Fei Protocol supports the creation of decentralized, scalable and fair stablecoins based on Ethereum. There is no upper limit to the supply of FEI stablecoins, which can track demand and enter circulation through sales along the bonding curve. The price function will reward early adopters who purchase FEI with a low price at the beginning. Its mission is to create a fully decentralized stablecoin. This is the position that the development team wants the governance community to uphold in the future.

The FEI stablecoin has an uncapped supply that tracks demand, and it is sold into circulation through a bonding curve that approximates and is fixed at an anchor price of $1. When new FEI demands arise, users can obtain them by purchasing them on the bonding curve. The price function will start rewarding early adopters who purchase FEI at a low price. The Fei protocol will support the creation of bonding curves in any ERC20 token, but will only include a single curve denominated in ETH at launch.

The mission of the Fei protocol is to create a fully decentralized stablecoin, so it is critical that tokens issued by trusted third parties (e.g. USDC, USDT, wBTC) are not used as bonds on the bonding curve , which is the position that the development team hopes to share by the governance community after launch.

The ETH bonding curve will have a target FEI supply for bootstrapping before the price is fixed at $1. This target is called "Scale", and reaching "Scale" indicates the end of the bootstrap phase. According to the introduction, "Scale" will be set to 250,000,000 FEI. After the "Scale" phase is complete, the bonding curve price will be fixed at a governable buffer above the anchor price. This price creates a constraint throughout the ecosystem that arbitrageurs can buy on the bonding curve and sell on the secondary market if the price is higher elsewhere.

It is important to note that users cannot sell FEI on the bonding curve, instead the protocol reserves incoming ETH as a Protocol Controlled Value (PCV). Fei Protocol deploys PCV to create a liquid secondary market where users can sell FEI back for ETH. We explore how PCV supports the FEI ecosystem below.

The Fei protocol is an ideal application for generalized PCV, with bonding curves and other incentive mechanisms funding the PCV pool. It first allocates 100% PCV of ETH bonding curve financing to the Uniswap pool with ETH/FEI assets. The reason why the development team chose Uniswap is because it has a lower threshold and is more familiar to ordinary DeFi users. Governance can reallocate PCV to other platforms in the future if the use case is clear. This approach has two key advantages over relying on a stabilization mechanism provided by external liquidity:

With guaranteed liquidity, FEI holders can rest assured knowing that no whale can take away the liquidity owned by the protocol. It is funded by Bonding Curve and placed into the Uniswap ETH/FEI asset pair.
Peg Reweights — Fei protocol can reset the Uniswap price back to the peg price if it is below the peg price for a long time. It does this by executing the following atomic transactions: (1) withdrawing all protocol-owned liquidity, (2) buying FEI with the proposed ETH, bringing its price back to the anchor price (3) replenishing the remaining PCV as liquidity ( 4) Burn excess FEI. When the price is low for a period of time, any liquidator (keeper) can trigger a peg repricing. The protocol rewards liquidators (keepers) through FEI minting incentives.

PCV readjusts the FEI/ETH Uniswap pool to anchor the price

Through governance, future use cases of PCV can be more creative. The protocol can maintain a collateral balance in lending platforms such as Aave. It can then adjust interest rates in the FEI market by offering and borrowing FEI tokens, etc.