Chain Reaction Host Tom Shaughnessy and Medio Demarco host Joey Santoro, the founder and architect of FEI protocol.

Episode Highlights

Chain Reaction Hosts Tom Shaughnessy  and Medio Demarco host Joey Santoro, the founder and architect of FEI protocol. This is the third episode in our algorithmic stablecoin series. Joey talks through the creation of FEI, direct incentives for reducing and increasing supply, protocol controlled value, direct incentives, and much more. 

Our other episodes in this series:

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Show Notes:

(1:19) – (First Question) – Joey’s Background and what brought him to Crypto.

(2:16) – Main Issues with Decentralized Stablecoins.

(5:31) – FEI Elevator Pitch.

(8:37) – Differences on Seniorage collateralized model / FEI.

(10:50) – What happens when FEI goes sub $1.

(17:37) – FEI Reweight Steps / Liquidity Benefits.

(20:17) – FEI vs. FRAX.

(23:35) – The Tribe governance token.

(29:01) – How Tribe be released to the world.

(33:08) – FEI, building confidence and expectations.

(35:24) – Thoughts about FEI’s ability to scale supply fast but also maintain a very close price to it’s peg.

(39:41) – FEI Biggest Risks.

(44:47) – How much could FEI police the Direct Incentive.

(47:06) – Thoughts about the possible impacts of other stablecoin communities enhancing projects.

(49:58) – Benefits of not being an anonymous founder.

(52:07) – Where to find Joey Santoro / FEI.

Music Attribution:

  • Cosmos by From The Dust |
  • Music promoted by
  • Creative Commons Attribution 3.0 Unported License




Disclosures: This podcast is strictly informational and educational and is not investment advice or a solicitation to buy or sell any tokens or securities or to make any financial decisions. Do not trade or invest in any project, tokens, or securities based upon this podcast episode. The host may personally own tokens that are mentioned on the podcast. Lets Talk Bitcoin is a distribution partner for the Chain Reaction Podcast, and our current show features paid sponsorships which may be featured at the start, middle, and/or the end of the episode. These sponsorships are for informational purposes only and are not a solicitation to use any product or service. Delphi’s transparency page can be viewed here.

Interview Transcript

Tom (00:00):

Hey everyone, welcome back to the podcast. I’m your host, Tom[Shaughnessy, and I have my co-host, MJ DeMarco, on. And today we have Joey Santoro who’s the founder and architect of FEI Protocol. How’s it going Joey? How it’s going MJ?

Joey (00:16):

Hey Tom, hey MJ, glad to be here.

Medio (00:18):

Yeah, excited to dive in, guys.

Tom (00:21):

Awesome. Well Joey, tell us a bit about yourself and how you got started in crypto.

Joey (00:27):

Yeah, absolutely. I got introduced to crypto in 2016, amidst all the crazy hype. I took a class on blockchain and crypto at Duke University. And I was there for the whole hype cycle, and I stuck around after. Been, you know, kind of learning and exploring during the bear market the last couple years, and pretty excited with how things are going right now. So yeah, I was a software engineer at Octa for a year and a half, and been power using DeFi in the meantime. And I was looking at Empty Set Dollar, hanging around in that community, and I came up with the idea for FEI as like a alternative mechanism, better design, in my opinion. And super excited to show this with everyone.

Tom (01:17):

Yeah, no, that makes a lot of sense. I mean, let’s dive right into it. What are the main issues you see with other decentralized stablecoins that are around today?

Joey (01:27):

Yeah. So I think what we’re seeing is we’re seeing a lot of different approaches, and I think this is phenomenal. Like, there are clear pain points and clear verticals that we want to have for stablecoins. We want to have, obviously, stability, we want to have liquidity, we want to have fair rewards. We might want to have collateral, we might not want to have collateral, maybe not too much. You know, and people are trying every possible design. And I think that right now, every single one has like a critical drawback is what I’d say. So taking a look at the stablecoins, obviously, you know, they’re not decentralized, they’re sort of a regulatory point of failure and I think that’s obvious to DeFi. Even though they’re highly used, I think that if there was a better decentralized model, we would definitely pile into that one. And looking at decentralized stablecoins, I’d say is a clear leader and they’ve achieved something of product market fit, having a over collateralized model.

Joey (02:29):

Although, I would argue that DY is particularly reliant on governance, having to manually adjust rates via governance for all the different parameters. And the over collateralization, and specifically the reliance on debt, for DY, is a limiting factor to scale. I’m sure there would be 10 billion DY, right now, if they didn’t have a debt ceiling and they weren’t reliant on. And I see that as a fundamental problem going forward, is that having a stablecoin that’s backed by collateralization, if we really want to scale DeFi in the future. And then looking at algorithmic stablecoins, obviously, the world is your oyster, like your favorite combo of parameters and one token model, two token model. And I was particularly impressed with Empty Set Dollar community.

Joey (03:19):

I love the people they’ve gotten in there. A lot of devs from the community, including myself, I was devving on Empty Set Dollar for like a little while in October. And I was able to like actually code one of the proposals that helped get out of a contraction. And that was pretty powerful for me, seeing the ability of decentralization to give someone like me the opportunity to contribute in DeFi. However, regarding the mechanism, I did feel that it sort of unfairly rewarded the holders and the DAO. It didn’t prioritize liquidity enough. And in contractions, the liquidity would all dry up and people would be stuck with these huge bags and nowhere to sell. To me, that was just a terrible experience and it kind of incentivizes whales games. It doesn’t really help the stability and the usability, long term, the way that they’ve designed their mechanisms.

