🟦How does f(x) Protocol minimize funding costs?

Most perp protocols rely on funding costs to balance long and short demand.

f(x)’s unique design doesn’t rely on this, as the counterparty of every trade is a concentrated liquidity DEX pool with deep liquidity thanks to sustainable yields. A funding cost may only be applied to your xPOSITION when fxUSD is depegged. The first pegkeeping mechansim for fxUSD is the Stability Pool. If the Stability Pool lacks of USDC to secure a good peg for fxUSD, the cost of borrowing USDC on Aave is charged to the xPOSITION and directed to the Stability Pool and sPOSITIONs until the peg is restored (see Protocol Revenue & Distribution). If that is not enough to keep the peg, and fxUSD trades below the depeg threshold (see Risk parameters), the funding applied is amplified by an order of magnitude defined by governance, until the peg is restored. When too much of the xPOSITION collateral is lent out to sPOSITIONs, a funding may be applied to sPOSITIONS and directed to xPOSITIONs. Ideally, you don’t pay any funding. However, in the worst-case scenario, the Aave cost of borrowing USDC may be temporarily applied to your position. It's important to note that other peg-keeping mechanisms in place should prevent the worst-case scenario from happening regularly, providing a sense of reassurance. Learn more 👇

✅Advanced Peg Protection Mechanisms