🟦What could go wrong?

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:

🧘‍♂️Risk framework✅Advanced Peg Protection Mechanisms