Joey (04:13):

So I’m pretty excited to see what they come out with ESD V2. But I still see fundamental problems with Seniorage and FEI is not a Seniorage model. And likewise, with rebasing, I see there are similar issues. But FEI is a completely new approach that doesn’t fit into any of these categories, and we’re excited about the advantages that it has.

Tom (04:33):

Awesome. It’s a great overview too. And I definitely want to get more into the algorithm stablecoin competitors and what you like and don’t like. But let’s dive into FEI, to begin with, so we have something good to go back and forth on here. What’s the elevator pitch on FEI? Like, how did you create it? What are the core tenants of it? And then we can go into each one throughout the podcast.

Joey (04:53):

Yeah, absolutely. So the very first thing I want to highlight is that I see liquidity as the most important priority for a stablecoin. People don’t necessarily need collateral in the sense of putting up in a vault to get the Ethe back. What they want to know is they want to know that when they buy the stablecoin, they can go sell it for Ethe or some other asset at a very low slippage some point in the near future. And also as close to the peg as possible. And that was the intuition for FEI, is that we don’t need over collateralization, nor do we need like crazy algorithms. We’re just going to do kind of an exchange model. I call it liquidity collateralization. And the idea is that the protocol will sell you a stablecoin, it’ll sell you FEI for Ethe, and the protocol will own that Ethe. As it’s called, we call it protocol controlled value. And I’ll talk a little bit more about what that is.

Joey (05:49):

But essentially the protocol will take the Ethe that it now owns and it’ll put it on Uniswap, with some more FEI, to clear highly liquid market for you to exchange in and out of FEI. And also denominated and fully decentralized coins, we think that that’s super important. That we don’t rely on USDC or anything like that for low liquidity. And yeah, so there are dynamic incentives that will maintain the liquidity on that market, and that is what keeps the peg. So you have high liquidity, high fidelity peg, and we can into more specifics on the mechanism. But essentially the way you can think about it is liquidity collateralized and directly incentivized on the trading activity, to keep the peg.

Tom (06:36):

So Joey, two questions there. So the bonding curve is fixed at a dollar a peg. So that means that anybody can come in arb FEI whenever they want, if it goes out on one side, right?

Joey (06:49):

Yeah, exactly. So the way that new FEI enters circulation is through this bonding curve that I mentioned. It starts low to bootstrap capital, but then it fixes at a dollar after a certain bootstrapping target. But after that it’s always a dollar or slightly above a dollar, depending on how governance configures the buffer. And then if it’s ever higher than that on a secondary market, you can simply just go straight to the bonding curve and cough it off with an arb opportunity. What this does is it has a really great benefit, that new supply goes straight to the demand. There’s no centralized rewards like in the Seniorage model. The new supply comes in on the bonding curve and users can go straight to the bonding curve if they want, they don’t even need to go through an arbitrager. But otherwise, they would buy at a slight premium on a secondary market and arbitrage would bring it right back down. So it’s a very efficient and scalable model, which is in contrast to say a Seniorage or an over collateralized model.

Tom (07:47):

What are the differences with the Seniorage between arbing when you’re above a dollar? I mean from your perspective it’s super easy. If you guys are trading at 110, I go to FEI, buy at the bonded curve, a dollar, I could sell on the open market and profit and bring the price back down. How efficient is that compared to the other models?

Joey (08:04):

Yeah. So, to me, Seniorage actually has a perverse incentive kind of buried within the mechanism. Which is that the Seniorage holders want the price to be above a dollar, because they want to get more stablecoins. So they will actually be incentivized to hold large bags both on and off of the DAO, if you will, or whatever the Seniorage share token model is. And they’ll hold a lot of the tokens, the share tokens, and they’ll pump the price on the market, and then they’ll dump as like more, possibly retail or other investors, come in to capture these rewards. And they’ll just rinse and repeat. It’s sort of… It almost incentivizes market manipulation and high volatility, which I think is not a desirable property for a stablecoin.

Medio (08:52):

Yeah. And just to add to that point. You know, if you look at something like an, right. The supply expansions that happen when price is above a dollar, that’s, you know, theoretically supposed to help reduce the price on the open market. But typically what you see is, like you were saying Joey, whales essentially accumulating more and more of the stablecoin. Obviously, you can let that compound to continue juicing the rewards. So that’s a little that I think what FEI is opposing, right. You know, that stablecoin expansion process, you know that’s not just going to the hands of a few early backers. That’s really going to whoever wants to buy. And the ability to expand supply as, you know, essentially as quick as you can purchase on the bonding curve rather than on Uniswap.

Joey (09:43):

Yeah, that’s very well said MJ. We’re really trying to build a stablecoin. We’re trying to build one that the incentives are you buy it when you want stability. You don’t buy it when you want to pump the price or pump your bags. And the incentives are only temporary at the beginning of the protocol, and they don’t compound for the rest of time. Which I think is a huge benefit to our model.

Tom (10:04):

Joey, can you talk about the other side of this? Like what happens when FEI is below a dollar? How do you get it back up to the peg?

