Imagine a DYDX megavault, but with no counterparty risk.
Up to 10x leverage on ETH with minimal liquidation risks and funding costs and a Stability Pool offering sustainable, high yields—powered by stETH, perp trading fees, and FXN emissions.
f(x) protocol v2 is here 🧵 👇
Key Highlights
Decentralized Leverage Without Liquidation: f(x) Protocol V2 offers up to 10x leverage on ETH and soon BTC without liquidation risks or funding costs, making it a safer and more efficient way to amplify exposure.
Stability Pool v2: The Stability Pool plays an active role in maintaining leverage levels and fxUSD’s peg while generating additional income through arbitrage and collateral yield.
Flashloan-Powered Efficiency: V2 introduces flashloans to streamline xPOSITION openings and closings, enhancing fxUSD liquidity and enabling users to leverage positions without upfront capital.
FXN Token Utility: The FXN token powers governance, emissions, and rewards distribution, offering up to 2.5x yield boosts and a share in protocol fees for veFXN holders.
A Better Stablecoin Model
In March 2023, the collapse of Silicon Valley Bank exposed the vulnerabilities of centralized stablecoins like USDC, pushing Aladdin DAO to rethink the entire model. Leveraging their experience with Concentrator and CLever, they introduced f(x) Protocol V1 in August 2023—splitting yield-bearing assets into stable and leveraged components, creating a capital-efficient decentralized stablecoin and a minimal liquidation risks and funding costs.
f(x) Protocol V1 introduced variable leverage tokens, giving users up to 4.3x on ETH and 5.6x on wBTC—most with minimal funding costs. It brought a unique combo of leverage without liquidations and a scalable decentralized stablecoin. But the unpredictable nature of variable leverage wasn’t for everyone.
Now, with f(x) Protocol V2, the system has evolved even further.
f(x) Protocol 2.0: Smarter Leverage, Better Yield
f(x) Protocol 2.0 is a decentralized trading platform that offers up to 10x leverage on leading crypto assets without the risk of liquidation or funding costs.
The f(x) Invariant is the core mechanism behind both V1 and V2. It enables Liquidation Protected Leverage while delivering 100% capital efficiency for the stablecoins.
The platform introduces two core products: xPOSITION, which allows users to gain high-leverage exposure without liquidation risk or funding fees under normal market conditions, and fxUSD, a decentralized stablecoin with a reliable peg that can be instantly minted or redeemed based on xPOSITION demand.
fxUSD derives its liquidity from collateral and generates sustainable on-chain yield, making it a robust solution for stable returns in the DeFi space.
f(x) Protocol ensures that the total value of all fxUSD combined with the total value of all xPOSITIONs is always equal to the total value of the collateral reserves.
This approach allows users to choose between a stable, yield-generating strategy or a leveraged position designed for enhanced returns.
Here’s a look at some of the key features in V2 -
Liquidation Protected Leverage: Users can now take advantage of up to 10x leverage without worrying about liquidation risks, providing a safer way to amplify exposure.
High-Yield Delta Neutral Strategies: The protocol introduces a USD delta-neutral strategy that earns from perpetual trading commissions and ETH staking yield, all without counterparty risk.
Stability Pool Deposits: Users can deposit fxUSD or USDC, tapping into attractive yields. Current APRs is 30%, making it an exciting opportunity for stablecoin holders.
Fully Audited Contracts: Security remains a top priority, and f(x) V2 has undergone a rigorous audit by SECBIT.
Architecture
Stability Pool
The f(x) Protocol v1 offers stable assets like fETH, fxUSD, rUSD, cvxUSD, and btcUSD, all following a similar model with a liquidity pool and a stability mechanism.
Each stable asset pairs with a volatile token that absorbs collateral volatility, ensuring 100% collateralization. Users can deposit assets into the pool and receive either a stable (fTOKEN) or volatile (xTOKEN) asset. The pool's total value always equals the combined value of both tokens.
xTOKEN absorbs price fluctuations of the underlying asset, amplifying gains and losses. This allows for the creation of a stable asset and a leveraged volatile asset while maintaining decentralization and full collateralization. Positions can be exited anytime by redeeming the underlying asset.
