At present, as DeFi’s cornerstone, stablecoins are still in the stage of being dominated by centralized assets such as USDT and USDC. Traditional decentralized over collateral stablecoins (like DAI), have problems of low asset efficiency. In order to solve this problem, since last year, some algorithms stablecoins came out. Unfortunately, the performance of these algorithmic stablecoins is extremely volatile because they don’t have any collateral assets, and therefore are difficult to compete with centralized stablecoins.
Since this year, a new type of algorithmic stablecoin has emerged: partially collateral algorithmic stablecoins, such as Frax, Continuous ESD, and Fei protocol.
8btc had an exclusive interview with Joey Santoro, founder of Fei, to find out more about the story behind the protocol. Here’s the full transcript:
8btc: What’s your background and what you’re working on?
Joey: My name’s Joey. I’m the founder of Fei protocol.I have a technical background. I majored in computer science and undergraduate in Duke University. And then I went to work in Enterprise software. I walked up I was on the performance team there.
While I was pretty involved in DeFi. I did some development work for 什么Dollar. I also wrote a book called DeFi future of finance, which will be coming out probably this month. Now I’m building Fei protocol, so I have the idea in Fei in November.I’ve been working on it full time since November, and we’re really excited about what we are building. I’m happy to dive in more than anything specific than you want to know.
8btc: How did you get into DeFi?
Joey: I’ve been interested in DeFi since I was in college. I learned about Ethereum in 2017. I read the Ethereum of white paper, and I was so inspired by the technology. And I saw some of the early applications like Compound and MakerDAO, which were the only two really big DeFi projects. It wasn’t even called DeFi back then. But then I saw all they came out then, like Curves,Uniswap and other yield protocol. And I saw these financial platforms, Opyn,Options,yield farming and like various aggregator, like Yearn.It was just like faster and faster innovation. And I was really interested in finance, particularly personal finance. And I think DeFi is unprecedented opportunity for us to recreate the financial infrastructure for the future. That’s why I’m really excited about DeFi.
8btc: What brought you to a have the idea of building Fei?
Joey: I’m thinking about DeFi for a long time and I saw all the stablecoin existing,and basically, with this standpoint, you have to pick between a centralized stablecoin like USTC or Tether, or you can go with DAI, which is pretty stable, but it’s also very reliant on governance. And it’s not scalable because you require over colonization and. There’s a debt ceiling. You can’t exceed the debt ceiling if you want to have more DAI, which means that it can always support a certain level of DeFi before you can’t have any more.
I’m thinking about some algorithm stablecoin at 2020, like ESD and basis cash. Those, but clearly, they’re not viable stability mechanisms because the senior age creates this perverse incentive to pump the price and then dump the price. And now, A lot of them are not trading around $1. Right now, I think continuous DSD will be coming out soon. So they’re gonna kind of update and more like Fei model where we’re going to have our reserve, I think that the reserve back stable coins like Fei,Frax,continuous DSD are going to be the strongest, long term DeFi stablecoin.
8btc: Is there any other algorithm stablecoin you are interested in? Or you think they may might be promising?
Joey: I think I like Frax and Continuous ESD. but I think that Fei is better for a couple of reasons.
One that we’re gonna be ETH only and decentralized assets only. So we’re not just we will have more than just ETH. But we’re not gonna take USD or wBTC or any other centralized.Stablecoin that I think be able to be stable without relying on a stablecoin, is a really strong value proposition.
The directing cented that Fei has where we’re minting and burning on opposite sides of the peg when there’s trading activity below the PAD, rather. That is a very unique feature to Fei that I think as having that sort of analog is gonna really help modulate the supply, really have a very strong peg.
8btc: What do you think the future like development trends, for algorithm stablecoins?
Joey: Purely algorithm stablecoin without any reserves are going to have a really hard time. In fact, there’s no reason to have a stablecoin that has zero reserve because there will be distribution problem. How do you get stablecoin to someone who didn’t pay for them? Why would that ever be a good idea? I think that what’s great about partially collateralized algorithm stable points, like Fei, is that you have a reserve, you are capital efficient and an easy way to get stablecoin to users, which is simply that they’re going to buy it from the protocol.
I think that is presents a really strong value proposition where the protocol control the assets reserve itself that can be deployed in sort of really creative ways when you’re able to integrate with other DeFi platforms. Like I know Frax is doing some yield farming within their treasury. I think cooler than doing yield farming is actually market making on other platforms.
So like Fei, for instance, could take an options protocol like a Primitive, Opyn or Hegic, and actually provide liquidity and make markets on that protocol using its treasury as a way to generate yield and diversify exposure to various assets. Likewise, you can do this with Futures platforms like FutureSwap,or you can do this on fixed income platforms like Yield. Any of the other sort of newer protocols that are coming out. That is why I think the algorithm may partially collateralized stablecoins are going to have a huge advantage over user owned over collateralized stablecoins, like MakeDAO.
We are gonna have some liquidity mining. When in particular, there we have our governance token called tribe. And at launch, the initial DEX offering will provide liquidity for Fei and tribe on Uniswap. One thing that we can do is ,we’re going to have staking rewards for statking the LP token. It’s a pool, too, where you’re earning yield and the governance token on a pair.
8btc: What we can do with Tribe?
Joey: Tribe a a very powerful governance token, it’s governance minimized. Essentially, it’s used for the DAO. The Tribe is a voting token. You can use it to basically upgrade any of the incentive contracts in the protocol. So let’s say we want to change the growth rate of the mid reward on the incentives,we can do that. We can also add bonding curves. Let’s say we want to add a bonding curve denominated in the RAI or Aave or snx.We can create a new bonding curve, define a price function and governance, and then vote it and allow it mint Fei in exchange for those new assets.
