The launch of the Ethereum-backed stablecoin, called Fei, has locked in nearly $ 1 billion worth of ETH during its genesis event. But the launch has not quite gone as planned for some of its liquidity providers.
The protocol, which launched a genesis event on April 1, introduced a stablecoin that is partially backed by Ethereum and uses peg curves along with direct incentives to maintain the correct peg. These direct incentives penalize price fluctuations away from parity and reward operations that drive prices towards parity.
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Messari researcher Ryan Watkins observed the genesis event, which included an airdrop to liquidity providers. More than $ 1 billion worth of Ethereum was locked in due to this protocol mechanic.
Watkins noted that most early adopters will want to liquidate to get their ETH back and make a profit, stating: “The thing with FEI right now is that most people want to sell it back to get ETH, but doing so incurs extreme penalties. Over time, Fei will re-ponder to get FEI back in place, but what then? There is little real demand for FEI and most are still running towards the exits. “
However, the penalties for withdrawing liquidity are related to the direct incentive mechanism that uses a dynamic burning system to influence the price. The protocol explains:
“This means that if you need to sell FEI on a short notice during a period of high selling pressure, you could incur a significant burn penalty. FEI’s stability mechanisms are oriented to the holding company in the long term. “
