✅Advanced Peg Protection Mechanisms

The protocol ensures fxUSD's peg at all times by implementing 5 different incremental peg-keeping mechanisms.

1. Minting and redemptions of fxUSD

Users opening/closing long or short positions on f(x) create organic buying or selling pressure on fxUSD.

2. The Stability Pool

On f(x) Protocol, the stability pool acts as a peg keeper. As it uses both fxUSD and USDC as underlying assets, each time fxUSD trades below a certain threshold on the secondary market, the stability pool will buy fxUSD at the market price to support the peg. Each time fxUSD is traded above $1, it is sold back for USDC. To attract depositors, this strategy earns most of the protocol's revenue. ➡️ Ensures fxUSD stability through arbitrage operations in the fxUSD/USDC AMM pool.

fxSAVE is built on top of the Stability Pool and compounds its yield for more stablecoins

3. Temporary Funding Level I

In certain "high leverage" demand situations, there might not be enough USDC to support fxUSD's peg. When the distribution of USDC in the stability pool falls below 5%, a first layer of funding/borrowing costs is applied to the position.

To stay aligned with the average market cost of capital, in such a situation, the Aave USDC borrowing cost is applied to the leverage positions' collateral value.

That added revenue is distributed:

• to the stability pool, attracting new USDC deposits, crossing the 5% threshold again, and turning the borrowing cost off again.

• to sPOSITIONs, creating an incentive to open short positions resulting in a buying pressure on fxUSD

➡️ Anticipates the need of USDC deposits to support fxUSD's peg

4. Enhanced peg protection

In some situations, the previous measures may not be sufficient to protect the peg.

Note that the following was never needed so far, but is still planned in any case.

If the selling pressure of fxUSD is so high that all the USDC of the stability pool are exhausted, and the EMA 42 minutes for fxUSD on Curve falls below $0.998.

• fxUSD can't be minted anymore to prevent further selling pressure. This means users can't open long positions (xPOSITIONS).

• Temporary Funding Level II: In that case, the temporary borrowing cost applied to the positions' collateral is 10x the Aave borrowing cost of USDC. While the stability pool's yield would at this point be extremely attractive to new USDC deposits that would support the peg instantly, any short-term leverage/borrowing position has a double incentive to buy fxUSD and repay their debt:

  • The position is currently expensive to hold

  • The user can close it with a premium, benefiting from fxUSD's attractive price

➡️ No more selling pressure on fxUSD if traded below peg.

➡️ The Stability Pool gets a high real yield, facilitating the peg keeping.

➡️ Users get an incentive to open sPOSITIONs when needed, preventing fxUSD's depeg.

5. Redemtion

In last resort, if fxUSD is still depegged, anyone can buy it at market and redeem it for $1 worth of wstETH or WBTC, with a 0.5% redeeming fee. It sets a hard floor for fxUSD's price at $0.995

➡️ Redemption acts as a last resort mechanism to guarantee fxUSD's peg if the previous mechanisms have failed.