The Fei Protocol aims to be a decentralized, fair, liquid, and scalable stablecoin platform built on Ethereum. The inspiration for the vision of the Fei Protocol is derived from the ancient stone currency Rai, or Fei, of the Micronesian island of Yap.[1][3][4][5]    

It is expected to launch in early 2021.[2] 


  • FEI is stabilized by a new mechanism called Direct Incentives
  • FEI is the stablecoin issued
  • TRIBE is the Governance Token
  • Not a fork of an existing stablecoin
  • Designed for scalability, liquidity, fairness, and low volatility
  • Launching a fully decentralized autonomous organization (DAO)
  • Proposing Protocol Controlled Value


Stablecoin (FEI)

FEI introduces a new kind of stablecoin mechanism called direct incentives. It aims to be more capital efficient, with a fair distribution, and to be fully decentralized. The protocol uses the value it controls to maintain liquid secondary markets.  [1][2]

How $FEI Supply Expands

The $FEI stablecoin has an uncapped supply that tracks demand. FEI enters circulation via sale along bonding curve. This curve approaches and fixes at the $1 PEG. When new demand for FEI arises, users can acquire it by buying on the bonding curve. The price function will start low to reward early adopters for purchasing FEI. Fei Protocol will support the creation of bonding curves denominated in any ERC-20. The launch will contain only a single curve denominated in ETH. [4]

Bonding Curve

The ETH bonding curve will have a target FEI supply for bootstrapping before fixing the price at $1. This target is known as Scale; reaching Scale will denote the end of the bootstrapping phase. Scale will be set to 250,000,000 FEI, to be large enough to merit integration with other DeFi (Decentralized Finance). Post-Scale, the bonding curve price will fix at a governance-able buffer above the peg. This price creates a ceiling throughout the ecosystem. Arbitrageurs can buy on the bonding curve and sell on secondary markets if the price is higher elsewhere. [4]

Protocol Controlled Value (PCV)

Users cannot sell FEI on the bonding curve. Instead, the protocol retains the incoming ETH as Protocol Controlled Value (PCV). Fei Protocol deploys the PCV to create a liquid secondary market where users can sell FEI back into ETH. [4]

PCV is a subset of the concept of Total Value Locked (TVL), in which a platform outright owns the assets locked into the smart contracts. This is a stronger use case than the IOU common to most TVL applications, as the PCV is permanent. PCV gives the protocol more flexibility to engage in activities that are not profit-oriented. These activities can align with more fundamental goals, such as maintaining stability in the peg. [4]

PCV Use cases

Common use cases such as governance treasuries and insurance funds are types of PCV. Other possibilities include guaranteed liquidity or a price backstop for DeFi users. Unlike the IOU model, PCV is irrevocable. Governance tokens in a PCV platform accrue deeper value capture and corresponding responsibility. 

Direct Incentives

As stated from the Fei Protocol: [3]

A direct incentive stablecoin is one in which both the trading activity and usage of the stablecoin are incentivized, where rewards and penalties drive the price towards the peg. In general this would include at least one incentivized exchange acting as a hub. All other exchanges and secondary markets can arbitrage with the incentivized exchanges. This helps maintain the peg throughout the ecosystem.

Fei Protocol achieves this goal by incentivizing Uniswap trading volume with mints and burns. These incentives apply directly to the trader’s balance, in proportion to the distance from the peg. This means that a larger sell incurs a larger burn. The protocol incentivizes traders via mint to return the price back up to the peg. The formulas used ensure that all volatility below the peg is net deflationary. This will help bring the supply down to the right level relative to the current demand. [3]

The direct incentive implementation of Fei Protocol is like a cousin of rebasing tokens like Ampleforth and Yam. It does directly operate on user balances, but only those of the users who actively engage in the incentivized behaviors. In the event of high FEI sell pressure, the sellers incur the associated deflation costs. Holders can rest confidently in the protocol backstopping the price if no trader restores the price. The long term ability to backstop is assisted by the deflation. These novel properties lead to a high fidelity peg for FEI. [3]

Governance Token (TRIBE) & DAO

The project will launch with a fully decentralized Decentralized autonomous organization(DAO) on day one. The $TRIBE token controls the DAO. TRIBE holders can vote on the following actions among others:

  • Adding new bonding curves in new tokens or adjusting price functions of existing curve(s)

  • Adjusting the allocation of PCV for new incoming funding or existing PCV

The protocol allocates a portion of the TRIBE token to a FEI staking pool. Users can deposit FEI and receive a pro-rata percentage of the TRIBE drip into the pool. The development team and investors retain another portion. A percentage will be split between the Genesis Group and Initial DeFi Offering. [1]

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Fei Protocol

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August 18, 2022

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