Joey (10:11):

Yeah, right. It’s always easy to inflate but it’s a little bit harder to handle the lower half of the peg. So yeah, we have two really powerful mechanisms to help manage the volatility below the peg. The first is what I alluded to at the beginning, these are the direct incentives. So these kick in below the peg, not above. And what that looks like is when a trader goes to sell on the primary incentivized market, which would be Uniswap in this case, but it could be changed by governance. So we have a deep Uniswap PCV liquidity pool. PCV is, again , the protocol controlled values. So this is not, no one owns this liquidity, only the protocol. And when a trader goes to trade against this pool and they’re going below the peg, what happens is they incur a burn on their balance. So they need to have an excess FEI balance, and they have to have enough to cover the burn. It’s like a tax, like a dynamic spread. And this burn grows quadratically with the distance from the peg.

Joey (11:11):

So the further we move away, the larger the burn. So at 1%, it’s a 1% burn, at 5% away from the peg it’s a 25% burn. So you’re talking about like massive deflation. And this is how we get the supply back down to the level we need when there’s low demand. And likewise, to return to the peg, there’s a mint reward. And the mint reward is always lower than the burn. And this causes volatility below the peg to be deflationary, which is, again, expected and good for the stability and should stabilize the price overtime.

Medio (11:48):

And that type of-

Joey (11:49):

And… Yeah, what was that MJ? And I could talk about the second mechanism, after. But what were you saying?

Medio (11:55):

I was going to say that contraction and essentially reward mechanism, something you could compare that to for an ESD or rather Seniorage model is the coupon that they buy. Where, you’re incentivized to burn your token, and when price reverts back above a dollar, you get back what you burned plus an additional reward on top of that. Yours, you know, has a very similar attribute. Right? When you sell on the way down, that’s deflationary. When… on the way up to the peg, that’s expansionary. So rather than playing the game, you guys kind of approach it from a different angle. Where simply transacting with the currency is influencing the mechanisms.

Joey (12:40):

Yeah. And I would actually, I would want to challenge like slightly. I think that the ESD model is almost secretly… Say the Seniorage love having coupons is almost secretly inflationary. It’s really like you’re gambling on future expansions, and it’ll only deflate if there is an expiration of the coupons. Which is kind of a terrible user experience. I remember the fear of coupon expiry was so high in the one contraction that I was involved with at Empty Set Dollar, that the community was paying 30-40% fees to these bots to redeem their coupons. And it was just a total mess. It all became minor extractable value. And I think that the FEI model is truly deflationary. The supply is just straight burned, that’s it. And even though there’s a mint on the way back up, the net is always a burn. And that’s what’s really important and what I want to focus is that there’s a true deflation here, not like a deferred inflation.

Tom (13:44):

Joey, do you think the stablecoin, or the Seniorage model, when there are coupons that expire, how do they get to an efficient level of supply that’s below some number if that just kills confidence in the entire system? Like if I lose money on coupons, I’m kind of like done with this system, right?

Joey (14:01):

Right. I mean that’s the problem. I think there’s clearly parameter tunings that might work. But, to me, I think that Seniorage is a difficult model for me to get behind if we want to have a decentralized stablecoin that’s backing all of DeFi. But I think that an under collateralized model, like FEI or like Frax, would have a much better chance at scaling to the level that DeFi needs, while also having strong mechanisms that are efficient and actually support the peg.

Medio (14:34):

Yeah, absolutely. When you partake in that, in the coupon game, you’re naturally assuming that there’s going to continue to be growth in the future. And, you know, of course, that’s certainly uncertain. So there’s added risk there. You know, on this point, there actually was a proposal for ESD about, and this isn’t anything set in stone yet, about letting the coupons… You know, if they do expire, essentially allowing people to get back the ESD they had burned. And really the only thing they’re foregoing is the on top of that. So there are tinkerings and ways of adjusting the Seniorage model that these groups are all trying in different ways. You know, ESD has different changes as well. So it’ll be interesting to see how that shakes out. But Joey, you’re certainly right that FEI’s direct incentive model is unique.

Joey (15:25):

Yeah, I mean it’s clearly unique. We’re doing something very new, and I’m heavily relying on feedback from the community and from like the smartest people in the space to really tune the model and make sure we’re protecting people. One of the parts of the mechanism that I’m most excited about is, what happens if nobody’s willing to buy back up to the peg? What happens if the mint reward is not enough? And the protocol actually does something really awesome here, it’s called a. And what that means is that if the protocol, if nobody’s trading back to the peg over a certain period, the protocol will use it’s massive PCV liquidity to essentially bring the price back up to a dollar. Sort of like in ESD V2, they propose having a treasury that’s able to purchase on the spot market to bring the price back to the peg. It’d be almost the same trade happening, using the protocol controlled liquidity to bring the price back to the peg. And this is an algorithmic guarantee that happens over a predetermined window.

Joey (16:24):

And it produces phenomenal game theory on peg maintenance, where, if somebody’s really panicky and trying to go sell, they’ll realize that if they sell now, they’re going to have a probably a big burn if we’re far dislocated from the peg. But if they wait for the reweight, which is going to happen, then they’ll get to sell at a much more favorable price or they might not even want to sell in that case. So it kind of slows down any bank runs, because the burn could get pretty bad but the reweight is coming. So people are always waiting for the reweight, and it slows down any negative spiraling that might happen.