The ratio between fTOKEN and xTOKEN adjusts dynamically based on user activity, with leverage ranging from 1.25x to 2x and up to 5.6x in some pools. The Stability Pool helps rebalance the system by burning excess fTOKEN in exchange for collateral. Users who deposit fTOKEN earn rewards such as FXN emissions and collateral revenue.
If imbalances occur, emergency measures like increased fees and incentives are triggered to restore equilibrium. Since launch, the Stability Pool has only been activated once, proving the system's resilience.
With v2, the Stability Pool takes a more active role in maintaining leverage stability and protecting fxUSD’s peg. While xPOSITIONS feature fixed leverage, minor fluctuations occur, and the Stability Pool keeps leverage levels within limits.
Funded by fxUSD and USDC deposits, v2 introduces arbitrage mechanisms to counter fxUSD price deviations and generate extra income for depositors. It also balances fxUSD and xPOSITIONS by adjusting supply to prevent liquidations while preserving market exposure.
If rebalancing fails, xPOSITIONS can be liquidated by burning fxUSD and selling collateral for USDC, which is returned to the pool. In extreme cases, f(x) Protocol has reserve funds and treasury support to ensure stability.
Flashloan Mechanism
f(x) Protocol v2 addresses v1's limitations but introduces a challenge: maintaining fixed leverage requires the fxUSD supply to scale with xPOSITIONs. Opening an xPOSITION demands creating an equivalent amount of fxUSD, which users may not have or need.
To solve this, v2 utilizes flashloans—instant, collateral-free loans that must be repaid within the same transaction. When Alice deposits $1,000 of stETH to open an xPOSITION with x10 leverage, the protocol borrows $9,000 USDC via flashloan, converts it to stETH, and deposits it into the pool. This mints the needed fxUSD, which is sold to repay the flashloan, enabling Alice to leverage her position without extra capital.
Closing an xPOSITION follows the reverse process: a flashloan is used to buy fxUSD, which is burned to release stETH collateral. A portion of stETH repays the flashloan, and the remainder is returned to the user.
Flashloans not only simplify leverage but also boost fxUSD liquidity and adoption, allowing users to acquire fxUSD without opening xPOSITIONs themselves.
$FXN Token
FXN, launched in September 2023, serves as the native token of f(x) Protocol and plays a crucial role in governance, emissions allocation, yield boosting, and fee distribution.
Holders can unlock these benefits by locking FXN into veFXN, with longer lock durations granting greater influence and rewards.
Key Functions of FXN:
Governance: FXN holders can vote on protocol decisions.
Emissions Allocation: veFXN holders determine FXN distribution to Stability and liquidity pools.
Yield Boosting: veFXN holders can enhance their rewards by up to 2.5x.
Fee Sharing: 75% of protocol fees are distributed to veFXN holders, while the rest funds incentives.
FXN is closely integrated within the Curve ecosystem and associated platforms like Convex, StakeDAO, and Concentrator, offering liquidity and staking opportunities.
It also extends to other DeFi platforms such as Beefy, Morpho, and Spectra, expanding its presence within Ethereum's DeFi landscape.
Here’s a look at the current tokenomics -
$FXN was fair launched, with no involvement from venture capital or team allocations. Revenue sharing began from day one through a fee switch mechanism. Aladdin DAO ($ALD) is progressively locking 30% of the total supply permanently, ensuring these tokens never enter circulation. Over 50% of FXN has already been emitted, with the remaining supply set to be distributed over the next 49 years.
f(x) Protocol V1 has generated $3M in revenue (excluding bribes), compared to a market cap of $7.4M. The launch of V2 is expected to significantly boost revenue.
Conclusion
The protocol has some exciting developments lined up that are set to take things to the next level. With the recent mainnet launch, users can now access up to 7x leverage, and 10x is just around the corner.
The team is working on integrating with Convex to boost yields, and they're rolling out fxSAVE—a yield-bearing stability pool built on top of Convex that will open up even more earning opportunities. Plans are also in place to onboard fxSAVE onto Spectra for yield trading and use it as collateral on lending platforms like Morpho to enable looping strategies.
Plus, deployment on Base is in the works, bringing no-liquidation leverage and solid decentralized yields to smaller investors.
To get started with v2, visit - https://fx.aladdin.club/v2/earn/?code=arndxt using this link will earn you a 0.5% APR bonus on deposits in the USDC-fxUSD LP and f(x) v2.0 Stability Pool.