What is Fei? What has happened recently?
Fei is a once high-profile decentralized stablecoin project that aims to provide a value pegged to the US dollar. Fei Protocol was launched in the spring of 2021 and was one of the few algorithmic stablecoins purely supported by cryptocurrency at that time. The project introduced the concept of "protocol-controlled value," which means that deep liquidity is owned and managed by the protocol and cannot be removed at any time, unlike other systems.
Recently, Fei Protocol announced a settlement proposal for a collective lawsuit. The San Francisco High Court personally issued an announcement on the Fei Protocol Discord channel, stating that wallet users who participated in the Fei Protocol genesis event can fill out a form to apply for settlement compensation. This is the first case of its kind in the crypto world.
Background: Hacker incidents and voting disputes in 2022
In 2022, Fei was hit by several hacker attacks, which led to suspicion within the community regarding the protocol's technical capabilities.
The most severe hacker attack directly caused a division within the Fei community. In the middle of 2022, after the merger of TribeDAO and Rari Capital, the organization behind Fei suffered a reentrancy attack, resulting in $80 million worth of crypto assets being stolen. This theft led to two completely different voices, causing turmoil and nearly splitting the community. The entire Fei Protocol gradually came to an end amidst this dispute.
So, what were these two different voices?
One proposal was to fully compensate the victims of the hack through the TRIBE (Fei's governance token) token pool, which is a common practice for project teams after being attacked, as it offsets the losses for the affected parties using project funds. However, this proposal was later rejected in the vote, mainly because the Fei team believed that the hack primarily targeted the other party involved in the merger, Rari, and TribeDAO was also a victim of the hack, so it should not be responsible for compensation, at least not in full. They supported another proposal that suggested stabilizing the FEI stablecoin against the US dollar and using the funds from 57 million TRIBE tokens to compensate the hack victims. This alternative solution did not involve full compensation and received criticism from many people. Some critics claim that the partial compensation proposal put forward by the Fei team retains a large portion of the project's funds.
Class Action Lawsuit in 2023
After the chaotic events in 2022, Fei Protocol and its three founders are facing a collective lawsuit this year. The lawsuit accuses the cryptocurrency project of one of the most familiar reasons: alleging that Fei's tokens, FEI and TRIBE, are unregistered securities.
On July 9th of this year, a San Francisco court took control of Fei Protocol's Discord server and issued an authorization notice, disclosing a proposed settlement agreement that would pay $17.85 million in damages to individuals and entities who purchased FEI or TRIBE tokens during the Genesis Event.
According to court documents, the main violation is the sale of unregistered securities, and for a period of time, "the FEI token failed to maintain its pegged price, with the trading price dropping to as low as $0.7128 per FEI. Investors quickly sought to exit their positions but faced 'direct incentive' punishments from Fei Protocol for doing so. Anyone attempting to sell FEI during this period suffered losses. The TRIBE token also failed to maintain its value, dropping over 80% from the Genesis Event opening price." In summary, the plaintiffs in the class-action lawsuit allege that Fei sold unregistered securities and caused them significant losses.
This litigation reason is intriguing - if Fei sold unregistered securities, then the question is whether the plaintiff was informed at the time of purchase. The entire lawsuit does not mention whether the plaintiff was deceived or purchased without knowing whether it was a registered security. If the reason for the lawsuit is selling unregistered securities and causing losses to users, then this sounds very unfair to the project party: if they make money, there is no problem, but once the price drops, any user who participated in the ICO can sue on the grounds of "unregistered securities" and demand compensation. In that case, who would be willing to be a project party?
According to the settlement agreement, the net settlement funds will be distributed proportionally to the collective members who submit claims, after deducting attorney fees and court costs. The fund is expected to be worth $13 million and requires approval. Eligible individuals and entities can submit claim forms to receive a portion of the settlement amount, raise objections, or choose to opt out and retain the right to individually sue Fei Protocol.
Four options for Genesis members are provided on the website
The Fei Protocol team denies any wrongdoing. However, the entire incident has raised concerns and uncertainties about the future development of Fei Protocol.
The court will hold a hearing in the future to consider whether to approve the settlement agreement. Odaily will also keep an eye on the development of this event.