Medio (17:03):

Yeah. And I think the reweight mechanism is really where the protocol controlled value starts to shine, in terms of the benefits it can offer. Just jumping back to ESD again, you know, typically when price goes below a dollar, you see the liquidity kind of clear out because the yields for it stop being incentivized. But in FEI’s situation, it’s much different, right. Because the protocol controls the liquidity in the pool, that’s essentially stuck there. So you don’t have to worry about, oh, is there going to be someone to buy this token? Or can I buy it without moving up price too much? Whatever side you may be viewing it from. But yeah, could you maybe talk through maybe the steps of the reweight, and then also, kind of like on the benefits this deep liquidity brings? Because based on earlier points, right, if you want a stablecoin to get really good adoption and utility, then liquidity has got to be a huge part of that.

Joey (18:05):

Yeah, absolutely. So it’s a four step process. I guess, technically, it could be five. But the way it works is, so the protocol, it owns a bunch of swap tokens. The first trade it does is it converts those LP tokens back into the underlying assets. So it withdraws it’s liquidity. And this is all done atomically. So it takes out, let’s in this case it would Ethe and FEI. Now it has a bunch of Ethe and FEI in it’s wallet. And then it looks the spot market and it sees if there’s any remaining LP, and it back up to the peg price, with that Ethe. And then now that the peg is restored, it’ll take the remaining Ethe and FEI and put it back in at the peg price. And then it would necessarily have some FEI left over, which it would burn. And those are the four steps. And then the fifth step is that there’s an incentive, it’s a fixed incentive for keepers to do this when the time period is met. And that’s sort of algorithm for reweights.

Joey (19:09):

And like I said, it has all these great benefits that it’s guaranteed, it’s a protection for holders, it really incentivizes a high fidelity peg. It’s not even a last resort, it’s expected that these will happen with some frequency. However, you have a lot of confidence for investors to want actually support the peg and take the mint incentive, over letting it get all the way to a reweight. And then likewise, the liquidity will be so deep because all the bonding curve funding is going to a liquidity pool. That, I think we’ll have a much easier time integrating FEI with other protocols that can be confident in the level of liquidity that we have in FEI protocol.

Medio (19:51):

Yeah. And I think this is a interesting point, maybe… You know, we’ve talked abut Empty Set Dollar a lot, so far during this pod. But another prominent stablecoin that’s certainly gained a lot of steam recently is Frax. You know, Frax doesn’t operate under this exact model, with a liquidity pool and reweight. But it does have a, you know, essentially a collateral pool that the ratio, between whether it’s backed by USDC or algorithmically it’s other token. That can vary over time as well. Any thoughts on how this comparison to the Frax model, both collateralized in a sense but differently with the power to kind of adjust that?

Joey (20:38):

Yeah. So I think FEI has a couple key benefits over Frax. But I would like to say that… Well, let me put it this way. I see Frax as our most serious technical competitor. I think that Frax’s technology is the most similar to FEI’s and perhaps the most compelling among all the alternatives. And I see DY as our practical competitor, and that like DY has captured the DeFi stablecoin market. And so we’re looking at DY in terms of like our execution and like who we’re really going after. But we are looking at Frax as like another serious competitor on the technical side. And also at the end of the day, like, yeah, we can talk about all this competition and certainly I want FEI to win. But I also do think that like having a lot of different stablecoins does help diversify DeFi, and helps us explore different models. So I’m really excited about all the innovation in this space. So definitely want to have a lot of winners and obviously want to maximize FEI’s share in that, as well.

Joey (21:35):

So talking more about Frax, I think FEI has some key benefits over the Frax model. One is that Frax is collateralized by other stablecoins, including USDC. So it is fundamentally tied to these technical risk of other stablecoins, especially the centralized ones. Whereas, the FEI model is completely decentralized, it’s backed totally by decentralized assets like Ethe. And likewise, Frax is using a Seniorage model, a Seniorage collateral hybrid model. So it inherits some of the drawbacks of Seniorage models as well. Like, peg manipulation for rewarding the Seniorage holders. And I think Frax, again, has very strong tech. But I do think it sort of inherits half of the drawbacks of the collateralized model and the Seniorage model, as opposed to being truly better. Whereas I think that FEI is really solving the problems of Seniorage, not lessening them likewise with over collateralization.

Joey (22:39):

And yeah, the last piece that I think makes FEI a lot stronger is that protocol controlled value is much broader than just locking up stablecoins in a vault. We can use protocol controlled value to do some creative things. Like, issue a graph token denominated bonding curve, where we use the graph tokens to curate our own registry for FEI protocol, our own manifest. And likewise, we could have protocol controlled value deposited on Avve, and the protocol, itself, could borrow against that deposit to create like a Fed funds rate or a DeFi funds rate for the FEI token on a lending platform. So flexibility of PCV and of FEI is so much greater than Frax. And I think long term, we’re going to just have such competitive advantage in being able to integrate in really creative ways with other protocols.

Medio (23:29):

Yeah. And jumping back to different aspects of Frax that could be compared to FEI. You know, if you look at Frax, that’s a two token model. You have the Frax stablecoin in FSX, which is the volatile algorithmic component. For FEI, you have the FEI stablecoin. But the other token in the model, we haven’t talked about yet is Tribe. You know, maybe we could go into that a little bit more Joey, and you talk about the role Tribe plays in the ecosystem and also it’s potential for.

