FEI (Fei USD) is designed to allow for flexible upgrades and arbitrary incentive mechanisms to support the $1 peg target.
Its issuance is controlled by the Minter💰role, and any contract with this role can mint FEI to any address. The Burner🔥 role can burn FEI from any address, and is utilized for deflation and disincentives.
The FEI stablecoin is collateralized by a PCV reserve. Fei Protocol prioritizes liquidity when deploying this reserve to make sure users are able to trade FEI at high volume.
Critically, FEI can be over- or under-collateralized depending on volatility on the PCV and other market conditions.
The collateralization ratio of FEI at any time is calculated as follows, with the denominator being "User controlled FEI":
The formula ignores "Protocol controlled FEI" because any FEI that the protocol holds will never be sold for PCV, only burned. Protocol controlled FEI can have second-order, short-term inflationary effects. For instance, FEI deposited into a lending market by Fei Protocol could increase the circulating supply when borrowed. The interest accrued and eventual withdrawal of that FEI ultimately have a net deflationary effect in the long term.