Please learn below how the protocol ensures fxUSD's peg at all times.
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.
xPOSITION Funding Fees
During a depeg event, funding fees are applied to xPOSITION holders. This funding is delivered to the Stability Pool, making it more attractive to USDc and fxUSD deposits, thus facilitating the peg restoration. ➡️ The Stability Pool gets a high real yield, facilitating the peg keeping.
Redemption of fxUSD
Users can always purchase fxUSD on the secondary market and redeem it for $1.00 worth of collateral, subject to applicable fees. ➡️ fxUSD has a hard peg by design, thanks to the redemption mechanism
Redemptions act as a last resort protection of $fxUSD's peg. They should only happen if the other Advanced Peg Protection Mechanisms fail. The redemption mechanism ensures that fxUSD can always 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 contract. Please note that a redemption fee is applied. Redemption fees and the maximum proportion of an xPOSITION to be redeemed can be found here.