Joey (24:00):

Yeah, absolutely. So we’re so excited about the Tribe governance token. For one, like it’s so great that we’ve been able to have this entire conversation and not even talk about it. That’s because FEI is a truly governance minimized system. We don’t need governance. Governance is just there to support the future growth of the platform and to upgrade and integrate with other protocols. It is not required to maintain the peg, which I think is a strong benefit versus a, which is heavily reliant on governance for maintaining the peg. And the Tribe token is capable of doing a couple things that are very cool. One is that it can vote on adding new bonding curves. So like I mentioned, we could add a bonding curve denominated in the graph token, or in DY, or in comp token. And we could use those comp tokens to vote on compound governance, perhaps putting FEI into compound.

Joey (24:57):

So you have a lot of awesome flexibility with the Tribe governance token. It can tweak other parameters and incentives. And it can move PCV around. I think the strongest benefit of the Tribe token, wherever the PCV is, it’s probably not the best place for the next decade of DeFi let alone the next year. Because DeFi’s moving so fast, there’s going to be newer and better opportunities for deploying capital. And we want to have the governance able to steward that PCV and put it into the right platforms to maximally benefit the FEI ecosystem and the FEI peg. And yeah, we feel that PCV, as a concept, is a sub-set of total value lock that’s still value locked in the protocol. But it’s not value that’s redeemable by users. So there’s no mercenary capital problem. A mercenary capital problem is that other platforms, that want to incentive, will be stuck doing high rewards and high incentives to keep the capital. And then once the incentives dry up, the capital will move to another protocol.

Joey (26:09):

With PCV, it’s owned by the protocol, it’s not going anywhere. And so we feel that the only way to value a DeFi protocol based on TVO, should be a higher multiple than a PCV model because it’s a stronger use case. So that’s the value of Tribe and the value of the mechanism. And we’re really excited about all the potential here.

Tom (26:33):

Joey, would you say that the Tribe token owns the protocol controlled value? Or would that be incorrect to think through?

Joey (26:40):

Honestly, it does. It really does. On a technical level, the Tribe token can be used to move protocol controlled value between addresses. And while we could, we were debating whether to add rate limiters to this. And there’s nothing stopping us from adding a rate limiter, later. But we didn’t want to hinder the flexibility of Tribes, at least at launch. And I think with more wisdom and more balance mechanism, we can add better safeguards. However, yes, Tribe does own the PCV and, in a sense, the security requires that the Tribe market cap, it be floored at the amount of PCVs so that 51% of tax couldn’t, say, drain the protocol.

Medio (27:23):

And so that brings up a few interesting paths to kind of talk through. One, you know, for that to happen, right, where Tribe holders themselves some value. That’s more likely than not, down the road, further. But let’s say they wanted to do that. Would there be parameters in place that would let them? For example, the FEI stablecoin needs to be 100% collateralized by the value in the pool before that’s even an option. You know, is that something how you’re thinking about? Or are you thinking about it even more open ended than that, without the constraints and the limiting factors?

Joey (28:02):

Yeah. So we’ve devved the protocol, it’s completely open. And like I said, we didn’t want to limit the usability, at least not first, while we’re testing out the mechanism. And then we can actually governance in safeguards later on. And I think that the way that the governance holders… Because, you know, we’re not going to control the protocol, right; we’re just a vessel. As the dev team, we’re creating this thing, we’re putting it out there. It’s going to be fully decentralized at launch. And we’re just going to be there to say, “This was our intention”, and the community’s going to have to vote and decide, on it’s own, how to move forward. And our intention is that Tribes should never participate in direct extraction. Because having a robust ecosystem and reinvesting PCV to support FEI will always grow the protocol more than taking a cut. And we think that that’s not what Tribe is about. And we’re going to be supportive of adding the rails in the future, if the community sees that to be necessary. And we’re going to be against any sort of rent extraction, even though it’s completely technically possible.

Tom (29:14):

Joey, just jumping in there on the Tribe token. How exactly will that token be released the world? Like, do you have to stake FEI for that? Or how exactly does that get out into the wild?

Joey (29:24):

Yeah, absolutely. So there’s kind of five categories that the Tribe token will fall into at launch. So the first is the one that I’m the most excited about, which is called the Genesis group. So this is the very first group of bonding curve purchasers. It’ll be a period of around two to three days, where everyone can pull their Ethe into a contract that will, at the end of the period, go and be the very first bonding curve purchase. And this is great because it gets you the best redemption price for your FEI. So your Ethe to FEI ratio will be the best possible. And then after that, the bonding curve will be first come, first serve, until it hits the one dollar peg and it’ll stay at the peg, indefinitely, after that. So this doesn’t actually involve any, this is just your pro-rata purchase of FEI. But as an additional incentive for being a part of the Genesis group, we’ll be distributing 10% of the Tribe market cap, pro-rata, to the Genesis group.

Joey (30:30):

So you’re getting a pro-rata portion of your FEI and a pro-rata portion of your Tribe, total equal opportunity against an exposure to these governance tokens. Another… Or, I mean, and these percentages are actually not final, so don’t quote me on these. But another percentage of the governance token will be deployed on Uniswap, directly, in the form of an initial offering in a FEI/Tribe denominated pair. So this will add additional liquidity to the Tribe/FEI pair, where users can go purchase on the market with some of the FEI that they bought. Or if they’re short Tribe, they could actually go and sell the Tribe from the governance token for more FEI. This will be all be available directly at launch.

