Aug 25, 2022 - Economy

Another algorithmic stablecoin looks like it is giving up

Illustration of a blockchain cube disintegrating into pieces.

Illustration: Gabriella Turrisi/Axios

It's probably the end of the line for another algorithmic stablecoin, fei. Either way, it is almost certainly the end of the road for the decentralized autonomous organization (DAO) that runs it, TribeDAO.

Why it matters: Crypto projects seldom completely disappear, but we're watching a DAO unwind itself in real time right now as the creators of the project propose a plan to break it up. This could end up being something of a historic moment in decentralized finance, as founders pioneer a shutdown.

  • Remember that, by their design, DAOs have no central authority. We haven't seen founders of these decentralized finance (DeFi) DAOs walk away much — but when they have, they have typically left it for the community to run if they want to.

What they're saying: The project's creator, Fei Labs, is not getting very specific about its motivations for proposing the end.

  • Why now? When asked by Axios, Fei's creator, Joey Santoro, wrote over Twitter direct message: "It isn't interesting. The truth is what we have said publicly. The risks are too high, hacks etc. This is simply the right thing to do."

The official line in the dissolution proposal is that the DAO is in a "suboptimal state" and that "any of the mounting technical, financial, and future regulatory risks could cause the project to be far worse off than it is now."

Flashback: Fei Labs first revealed itself with news of a $19 million fundraise in March 2021, with backing from all the bigshots: Coinbase, a16z, Framework, Naval Ravikant and others.

  • The protocol launched the next month, in early April, as users gave it $1.3 billion of ether to get the first fei stablecoins, pegged to $1 each. They did it so they could dump that fei into Uniswap, a decentralized exchange, and earn generous early distributions of Fei's governance token, tribe (which was given to early supporters).

Of note: The fei model was seen as innovative, because people didn't stake ETH for FEI. They exchanged it. The protocol itself owned the ethers given to it. Fei Labs called it "protocol controlled value" — that became a whole thing in 2021.

  • The smart contracts used incentives for buyers and sellers to help the token hold its $1 peg — but the fei token had a hard time reaching that peg right out of the gate.
  • By around May, it got the gears and motors aligned correctly and started holding, although it had to shed about a billion dollars in market cap to get there.

The intrigue: Late in 2021, the Tribe DAO acquired Rari, a lending protocol. Shortly thereafter, Rari lost $80 million in a hack on its Fuse lending pools.

  • Most of the attention to this dissolution proposal has been directed toward a dispute about how far it should go to pay back the victims of that hack.

If it all works, fei the stablecoin will continue, but the smart contract that runs it will stop changing. It won't have a DAO; governance will switch off. Who knows if anyone will want it then.

  • Holders of Fei's governance token, tribe, will split up its remaining assets after fei holders get dai in exchange, at a 1:1 rate (the DAO currently has about $222 million in assets).
  • And that will be that.

Of note: Tribe, is up 64% on news that the end is near.

The bottom line: The hack aside, though, that's not how this moment will be remembered. It will be remembered for the lessons it teaches about ending a DAO. Already we can see that TribeDAO, while it's debatably decentralized, is anything but autonomous.

  • TribeDAO is made up of people, and the people want out.
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