Introduction to the Fei Protocol

We have recently looked into the current landscape of stablecoins. The number of different attempts of building algorithmic stablecoins that are decentralized and under-collateralized has increased in recent months. Algorithmic-driven stablecoins such as Empty Set Dollar (ESD), Frax (FRAX), Dynamic Set Dollar (DSD), and Basis Cash (BAC) have a combined market capitalization of over 428 million dollars at the time of writing.

We have also analyzed the mechanism design of “seigniorage shares” algorithmic stablecoins. They are uncollateralized and thus capital-efficient, but they often trade at a price far away from their peg and have yet to prove they can be stable. For example, ESD, DSD, and BAC are trading below peg for an extended period.