Joey (31:17):

And these liquidity shares will vest to the dev team, and investors, over four years. So it’s kind of a like a way to have some reward for the devs, but while having it being deployed as liquidity for users over a long period, to allow for price discovery. So it’s kind of a cool hybrid approach there. And the percentages, again, are not finalized. But we’re still exploring other avenues. Another category of Tribe… And also, feel free to interrupt me if you want to talk about any specific category. But another avenue for earning Tribe is going to be a staking pool. Which, a kind of pull to model, where you actually take your FEI and your Tribe and you deploy it as liquidity on Uniswap, and you stake those to earn even more Tribe. And then you can reinvest your profits with more FEI to like keep doubling down on the rewards. And that’s just a way to have more liquidity and reward users with more Tribe tokens, and sort of how to way to deploy your FEI tokens in the meantime, before we have some key integrations.

Joey (32:31):

Last two are pretty straightforward. One is a community owned treasury, which we want to have be quite large. Because we want to be able to get, distribute governance tokens directly to the users who are contributing a lot of value to the protocol. So we’re going to invest in like governance delegation directly from the treasury, that to users, so that they can get exposure to Tribe. And it’s not going to be capital based, it’s going to be effort based and involvement based. I mean that’s our intention, anyway. Like, governance is going to control these, but we feel that these should go into the hands of the users who are actually powering the protocol. And the last will be an allocation, again, for the dev team, so that we can steward the protocol in it’s early days. But it’s not going to be a majority of the tokens, because we don’t want this to be a VC coin. We really want this to be… Or even controlled by us. We want it to belong to the community.

Tom (33:27):

Joey, so that’s awesome. I’m just digesting that and I’ll have a follow up question in a second. I guess my other question though, for you, kind of on this tangent is how exactly do you build long lasting confidence so that people will use FEI for the long term? Right? Like, DY obviously had a rough past, where we were on community calls every week, debating stability fees. But everyone kind of had a sense it would be around a dollar. ESD, I think, is a little bit harder to make that point. And Frax has been pretty solid at a dollar. I just think that it takes a long time to build that confidence before people start transacting large sums of money, or using it within their protocol. So it might be like months or potentially, but less likely, years, before people really have the confidence to pull the trigger on FEI, in that respect, and any algo stablecoin. I guess, how do you think through building that confidence and expectations, and then also getting those integrations that you need within DeFi?

Joey (34:21):

Yeah, that’s a great question. And we’re super confident that the mechanism will speak for itself, and it will facilitate a high fidelity peg similar to Frax has had. And we hope that that will give us like at least an easier time integrating with other platforms. And integrations are absolutely key. So we’re really excited to try and like communicate and get involved with other protocols. And we have some partners, who we’re excited to announce later on, that will be willing to integrate with us. And I think it’ll be really great for the FEI ecosystem. Maybe not right off the bat but like sooner rather than later. And these will, again, be great integrations that will help support FEI utility, FEI liquidity and we think that those are going to be key. And we’re in this for the long term. As the founding team, like I said, we’re not going to own the protocol, but we are going to be fighting for it, and protecting, and meaningful incentivize to make it succeed over the long run.

Joey (35:31):

We’re going to have extremely long lockups, four years, for any tokens that we own, so that the community knows that we’re in this for the long run. And four years is an eternity in DeFi. So if we haven’t done anything interesting by then, then we’re definitely not going to succeed. But we’re very confident.

Medio (35:51):

yeah. And touching on the utility point, that could be a tricky thing to kind of solve for, right? It’s almost a chicken and the egg problem, where to be useful, to have that utility, you need a large enough supply to support it. And you also need the stability for it to be used for it’s intended purpose. But, you know, whether it’s scaling supply or maintaining low volatility close to your peg, there are different projects making different trade offs. And both have their different advantages, right? If you look at something like ESD, they’re modeled is in a way that they’re scaling supply fast, but it’s in a much more volatile way. Whereas, if you compare it to Frax, they’re scaling supply much more slowly but it’s also less volatile. Right? So Frax is kind of an interesting model, given it’s uniqueness. Where, you could see the ability to scale supply fast but also maintain a very close price to it’s peg.

Medio (36:54):

So you kind of see it as maybe like threading that needle and, you know, both offering scalable yet non-volatile supply right out of the gate? Or do you think FEI is something that will kind of just get better with time, as confidence builds?

Joey (37:11):

Yeah. So it’s great that you asked this, MJ, because we actually, we have some parameters in the bonding curve that let us make these exact trade offs. And we have not finalized the numbers for these. So we’re going back and forth, internally, and we’re going to be opening up a lot of these discussion in the Discord, which we just opened today, as of recording. So definitely hop into the Discord if you have ideas. You could check us out at @FEIProtocol on Twitter, and we have links to like everything. is the website. We’d love to have any of you in the conversation because we’re not done, and we got to make sure that the parameters are tuned to have this graceful… Like, we get to the right supply without too much inflation, not too explosive, and then we start integrating because we’re at the right size, not too big, not too small. So it’s kind of like this Goldilocks problem. And yeah, we’re definitely going to be… This is the top priority conversation until we launch.

