fx Docs
  • f(x) Protocol Documentation
  • OVERVIEW
    • 📖Abstract
    • ⭐Core Products of f(x) Protocol 2.0
  • f(x) Protocol Mechanisms
    • ⚖️The f(x) Invariant
    • ⚙️Key Functions of f(x) 2.0
    • 🚀Creating a Leveraged Position (xPOSITION)
    • 🪂Rebalancing the Position (Liquidation Brake)
      • Understanding the band system
      • Liquidation process
      • Developers
    • 💰Stability Pool
    • 💵Fees
  • RISK MANAGEMENT
    • 🧘‍♂️Risk framework
    • ✅Advanced Peg Protection Mechanisms
      • Understanding the redemption mechanism
    • 🚨Risk parameters
    • 🧭Oracle
      • stETH
      • WBTC
    • 🛡️Audit Reports
  • Earn with f(x)
    • 💲USD high & sustainable yield
    • 🪙$FXN Tokenomics
      • veFXN
      • FXN Farming and veFXN Boost
    • 🔥Protocol Revenue & Distribution
  • POWER TO THE PEOPLE
    • 🤝Get involved - Community Booster Program
    • 🫂Referral Program
  • FAQ
    • 🟦Is fxUSD an algorithmic stablecoin?
    • 🟦Where does the yield come from?
    • 🟦How do f(x) Protocol stablecoins maintain stability?
    • 🟦Is there any LUNA-like risk?
    • 🟦How does f(x) Protocol minimize liquidations?
    • 🟦How does f(x) Protocol minimize funding costs?
    • 🟦What could go wrong?
    • 🟦Why are there different stablecoins?
    • 🟦What is the difference between f(x) Protocol V1 and V2?
    • 🟦What price drop would it require for my xPOSITION to be rebalanced/liquidated?
  • GUIDES
    • 📈How to open a leverage position (xPOSITION)
    • 📉How to close a leverage position (xPOSITION)
    • 📐How to adjust your leverage / how to reduce your Liquidation Brake
    • ➕How to add/reduce a leverage position?
    • 💰How to stake into the stability pool?
    • 🚶‍♂️How to unstake from the stability pool?
  • MORE
    • 🔡Token Breakdown
    • 1️⃣f(x) Protocol 1.0
      • Leverage
      • Earn
      • Stability Mechanism
      • FX Auto-Compound
      • Oracle
    • 🖥️Resources
      • Contracts
      • Useful links
    • 🪔Aladdin DAO
    • 😎 Brand Assets
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  1. FAQ

What could go wrong?

PreviousHow does f(x) Protocol minimize funding costs?NextWhy are there different stablecoins?

Last updated 5 months ago

xTokens (v1): In the worst-case scenario, all xTokens could potentially lose their value. Before this happens however, the stability mechanism is designed to trigger and rebalance them. However, if the mechanism becomes exhausted, xTokens could drop to zero. In such extreme cases, the protocol's total collateralization ratio remains at 100% and the stablecoin is always backed and pegged to the dollar. If the market continues to decline, the stablecoin may temporarily de-peg, with a strong likelihood of recovery if the underlying market (e.g., ETH) rebounds. For more details about the stability mechanism, please refer to the V1 Stability Mechanism.

xPOSITION (v2): Rebalancing and liquidation thresholds are carefully calibrated to prevent such scenarios. In an unlikely worst-case scenario where both rebalancing and liquidation mechanisms fail, the protocol may incur a bad debt. To safeguard users from this, f(x) Protocol allocates a significant portion of its revenue to a reserve fund specifically for such extreme cases. If the reserve fund is insufficient, the bad debt would be distributed among all xPOSITIONs. Learn more:

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🧘‍♂️Risk framework
✅Advanced Peg Protection Mechanisms