Partner of Spartan Group: Why is FEI a DAO stable currency?

Note: The original author is Jason Choi, partner of Spartan Group.

As a TRIBE holder, why am I excited about Liquidity as a Service (LaaS) and Protocol Controlled Value (PCV).

One of the most important things about stablecoins is anchoring, followed by liquidity.

And FEI is not just a stablecoin, it is currently the *most* liquid stablecoin on Uniswap v2.

The reason why it has such a large liquidity is because it uses the protocol control value (PCV) mechanism: that is, the protocol *holds* TVL to provide liquidity for itself.

This is a concept originally advocated by the fei protocol, and OlympusDAO has also proposed a similar idea.

Fei owns his own TVL, instead of hiring a TVL (they say goodbye to your agreement when you stop paying traders millions of dollars in daily inflation rewards), Fei does it by trading with you at this point:

1. You deposit 1 ETH;

2. The agreement gives you Fei stablecoin worth 1 ETH;

Fei then takes the ETH and does whatever they want. Currently, it mainly provides liquidity for its own protocol, which explains why FEI can become the most liquid stablecoin on Uni v2.

However, if collateral is used to enforce whatever the protocol wants, rather than backing FEI to implement Maker style...

So what exactly supports the value of this stable currency?

Today, FEI is overcollateralized, but it used to implement a complex design (called reweighing), which, as you may recall, simply didn't work.

After FEI completed one of the largest DeFi auctions, FEI experienced a serious de-anchoring situation.

After that, what most people don't realize is that FEI has actually regained its anchor since May and has been very stable.

It does this by stripping away all the complex mechanics and adopting a simple seigniorage model that allows redemptions using the protocol.

But to me, Fei, as a stablecoin, is probably the most boring aspect of the project.

The innovative idea that it truly realizes from 0 to 1 is Liquidity-as-a-Service (Liquidity-as-a-Service), which is the core focus of "DeFi 2.0".

Recall how I mentioned earlier how Fei uses its PCV to provide itself with liquidity. What if it does the same for other protocols?

Fei + OndoFinance allows new projects to provide liquidity for their tokens simply by contributing their own tokens to the liquidity pool.

The Fei protocol will provide the pool with the other half of the FEI required. In addition, the project party itself needs to bear the IL (impermanent loss).

Compared with an agreement that fully deploys its own pool and pays liquidity mining rewards to trading companies, this method can improve capital efficiency by 2-10 times.

It seems that some projects have begun to understand Fei's DAO-to-DAO philosophy.

Of course, some other "DeFi 2.0" protocols are also promising ways to provide higher capital efficiency than "liquidity mining".

Today, that's how the market is pricing TRIBE based on TVL as a rough indicator of traction.

Many people have distrusted TVL, and rightly so, it is a deeply flawed metric!

And @dcfgod pointed out that when we compare the actual working capital of DeFi projects, TRIBE's pricing on a P/B basis also seems to be wrong.

That's because Fei is effectively sitting on $900 million in deployable capital, net of any liabilities (outstanding Fei).

So what does it do?

One of the things it is currently doing is launching a buyback of $170 million worth of TRIBE tokens (note: it happens weekly, and the buyback amount is deployable funds * 20% / 52).

Other potential applications that I'm excited about include:

• Treasury swap (currently in progress with $BAL);

• Allocate 5% for Fei Ecological Fund;

• Governance mining to grow to DAO-to-DAO integration (this article is worth a look);

Over time, I think TRIBE not only reflects the adoption of FEI, but also has the potential to become a DAO index play as more and more DAOs start to integrate more deeply with Fei as buybacks rely on protocol equity .

One last note - I am bullish on two things:

• Projects that recover from catastrophic events and then thrive;

• Young, energetic founders willing to try new things;

@Joey_Santoro and his team fit both criteria and I'm excited to see how this project progresses.

This article comes from Tao of Yuan Universe, reproduced with authorization.

This article comes from Tao of Yuan Universe, reproduced with authorization.