Fei Labs Raised 639,000 ETH But Some Investors Got Stuck

Fei Labs raised 639,000 ETH or about $1.3 billion at the time of writing, with the money serving as collateral for the dollar-pegged stablecoin –FEI. However, now some investors are stuck so let’s find out why in our latest cryptocurrency news today.

The “Genesis” launch of the Fei Labs stabelcoin protocol raised 639,000 ETH or $1.3 billion with the launch being described as the “biggest launch in DeFi history.” However, the token design makes it easier to plug the funds into the ecosystem of the protocol than to withdraw them. The money was donated by over 17,000 members of the Fei Genesis Group who will be the earliest adopters of the new protocol which is minting stablecoins pegged to the US dollar but the current price of the FEI is 88 cents after it dropped from $1.26 level.

Biggest launch in Defi history? @feiprotocol raised $1.2B from its Genesis event, and the $FEI – $TRIBE pool is #1 on Uniswap with $2.6 BILLION in liquidity.

Simultaneously, retail investors got predictably rekt.

Here's how the drama unfolded:

— Jon Wu (@jonwu_) April 4, 2021

Like other protocols like DAI, Fei’s method is algorithmic. The difference is that the peg which is called PCV or Protocol Controlled Value maintains the price balance by acting as an automated central bank by buying and selling the tokens as needed to maintain the $1 price. To ensure the protocol has the means to buy back the tokens, it requires assets as collateral. This is where Fei’s Genesis launch comes in so if the demand for the FEI drops and the price crashes, the ETH acquired from the launch will go to buying the tokens back and take the price again to $1.

However, unlike uncollateralized seignorage models like Basis and ESD, $FEI is actually collateralized to the tune of $1.2 billion dollars, ~$1 billion of which was raised in the last 24 hours.

— Jon Wu (@jonwu_) April 4, 2021

There were some mechanisms in place to penalize the trading beyond this price level but right now, the traders that attempt to sell FEI at the current price will be hit with some huge fees. Considering that FEI is now trading below its $1 peg, a lot of the traders are fearing that they will be penalized for selling. This makes the entire situation favorable for the FEI Protocol but also brings a sense of calmness for the investors. The protocol wasn’t built to anticipate the demand for the Genesis launch and investors already piled into the protocol hoping for more returns but they found out that the coin dropped in value.

Investing in Defi is almost always a risky business even if you learned how the protocol works. The users’ money can be locked in the labyrinths of a complicated protocol or eventually in the hands of criminals.