Fei USD is a decentralized stablecoin created by the FEI Protocol. It is designed to maintain a stable value pegged to the US dollar through an algorithmic mechanism. This means that its value aims to stay close to $1, providing stability compared to other, more volatile cryptocurrencies.
Fei USD operates using an algorithmic approach known as the Direct Incentives Mechanism (DIM) to stabilize its price. This mechanism adjusts the supply of Fei USD based on real-time market conditions. The process involves incentives for actions such as buying or selling Fei USD on decentralized exchanges (DEXs) like Uniswap. Additionally, the Protocol Controlled Value (PCV) is a key component, using reserved assets to back the stablecoin and manage its market value.
Fei USD has several potential applications:
Fei USD was launched by the Fei Protocol in December 2020, founded by Joey Santoro. Originally conceptualised to create a fair and liquid stablecoin, the protocol introduced the novel Direct Incentives Mechanism. After initial challenges post-launch, the protocol improved and underwent a significant update with Fei V2, enhancing its stability and governance. A notable event in its history was merging with Rari Capital to form FeiRari, showcasing an example of on-chain governance evolution in the DeFi space.