Algorithmic Stablecoin Project Fei Fails To Maintain Peg To US Dollar

The algorithmic stablecoin project Fei had quite the troubled launch and fell below parity with the dollar as it had a hard time maintaining its peg so let’s read more in our latest altcoin news today.

The launch of the DeFi protocol is now going to be extremely risky but when you combine the complexity and a bug with a lot of money, it usually ends up catastrophic. The algorithmic stablecoin Fei is the latest project to undergo a troubled launch because the coin traded below parity with the dollar since its .
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2 billion launches which was an issue for the coin that’s supposed to be pegged to the dollar. It all happened because of a bug that emerged and made users struggle to sell their coins. This caused a stir on social media, Fei’s own blog, and Discord with users complaining about the broken peg. Ava Labs CEO Emin Gun Sirer posted on twitter:

“The design of algorithmic stablecoins is very much uncharted territory, scientifically, and so far, this was a fascinating experiment by a well-intentioned and good team.  What happens next depends on what the contracts allow, but there are countless ways to recover from here.”

The team was made aware of a vulnerability this morning through our bug bounty program.

We evaluated its viability, then used the protocol's safeguards to suspend mint rewards on $FEI buys to ensure the protocol and PCV are secured.

— Fei Labs (@feiprotocol) April 7, 2021

He added that while the coin’s price could recover, he doesn’t see the project as a viable shot in the long run. These kinds of stabelcoins use incentives to keep the coin pegged to a fiat currency so in Fei’s case the US dollar. When Fei falls low, anyone that tries to sell the pays an even greater penalty which means when they make the sale, a bigger amount of Fei is burned and taken out of circulation. Sirer challenges the idea and argued that Fei’s incentive system reduces the supply and demand when the prices are low and the demand is what is needed to bring the token back to parity because, without it, the coin could fall even further down.

If you try and sell the coin on the FEI/ETH pair, the penalty is so high that the money will be taken as the penalty and will make the token worthless. One member from the Discord community even responded a bug showed that the burn could surpass 100% and can put the coin’s price in negative territory saying:

 “Thanks for letting us know we’ll only lose 100%, not 120%.”