A significant number of incidents occur in the decentralized financial industry due to human error or other reasons. As a result, calls for regulation are louder than ever, even if they don’t always deliver the expected results.
Examples to consider
Those who have followed the DeFi space closely will know that protocols can come and go in the blink of an eye. There are numerous hacking, theft, and phishing attempts, and some projects have been closed for various reasons. One example is the Fei Protocol, where he is still worth $47 million through the FEI stablecoin. These numbers are associated with a healthy project, but things aren’t as black and white as they seem.
Valued at $47 million, the DeFi protocol is doing quite well, especially in the current macroeconomic climate. However, Fei Labs, the team behind the Fei protocol, thinks it’s best to throw in the towel.
Group should be considered Raised $1.3 billion Build a decentralized stablecoin on Ether. Even at current valuations, the project is worth far less than the amount raised. The funds were used as collateral for the FEI stablecoin, indicating that they were somehow put into the project.
However, FEI is different from the native Ethereum stablecoin, DAI. Various crypto assets back all his FEIs, but the Fei protocol owns these assets. Users effectively sell cryptocurrencies to acquire stablecoins rather than borrow against assets through higher collateral ratios.
All acquired crypto assets are Protocol control value (PCV) There are advantages to this approach as assets in the ‘vault’ PCV can be used to maintain the FEI’s $1 peg, increase yields, or create utility for the FEI.
So far, nothing suggests that Fei Labs or its protocols are in imminent danger. Admittedly, the ratio of market cap to capital raised isn’t great, but it’s not insurmountable either. Additionally, Fei Protocol merged with Rari Capital in his December 2021 largest DAO-on-DAO merger to date. Another powerful move, but the situation began to unravel soon after.
Too big to collapse?
Merger with Rari Capital makes FEI more convenient. Rari Capital allows the creation of unauthorized lending pools called Fuse Pools. This has been a popular concept as it helps bootstrap liquidity for new DeFi projects and the FEI provides a stable asset for early liquidity.
Things didn’t go as planned, but there were all signs of a strong partnership that could take decentralized finance to the next level.
Despite around $2 billion in liquidity, far more than Fei Labs originally raised, the mixed-use pool was hit by a hack. Net losses he is estimated to be close to $80 million, which is a problem, but small compared to total liquidity. With sufficient liquidity, the “bad debts” will be repaid and affected users will be fully recovered. Curiously, her TRIBE holders, the asset that governs the Fei protocol, voted against issuing refunds to affected users through her PCV.
9/ After hacking $TRIBE Owners voted against using PCV to pay hack victims.
In June, Rari Capital’s CEO announced he was stepping down.https://t.co/tJ5bdBTazK
— Ignas | DeFi Research (@DefiIgnas) August 20, 2022
It is the prerogative of the community to vote against such proposals, but the DAO voted in favor of creating the user a month in advance. The disparity caused so much turmoil that Rari Capital CEO Jai Bhavnani was forced to resign. That in itself was pretty interesting, but TRIBE’s owner was fed up with Rari Capital before that decision. they again, Stop vesting partners from Rari, It puts a lot of pressure on coalition with the Fei Protocol.
Farewell letter from Rari CEOhttps://t.co/08mj6xpYhT
— Bangteg (@bangtg) June 12, 2022
To this day, the Fuse hack remains one of the reasons Fei Protocol is shut down. However, the team also notes “challenging macro-environmental factors” and “increasing technical, financial and future regulatory risks”. Still, PCV still has significant crypto value, and Fuse hack victims are still waiting for their money.
tie loose ends
TRIBE DAO members have to make important decisions.a suggestion Once Fuse allows all outstanding FEI to be redeemed, it can be redeemed for DAI. Additionally, Protocol Control Value will no longer be involved in farming strategies, allowing TRIBE holders to get their fair share of the various assets.
The big question is whether PCV funds will be dumped on the market (assuming they are distributed to members of the Tribal DAO). That equates to roughly 115 million ETH and millions more in other assets.
Still, there are still many questions about where the rest of the $2 billion in liquidity provided by the Rari Capital x Fei Protocol partnership has gone. Some may have decreased in value due to the bearish crypto market, but that’s not the full explanation.
Will regulations paint a clearer picture?
Incidents like the Fei Protocol show that decentralized finance may require more regulation. It’s nice to have a system in place to distribute PCV to her DAO participants, but that’s only part of the equation. Finding out where the $1.8 billion in liquidity has gone is a more pressing question. Unfortunately, no one has an answer to this question, leaving much room for speculation and condemnation.
In an unregulated industry like decentralized finance, loose ends always need to be tied up. Unfortunately, it’s easier said than done. This prevents project founders from draining funds from established protocols before pulling the plug a year later. It’s impossible to say whether this happened to Fei Protocol or a partnership with Rari Capital, but it remains a possible outcome. A lot of money seems to have disappeared into thin air, but there is no viable explanation for it.
Furthermore, citing “increased regulatory pressure” as an excuse is not relevant in 2022. There are many ways for DeFi to comply with regulations, such as through Phree, which enables regulatory compliance at the protocol level. All project and protocol developers have a moral obligation to understand these things before collecting user funding. With Phree, protocol-level compliance adjusts as your landscape evolves, making compliance easy and worry-free in the future.
CryptoPotato sat down with Jason Denhi, co-founder and CEO of Phree. According to Jason:
“DeFi has the potential to serve millions of underserved consumers and enter mainstream finance. , risk disclosure, asset/liability reconciliation, data protection, etc., and need to be more accountable and compliant.Without these table stakes, DeFi would serve only the native crypto community. We are limited to providing
Regulation won’t solve every potential scenario, but it can help reduce the number of failed DeFi projects. Plus, you can rely on your users in the event of a hack or theft instead of sitting in the dark for months.While the future of DeFi still looks bright, important changes are needed. It is proved that there is