How not to design a stablecoin

in crypto •  2 months ago 

FEI Turns Fey, as it proves to be a rather unstable coin.

“FEI dropped down to $0.136. In the process, it should have taught everyone a few lessons about stablecoin design and, perhaps, crypto investing,” Emin Gün Sirer tweeted. FEI/TRIBE was a two-coin algorithmic stablecoin, with a twist. The twist was flawed from the start and it should have been possible to predict that this idea would not work,” he added.


In a typical two-coin algorithmic stablecoin, you have one coin, FEI, trying to maintain the peg, while the other one is used [to] absorb the volatility. Algorithmic stablecoins work very well when the demand for the coin is so high to be over the peg: you just mint more FEI to bring the price down to the peg. The actual challenge lies in what to do when demand is lagging and price is low. twitter

Just imagine, a VC threw billions of dollars at the project - you can see them at FEI website - and they totally screwed up the mathematics! Gotta laugh.

They should have consulted this research paper: A Classification Framework for Stablecoin Designs.

I wish they'd throw that kinda money in my direction! ;-)

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