That’s how we can get new assets in the reserve without having to exchange for themselves as we can just issue a bonding curve.
There are various parameters around the system that Tribe can vote on. We’re gonna release our documentation probably this week, which will explain in detail which parameters can exactly be dated by the Tribes token.
8btc: So I think Fei is the first project to be launched by genesis group. Right? Is this a like a new mechanism or it’s used before?
Joey: The Fei genesis group is completely new. It has two components.
One of it is an initial bonding curve offering, which has been done before. Hegic did an initial bonding curve offering for their governance, token, and we’re actually doing the bonding curve in state. So you’re paying with ETH, but you’re getting to Fei. There’s a Tribe sort of bonus associated with this, where you’re going to get a fixed amount or a proportional amount of Tribe as well as a variable amount of Fei from the bonding curve.
What’s cool about the Fei genesis group is that you actually have two things together. You have the initial bonding curve offering and the initial DEX offering. What you can do is you can take the Fei from the bonding curve, and you can put it towards by Tribe sort of all at once. So when you go to redeem, you’re gonna get more Tribe than you would have gotten if you just did the bonding curve.
8btc: So how can how can we join as one of the members of genesis group? How can we know if the process is equal?
Joey: This is a great question. We’re gonna be releasing our announcement when genesis group going to happen probably this week. When that comes out, it’ll have detailed instructions for how to participate in genesis. And when it’s going to happen, which will probably be in March，later in this month, we haven’t committed to a final date yet.
So for users, all you have to do to be in genesis, you go to our UI at Fei.money. It’ll be the first thing you saty on the page. You just deposit ETH right into the protocol.
Then the second thing that you can do optionally which you might want to do is,take some ETH that you committed and pre buy for the initial DEX offering, you can pre buy Tribe. There’s two steps. The first step is you deposit your ether, and the second step is you pre buy the Tribe.
8btc: What exactly are the relations between a Genesis Group and IDO? How can these two process affect the market valuation?
Joey: The genesis group is really the first bonding curve purchase. That’s where the ETH is going. So you’re finding the protocol control value when you purchase with ETH ,then ETH is going to the protocol, smart contract, it’s not going anywhere else.
With the amount of Fei that comes out,after the bonding curve purchase, that becomes equal to the evaluation of Tribe. Let’s say there’s 100 million Fei. That means that all of the tribe which will be 1 billion Tribe, will be equal to 100 million Fei. So that means that Tribe would be a 1/10 of one Fei, would be the listing price of the initial DEX offering. And then hypothetically, let’s say that half of all the people from the genesis group pre buy Tribe. Now we make the evaluation of tribal up, because we’re taking Fei out putting in the genesis group that would lead to something like a ten x multiplier, 10 or 15 x multiplier on the initial listing price. So now instead of being worth 10 cents, it’ll be worth a dollar fifty,in the state terms.
So the pre buy amount does affect the listing price.
8btc: Is there anything else you are planning after Fei launch?
Joey: The Fei launch is gonna to be our Top priority.We are just making sure that there’s a successful launch, but we have a a lot of ideas for Fei that we might want to improve the protocol after launch. First we really want to have integrations throughout DeFi. We want to add new bonding curves, new PCD assets, we want to market make in other platforms like Aave,Compound and some other options.
8btc: What do you think of the future of DeFi?
Joey: That’s being able to create value of crypto networks and exchange the value and interperate with each other. It’s really exciting. And so I think that layer 2 scaling solutions scaling Ethereum really improved. I’m not an ETH Maxier or anything, but I just spend all of my time on the Ethereum, because I think that this is where the developers are. This is where the mind shares. It’s gonna be really hard for other smart contract platforms to compete.
8btc: There’s many new chain dropping their effort to the deploy, what do you think of these new efforts? Like Binance exchange or Huobi or OKEX?
Joey: Honestly, I haven’t looked too deeply into other chains, because it’s a full time job to be good at Ethereum. It’s really hard to be thinking about Ethereum and other chains. So I thought I focus on Ethereum just because you have to be focused if you want to be good at something.I wouldn’t write any of them out, it’s very possible that some of these other chains could grow in the future.
So maybe in the future, Fei will get into integrate with other chains.
Yes, absolutely. I think if they’re really clean bridges that make it easy to integrate, we would definitely consider other chains. Like I said, our team is small, so we have to stay focused. But as the team grows, as state grows, obviously, other chains other scaling solutions were very open to.
8btc: Layer2 is also a very hot topic in China.Is there any Layer2 solutions you are looking at?
Joey: Yeah, so we’re we’re really excited about O ptimism. I think they have a really strong team and really strong backing. So I’m super excited to see them launch in March. They’ll be lunching around the same time as Fei. They’re the first ones we’ll be looking at.
I also pretty excited about Starkware.There are a lot of other good layer 2 solutions that are coming out. So it’s gonna be really good to see where the different DeFi projects go.
8btc: Since you’re putting your all effort on Ethereum, but will you squeeze a little time to other areas like NFT?
Joey: I actually really like NFT.NFT is awesome and we probably gonna add NFT in Fei protocol.It’s not going to happen in Phrase one. But as we add features over time, NFT is something that I feel a really important part of not only the culture, but also the technology.
I mean you can add NFT is that have sort of real value in the system. That’s what’s exciting that they might be able to be redeemable for some Tribes or be able to use them to get better outcomes on the bonding curve or things like that. I personally really excited about NFT that’s something that I want to see a lot more of.