Redemptions act as a last resort protection of $fxUSD's peg. They should only happen if the other fail. For that reason, the redemption feature is only possible when fxUSD is deppeged according to the . The redemption mechanism ensures that fxUSD can be redeemed for $1 worth of fxUSD's collateral. The redeemed collateral is taken by reducing the debt xPOSITIONS, starting with the most leveraged one and not exceeding a certain proportion of each position before moving to the next leverage level. It gives an incentive to buy discounted fxUSD and redeem it for its collateral for a profit while restoring fxUSD's peg. The redemption can be triggered using the following . Please note that a redemption fee is applied. Redemption fees and the maximum proportion of an xPOSITION to be redeemed can be found here.
The protocol ensures fxUSD's peg at all times by implementing 4 different incremental peg-keeping mechanisms.
Stability Pool acts as Peg-Keeper
The stability pool accepts both fxUSD and USDC. If fxUSD trades below $1.00, it will automatically buy it and sell it back to USDC if fxUSD trades above $1.00.
➡️ Ensures fxUSD stability through arbitrage operations in the fxUSD/USDC AMM pool.
Operational Restrictions During Depegging
If fxUSD is depegged, new xPOSITION openings are prohibited. This prevents excessive fxUSD minting and reduces selling pressure on fxUSD.
➡️ No more selling pressure on fxUSD if traded below peg.
Funding Fees
If the Stability Pool lacks the needed assets to keep the peg close enough to $1, funding can temporarily be applied to x and s POSITIONS. Different incremental levels of funding are used depending on the situation to keep the best peg while delivering the best user experience to leverage traders and minimizing their costs. xPOSITION: Funding fees of xPOSITONs are determined based on the percentage of fxUSD held within the Stability Pool:
When the percentage of fxUSD in the Stability Pool exceeds Threshold A, Funding Level I activates.
If fxUSD depegs and exceeds Threshold B in the Stability Pool, Funding Level II activates. This higher funding fee is set at a significantly elevated level (e.g., a multiplier of Aave USDC borrow rate) to accelerate deleveraging and encourage peg restoration.
This funding is delivered to:
The Stability Pool, making it more attractive to USDC deposits, thus facilitating the peg restoration.
sPOSITIONs, making it more attractive to open a short position that will support fxUSD's peg by essence.
➡️ 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.
sPOSITION:
The addition of sPOSITION to the protocol brings an organic and consistent buying pressure to fxUSD that may prevent the previous operations from being necessary. sPOSITION funding fees are applied when the utilization of long collateral assets exceeds prudent lending thresholds.
When the percentage of leverage long collateral lent out to sPOSITIONs exceeds Threshold C, Funding Level III activates. This funding fee is applied to all open sPOSITIONs borrowing the corresponding collateral asset.
The funding fees are delivered to xPOSITIONs, making it more attractive to open a long position, thus preventing fxUSD from trading above $1. ➡️ Users get an incentive to open xPOSITIONs when needed, avoiding fxUSD's overpeg.
Redemption of fxUSD
When fxUSD is depegged, users can purchase it on the secondary market and redeem it for $1.00 worth of collateral, subject to applicable fees. ➡️ Redemption acts as a last resort mechanism to guarantee fxUSD's peg if the previous mechanisms have failed.