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The launch of Ethereum-backed stablecoin called Fei trapped nearly a billion dollars in ETH during its inception event. But the launch didn’t quite go as planned for some of its liquidity providers.

The protocol, which launched a genesis event on April 1, introduced a stablecoin backed in part by Ethereum and uses bonding curves in conjunction with direct incentives to maintain the correct peg. These direct incentives penalize price movements that deviate from the link and reward trades that send the prices to the link.

Messari researcher Ryan Watkins observed the Genesis event, including an airdrop to liquidity providers. More than $ 1 billion dollars was locked up in Ethereum because of these protocol mechanics.

Watkins noted that most early investors will want to liquidate to get their ETH back and make a profit. will weigh again to return FEI to its peg, but then what? There is little real demand for FEI and most are still running for the exits. “

However, fines for removing liquidity are related to the direct incentive mechanism which uses a dynamic burning system to influence the price. The protocol explained:

“This means that if you have to sell FEI in a fast time frame during a period of high selling pressure, you can incur a significant burn penalty. FEI’s stability mechanisms focus on long-term preservation. “

The researcher added, “I imagine many of the people participating in the offering were taken by surprise by this inability to exchange FEI for its collateral.”

FEI will have unlimited supply that follows demand, with coins going into circulation via sale along a bonding curve approaching the $ 1 peg.

The protocol uses a concept called ‘Protocol Controlled Value’ (PCV), which means that when users are depositing collateral, the capital is owned and controlled by the protocol, so liquidity cannot just be drawn out. This makes it more decentralized than other stablecoins such as Tether, USDC or BUSD.

To jump-start the Genesis event, users were able to pull FEI out of the ETH bonding curve through the protocol at a discount starting at $ 0.50. The supply-based growth rate would result in the stablecoin reaching its peg once sufficient collateral has been deposited.

A Genesis Group of early adopters and investors had been set up to participate in the launch. The launch would also include an airdrop of its governance token called TRIBE. On April 1, protocol co-founder is Sebastian Delgado tweeted

“Enough ETH has been collected in the first few hours of @ feiprotocol’s Genesis for the protocol to reach the scale target of 100M circulating $ FEI”

It didn’t stop there, however, and by April 4, a whopping $ 1 billion in ETH had entered the protocol as FEI’s offerings rose to 2.5 billion. Those on the hunt for the quick buck and airdrop now have little choice but to hold FEI until it returns to its peg.

Watkins also noted that the launch was also going ahead Uniswap (where the FEI / ETH pair traded) liquidity as high as $ 8 billion.

At the time of writing, the pair had collateral levels of $ 2.57 billion and a daily volume of $ 65 million according to Uniswap statisticsThe stablecoin was trading below its peg at $ 0.945 according to Coingecko