Tribe is a governance token that was created to control the DAO similar to COMP. The issuer of the token is the Fei platform created on the basis of the Fei Protocol with the dual token model that utilizes a Uniswap liquidity provider as an official market.
The goal of the Fei protocol is to maintain a liquid market where ETH/FEI trades closely to the ETH/USD price. Fei employs a homemade stability mechanism that the developers named as ‘Direct Incentives’. Along with dynamic mint rewards and burn penalties on DEX trade volume, direct incentive stablecoins were used to maintain the peg.
The Fei community employs a governance scheme to solve a number of issues such as the appointment of minter and burning contracts, adjustment of scale target, and allocation of rules on bonding curves, etc.
The platform fueled by Fei Protocol is fully decentralized. The protocol includes several core components to build the system such as Fei Core, the FEI stablecoin, the Tribe governance token, DAO, the bonding curves, PCV (protocol-controlled value) deposits, and PCV controllers. Fei Core is an access control hub for the Fei Protocol that defines different roles within the ecosystem such as Minter, Burner, Controller, and Governor and maps contracts correspondingly.
The Fei Protocol helps other DAOs that want to attain deep liquidity in lending and exchange markets. This is possible thanks to the deployment of PCV and Liquidity-as-a-Service (LaaS).
The Fei platform assets
Fei is a scalable and decentralized stablecoin using a unique mechanism of PCV to preserve peg and maintain high liquid secondary markets. This technology has proved to be very effective in all that concerns preserving stablecoin value and defending the FEI peg.
Being a fork of the Compound DAO, Tribe has a fixed supply of 1 billion tokens. As the token is used for the governance, it helps to maintain the Fei Protocol decentralized. Also, the code for Tribe was forked from the Uniswap UNI token, however, these tokens differ as UNI can inflate 2% a year while Tribe has uncapped inflation.
In addition, Tribe is used for liquidity mining. Token holders can contribute to Uniswap’s Fei-Tribe liquidity pool, staking their coins to earn rewards.
Fei’s direct incentive model
The direct incentive model was presented by the developers as an enhanced version of models used by current stablecoins. While all stablecoins are subdivided into fiat-collateralized, crypto-collateralized, and non-collateralized ones, the team has invented a totally new approach.
The mechanism was designed to make the trading activity and the use of the stablecoins incentivized so that penalties and rewards would move the price closer to the peg. At this, one incentivized exchange functions as a hub, while other exchanges and markets can arbitrage with the incentivized exchanges. Thus, such an approach contributes to peg maintenance in the ecosystem.
However, a ‘direct incentive stablecoin’ has the same problems as other non-collateralized stablecoins. It lacks a guarantee of liquidity due to the lack of collateral supporting the system, though the Fei team was aiming to solve exactly this problem among others. Still, the combination of the direct incentive model and Protocol Controlled Value, which is deployed as liquidity contained in the Fei protocol, has contributed to the creation of a scalable, decentralized, fair, and liquid stablecoin.
Change of a core concept
In October 2021, the developers released Fei v2. Trying to remove the past mistakes, they have come up with an upgrade that considerably improves the stablecoin making it more scalable and efficient.
While the version 1 peg mechanisms have been totally rejected, a new mechanism doesn’t employ reweights and new incentives due to the issues in redeemability. The redemption-based model suffered from the forced unnatural trading spread, suboptimal response times, and susceptibility to MEV (Miner Extractable Value). Therefore, the upgraded version of a stablecoin has become redeemable right for PCV reserves thus providing more efficient scaling to FEI.
The factor of redeemability provides a tighter peg increasing the level of trust towards the system. At the time of writing, there are 6 diverse assets in PCV with different levels of volatility. The upgraded version of Fei enables algorithmic management of volatility risk via the Balancer v2 Investment Pool. Balancer v2 has excellent tools to manage capital-efficient liquidity such as configurable weights, circuit breakers decreasing idiosyncratic asset risk, and asset management for meta governance and earning yield.
Taking advantage of algorithmic weight adjustment, the stablecoin defines different weights for a risk curve or varying levels of PCV leverage. When PCV approaches 100% collateralized parameter, PCV weights are adjusted towards stable assets like RAI and DAI. In comparison with the previous version, Fei v2 uses Balancer v2 Investment Pools for the management of risk, deployment of liquidity, and yield yearning with higher capital efficiency.
The role of TRIBE holders also changes with the introduction of the second version of Fei. While previously TRIBE holders were mere stewards of the protocol-controlled value (PCV) and the FEI ecosystem, in v2 they get higher importance. They become direct beneficiaries and risk bearers of PCV performance. With Fei v2, the concept of protocol equity comes ahead which is the amount of PCV that remains after users redeem all their circulating FEI for PCV collateral.
Fei Grants Program
In August 2021, the platform launched the Fei Grants Program with the purpose to expand the community of contributors. Also, the goal was to deliver more Tribe to the members of the community. The founders of the platform believe in the necessity of a well-performed grants program for the creation of decentralized and resilient assets.
The applicants should submit the form if they want to participate in the program. Grants are paid out upon the completion of work. The core protocol development is also performed via the grants program. However, the check of the result is performed by the auditing company in this case.
The founder at Fei protocol is Joey Santoro, BS in Computer Science. Previously, he worked as a Software Engineer in Okta, Inc. and was a Co-President of Duke Blockchain Lab.