I want to offer a perspective that I haven’t seen expressed so far.
For the most part, the genesis was a success. It raised more than twice as much capital as anyone expected it to, and it rewarded its participants exactly as it was intended to. After launch, the incentivized fei-eth uniswap pool has behaved as it was designed to behave in the face of tremendous sell pressure. And the price of tribe in the fei-tribe uniswap pool dropped in reaction to the unavoidable action of whale backed bots. There’s also been a tremendous amount of community engagement. Leveling fair criticisms about the way the last couple of days have played out and offering many different solutions to the problems we face in the near future and in the long term. The team at fei labs is evidently listening to our concerns and preparing to implement the potential solutions. To me, this seems like a promising beginning to a radical experiment in direct democracy and decentralized finance.
There are two types of genesis participants that seem to have been taken aback by what’s happened so far.
On the one hand, there are people that participated in genesis under the impression that, no matter what, they’d be sold fei under a dollar and then they’d be able to promptly sell fei at a dollar. And that’s understandable. If much less eth had been committed, genesis participants would have bought fei under a dollar. And after several weeks or months, when the protocol reached scale, they would’ve been able to sell their fei for about a dollar’s worth of eth. I can see how the well intended spread of incomplete information led many people to think that such a scenario would occur even after the protocol the protocol raised more than $250,000,000. And I think it’s extremely important for the long term health of this community that people that acted under this misunderstanding don’t feel cheated in the long term.
On the other hand, there are people that participated in genesis under the impression that, no matter what, pre-swapping was an opportunity to buy tribe at the cheapest possible price. And there was one likely scenario where this effectively held. Inevitably, there would be some sell pressure from whales that considered airdropped tribe to be a quick profit. I spent some time calculating what kind of profits could be made under ideal circumstances (access to the first blocks after launch, etc…), and came to the conclusion that, more or less, for every $100,000,000 committed and fully swapped, there was an opportunity to profit about $1,000,000 with a $3,500,000 investment, dropping the price of tribe to around 60% of the preswapped price. I haven’t done the work of pouring over the transactions on the tribe-fei uniswap pool to determine if in fact whales have profited in this proportion, but I did notice that the price around which tribe stabilized for the first couple of days ($2) was indeed around 60% of the preswapped price (around $3.25). But even having done these calculations, I invested 1/5 of all the capital to my name in the genesis and chose to preswap! The reason I did this was two-fold: (1) I knew I didn’t want to spend my weekend looking for tribe buy signals to make sure I bought at the lowest price; (2) I was optimistic that other users would use their weekends looking for tribe buy signals, pushing the price of tribe back up to an effect break even point. But as we know now, my bet was wrong. At least in the short term. The price of tribe seems to be dropping under $2 in reaction to the widespread worries that the protocol is flawed. Just as before, I think it’s extremely important for the health of this community that people that acted under this other misunderstanding don’t feel cheated in the long term.
All that said, I think that appeasing the temporary sell pressure on fei is not the right approach.
On the one hand, this is contrary to the original design of the fei protocol. Direct incentives coupled with occasional reweights are central to the innovations introduced in the white paper. Think about it this way: as a community, we may all have lost a little capital at the moment; but on the flipside we now have the opportunity to collectively use $1.3 Billion in ways that would never be possible if we all acted individually. That’s what we participated in!
On the other hand, the best possible solution to relief the sell pressure will return $1 for every $1 put in to anybody that wants out. All of those participants will still leave the protocol with a sour taste in their mouths after having spent days or weeks fighting to recover money they misplaced. Needless to say, as much as we want to look out for the interests of people that misunderstood the protocol and feel trapped, responding to their demands is not necessarily advisable. If they knew better than the rest of us how a stable coin should work, they wouldn’t have placed their money in fei. Protocol controlled value isn’t collateral for fei. And we shouldn’t use it that way. Users that want collateralized stable coins can buy USDT, USDC, DAI, etc. And they could have bought those tokens before saturday. Here we can use protocol controlled value in new and creative ways. And every time we decide to use it instead to please unsteady hands, there’s an opportunity cost. Where else could that money have been used? If you’re part of this group of participants that is eager to sell your fei for a dollar, I encourage you to consider what you could do instead if you choose to become an active member of the community you happened upon. Collectively, we own $1.3 billion dollars. That’s amazing!