Fei Protocol's goal is to scalably issue a $1 pegged decentralized stablecoin, FEI.
At a high level the FEI peg mechanism is straightforward. Fei Protocol algorithmically manages a reserve of tokens (Protocol controlled value) which supports direct redeption of FEI at $1.
FEI can be minted and redeemed for $1 of collateral. Arbitrageurs ensure a tight peg on secondary markets.
The assets which can be minted or redeemed change among DAI, ETH and LUSD depending on market conditions.
Protocol Controlled Value
The protocol reserves are known as Protocol Controlled Value or PCV. The PCV is deployed into a combination of liquid and illiquid strategies with the following goals:
- Defending the peg
- Providing utility/liquidity to FEI and Tribe DAO products
- Growing through yield farming
Tribe serves as both a governance mechanism and beneficiary of protocol productivity.
Tribe insures reserve shortfalls, if PCV ever dips below 100% collateralization, an on-chain recovery mechanism would issue new TRIBE to buy back FEI debt.
When a surplus exists, the protocol buys back TRIBE off of the market with FEI at a percentage of the surplus.