Tom (38:12):

Joey, one quick question. When we think about value, it also makes to kind of appeal to people to… You know, if you could make your early adopters rich, generally you could attract a lot of attention. Right? I don’t think that’s the goal here. But I think ESD’s benefited from allowing speculators and investors to potentially make a lot of money. And I think Frax has done the same, where you could stake your LP shares for numerous pairs and you could earn a yield of anywhere from 50 to 300%. And you could time lock that and that gets increased for collateralization ratio, et cetera. Do you think that your protocol will have enough value acrolled by Tribe to drive that demand? Or are you not relying on that like ESD is, in the first place?

Joey (38:56):

We’re not trying to rely super heavily on the governance token like by itself. We feel that the bonding curve and the mechanism should be enough to speak for itself. So the primary parameter that I mentioned is the scale target of the bonding curve. This is the point at which the bonding curve fixes at a dollar. Before that, you were just buying stablecoins at a discount, sort of like coupons, almost. And we think that if people really confident in the mechanism, which I would argue that they will be, because we’re really excited about the mechanism and we think it’s strong. So there’s bound to be enough investors who are confident in the mechanism. And they’ll come in on the bonding curve, they’ll get us up to this scale target. And our goal for that number is that that number should be the size at which we’re just large enough to integrate with other platforms, but not so large that we just have a completely inflated supply.

Joey (39:51):

And that’s the main number that we’re going to be tuning to make sure it’s the right fit. And we do feel that Tribe has a strong utility and a strong value proposition, and that that could be a source of wealth for our users. And we’re going to try and, obviously, drive that. But that’s not strictly necessary and we’ll sort of see how it all pans out.

Tom (40:19):

Awesome. And Joey, what are your biggest risks, internally, do you feel for the protocol, I guess, on a technical or non-technical level? Like already we talked about building confidence and expectations. But what are the biggest concerns for you? I mean is it adding multiple bonding curves? Is it pulling all the Uniswap liquidity in the? Like, what are the biggest kind of question marks that you either really can’t test until it’s live, or that you might be concerned about?

Joey (40:44):

Yeah, I mean this is a phenomenal question. I think until we launch, there’s obviously going to be, you know, there’s competitive risk. And even after we launch, there’s competitive risk. And before and after we launch, there’s market risk. So we’re going to be using Ethe, a volatile asset, as our liquidity collateral, and Ethe could go down. And because it’s deployed as liquidity, we’re sort of slightly protected from this volatility. Kind of like the inverse of impermanent loss, where as people are selling Ethe, we’ll get more of it in the protocol. But it’s still going to be a situation where our collateralization ration goes down if Ethe goes down. So it’s possible that this will create low fidelity in peg and people will try to sell. I think it’s unclear, actually, to the extent that this will be the case. Because the protocol’s so comfortable in a under collateralized mechanism, it operates basically exactly like a fractional reserve bank. Where, we’re not expecting everyone to want to redeem all at once, and there’s enough liquidity for the vast majority of people to redeem.

Joey (42:02):

But if the collateral goes down, then potentially not everybody could redeem. However, the dynamic burn incentives are there to deflate on the way down, and to protect the users who might be later in the cycle. So there’s these competing incentives on both sides, and there are scenarios where things could go wrong. But at the same time, we have a lot of protection and configurability through governance to slow that. So I think, yeah, we’re going to have to see how it goes. We’ve done some modeling internally, and we’ve done some analysis on the white paper. Which, again, would love thoughts on if anyone wants to share those thoughts. And yeah, like we’re doing everything we can. And there are obviously ways it could go wrong, but, again, we’re protecting against those and we’re confident in the mechanism. So we’ll just have to launch it and see what happens at the end of the day.

Medio (43:01):

Absolutely. And you know, to your point, if the price of Ethe goes down, that direct burn mechanism on transactions, I think, will have a huge impact on potentially mitigating that risk. But on the flip side, you know, with the protocol controlled value denominated in Eth, if Eth appreciates that’s to the benefit of Tribe holders and integrated parties that rely on the stability of the FEI stablecoin. You know, painting a scenario that way, let’s say the price of Eth doubles over the time that it’s held as protocol control value. Do you see that as a situation where maybe more stablecoins get issued off of that? Or do you see that as a situation where maybe Tribe holders book themselves some type of return of capital? It’s tough to know now because, of course, this is up to future participants of a decentralized community. But interested to get your thoughts.

Joey (43:58):

Yeah. I mean the world is your oyster, right? Like, if we’re doing great and the collateral’s doing great, there’s an infinite number of creative ways to inflate or return value. We’re obviously going to prioritize adding new bonding curves, which fundraise assets that would be useful to the protocol. So that could be a stablecoin denominated bonding curve. Obviously, a decentralized stablecoin, not one that’s centralized because we don’t need centralized stablecoins for stability. Or even more creatively, like a graph token bonding curve or some governance token bonding curve, like a comp token bonding curve, for instance. These are the types of ways that we could inflate. Likewise, we could have like a DeFi funds rate. Where, we’re issuing an interest rate for staked FEI. I would much rather return inflationary rewards to FEI holders, to have a more robust FEI ecosystem than to give rent to. Because rent is short sighted and I think that there are, again, there are creative ways to sort of grow the platform and grow the value prop when we’re all doing great and the collateral’s doing great.

