Authors
AladdinDAO Core Team
Summary
Allocate USD $50,000.00 in $FXS as incentives to seed the initial liquidity for $frxETH on f(x) Protocol. f(x) Protocol will also allocate USD $50,000.00 in $FXN as well towards the seed liquidity.
Background
The f(x) Protocol is a DeFi solution that addresses the need for a stable asset in the cryptocurrency space while mitigating centralization risks and capital efficiency issues. f(x) Protocol was conceived by Aladdin DAO; the US banking crisis in March 2023, combined with the depegging of USDC, highlighted the need for a new type of decentralized, highly scalable stable asset.
Initially, f(x) Protocol introduced a new concept called a “floating stablecoin” or fETH. fETH is not pegged to a fixed value, but rather gains or loses a fraction of the price movements of ETH. This allows fETH to hold its value well in any market condition.
When f(x) Protocol first launched in August of 2023, f(x) introduced the DeFi world to something special: a powerful new defi primitive centered around a complimentary token pair. The f(x) pair, or “stable-leverage pair” primitive is based on a simple concept: split a yield-bearing token (called the base or reserve token) into two parts: a low-volatility (i.e. stable) part and a high volatility (i.e. “leveraged”) part, both tokenized. Stable tokens can be staked in a rebalancing pool to earn yield from the reserve tokens, while the high volatility tokens protect the peg simply by existing, themselves providing a remarkably simple, safe, and cheap way to take ETH leverage.
As the protocol has gained attention and adoption, our community highlighted the need of a fully decentralized and hard pegged stablecoin. After extensive discussions and governance process, Aladdin DAO is now prepared to introduce f(x) Protocol’s new USD-pegged stablecoin, fxUSD.
As a stablecoin, fxUSD offers four key features never before combined:
- Built-in yield, derived from LSDs in the reserve
- Scalability: rapidly scalable based on direct demand
- Stability: reliable peg in both directions, backed by f(x)’s invariant
- Resilience: collateralized by Ethereum LSDs, with zero real-world asset exposure
As a liquidity incentive platform for LSDs, fxUSD offers the lowest cost / highest efficiency way to incentivize token holders and build on-chain utility and liquidity.
At genesis, we are choosing 2 major ETH LSDs to back fxUSD: Lido’s stETH and Frax’s frxETH. Each LSD will have its own stable-leverage pair, with their own Rebalance Pool. Users can take advantage of the yield provided in the Rebalance Pools or choose to take a long leveraged ETH position, using the x-token variant of their favorite LSD.
You can find more details here.
Motivation
LSD providers are strongly incentivized to build their own liquidity since their revenue is based on total supply of their LSD asset. When a stable-leverage pair is included in the fxUSD system, a user can mint a stable asset and then collect the LSD yields from the underlying reserve assets. Once that particular LSD’s rebalance pool is deep enough, those stable assets can be withdrawn to as fxUSD. Such withdrawals also increase the yield in the rebalance pool (since yields are only paid to rebalance pool deposits), which again attracts more of the LSD to the reserve. This mechanism deeply aligns LSD providers with fxUSD, because external fxUSD utility indirectly increases their own rebalance pool yields.
The more stable asset supply we can create, the more capacity we can offer on the leverage side, both of which will provide good utility on top of frxETH.
Proposal
In order to
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A) create a deeper Rebalance Pool and attract more liquidity on top of frxETH yield and
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B) offer more capacity to mint the complimentary leverage token so as to achieve better user experience for both stable and leverage participants,
f(x) Protocol proposes to offer extra incentives in the form of $FXS and $FXN for seed capital.
Each party, Frax Finance and f(x) Protocol, will offer USD $50,000.00 worth of their native tokens as incentives for seeding the frxETH stable-leverage pair.
For: Allocate USD $50,000.00 worth of FXS as incentives for seed capital for frxETH stable-leverage pair
Against: Do nothing.