Medio (45:14):

Yeah. And to your point, I believe you said this elsewhere. Where you said it would be like expecting a dividend out of a startup, right? You know, you put-

Joey (45:22):


Medio (45:23):

You put that capital to work and it continues to grow for the benefit of a company, but in this case the FEI protocol.

Joey (45:30):

Exactly. Yeah, we’re going to advocate strongly for that, as the founders. And hope that the governance community sees it the same way.

Tom (45:39):

Hey Joey, quick question the incentives. Like, when buyers are earning and they’re earning more FEI, and when sellers are selling and part of their stake is getting kind of burnt, or their balance. Is there any ways around this? Like could somebody make a balancer pool and kind of avoid that issue? I’m just wondering how much you can police the direct incentive side of things?

Joey (45:59):

Yeah. So it’s funny, like I was discussing this with someone in the community. And they were saying, “Oh, what, are you just going to go whack a mole every single decks that offers FEI?” And we could certainly do that, it’s possible for governance to add incentives to any contract. It doesn’t even have to be an exchange. However, there’s no way to avoid a centralized exchange issuing FEI, and the centralized exchange would just be able to not have, like avoid these incentives. And honestly, secondary markets are great because users get all the psychological benefits of the peg maintenance without actually needing to incur the burn if they want to go sell.

Joey (46:41):

So we’re fine with secondary markets. Because when these secondary markets want to get their FEI, to list, they’re going to have to buy it from the bonding curve and they’re going to fund the PCV. So the PCV liquidity, it’s always going to be way deeper than any secondary market. And the only way around these fees are to go to a secondary market, and the secondary markets will be a lot smaller and they’ll always arbitrage with the incentivized market. Which is how the peg is maintained. And we see this as a great… You know, this is fine. There’s no problems here. And there’s no way to get around the incentives on Uniswap. You know, we’ve taken great care when writing the code, to make sure that it’s impossible to avoid the incentives on the incentivized exchange.

Medio (47:28):

Yeah. And that’s a really important point that you brought up, right? If the Uniswap pool has a billion dollars of value sitting in it, but it’s also listed on a centralized exchange. Yes, you may face some time type of burn transacting on a Uniswap pool. But it’s such deeper liquidity that, in many cases, that’s probably a preferable path, still. So, again, this is where the protocol controlled value and accumulating that over time can really benefit the utility and also maintenance of the peg.

Joey (48:03):

Yeah. Yeah, very well said, MJ.

Tom (48:06):

Joey, one last question from my end, and this has been awesome. ESD and Frax, obviously, have been around for a little bit longer. I feel like every algo stablecoin has come out in the same kind of quarter. But they obviously have hundreds of millions and supplied, have pretty solid communities. ESD might have more of a investor community, Frax might have more of a stablecoinish community . But are there anything those protocols could do to improve themselves to maybe box you out? Like, I think FEI is nothing short of amazing. Like, it makes so much sense to me. I guess it just keeps me up that better tech doesn’t always win, it’s usually the community that wins. But their projects might not be able to be enhanced to a level that yours is at, if I’m, you know, in a perfect world. Just taking one side of the trade there. But, I guess, how do you kind of think through community’s enhancing other projects to your detriment there?

Joey (49:00):

Yeah, that is certainly possible and we’re going to expect that. We’re going to launch as quickly as possible. We’re targeting mid-Feb, early March, and aggressively prioritizing launching over any other conversation. And yeah, we’re just going to have to leave it up the community. We have, we as the devs of FEI protocol have very strong values, a very clear stance. Where, we’re not anonymous, and ESD’s anonymous, Frax is not. We have some great people involved in the early community, and we think we’re going to be able to certainly compete. And there’s going to be competition, right? Especially given how compelling the FEI model is, there’s going to be copy cats either from the incumbents or from the.

Joey (49:50):

So we’re just going to have to hope that the community really values what we’re about, and really values the innovations that we’ve contributed, and the tech that we’ve contributed. We’re certainly going to do our best to really fight for the community, and hope that the value we created is taken as such. And our values are that we want to look out for the non-whales. We’re heavily investing in optimizations. We’re looking at creative ways to distribute the governance token to non-capital rewarded avenues, and we’re heavily invested in transparency. We’re staking our public reputations on this. This is not a scam, this is not a rug. And we hope that the community will really value what we’re about. And we just want to be so inclusive, and transparent, and secure, and hope that that’s what gets us there.

Tom (50:43):

Joey, that’s awesome. It makes a lot of sense. And I guess my last question, and then I’ll see to MJ if he has any closing thoughts, here. I think it’s super important that you’re not an anonymous team. I think we’ve seen too many rug pulls with people that don’t have their social status linked to the project, and leaving would obviously tarnish that. And I think that’s worth more than kind of pushing the regulatory edge by being anonymous, personally. How do you feel about that? Are you able to… Do you think the benefits of having your face in the project outweighs what you may be able to do if you were anonymous? Would you be able to do more if you were anonymous? I guess, I’m asking.

Joey (51:18):

Oh, I’m sure of it. Don’t tell anyone, but I considered anonymous. And I ultimately decided that both my network and having this public incentive were so much stronger. Like, I would not want to live in fear of people doxing me. I would not want to be-……

Jan 19, 2021 | 60 min | Chain Reaction

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