f(x) Protocol: Onchain Leverage & Delta-Neutral Dollars

f(x) Protocol

This week’s highlight, f(x) Protocol, is an onchain protocol that lets users access ETH and BTC leverage with low liquidation risk and minimal funding costs while offering a delta-neutral USD stablecoin and yield. Fluidkey users at the top of the score leaderboard can now claim some fxUSD.

Let’s look at how the protocol allows users to access leverage.

Let’s say someone takes 5x leverage with 1 ETH on f(x). A wstETH flash loan lets the protocol do the following operation in one transaction:

  • buy 4 ETH
  • mint fxUSD against the additional 4 ETH of collateral
  • repay the wstETH flash loan

With this flash loan, the protocol has created exposure to 5 ETH from just 1 ETH (5x).

To learn more about how flash loans generally work, this video by Finematics is excellent.

If the price of ETH increases by 10%, the user’s position will increase by 50%. But if the price of ETH falls and puts the position at risk, the protocol will rebalance the user’s position by selling a small portion of ETH to reduce leverage, ensure LTV is below 88% and avoid liquidation.

Liquidation Brake

Perps platforms like Hyperliquid don’t auto-rebalance, leading to a higher risk of liquidation. You can find an example of the rebalancing process here.

Additionally, the protocol has minimal funding costs for opening and closing a position. In most cases, users only pay a one time fee at the opening and closing of their leverage position.

Leverage & stablecoin

The example above shows how the protocol’s fxUSD stablecoin plays a critical role in enabling leverage. On the other hand, the protocol ensures fxUSD is always backed by sufficient collateral in the form of ETH, BTC, and USDC.

fxUSD can also be converted into a yield-bearing version, fxSAVE, which earns yield from the collateral’s staked form (e.g. wstETH) and protocol fees. fxSAVE currently generates 8.5% APY with an average of 12.7% over that past three months.

f(x) Protocol TVL

The protocol is currently live on Ethereum and its TVL sits at about $200m.

We’re excited to follow along as f(x) Protocol innovate on onchain leverage coupled with a delta-neutral stablecoin. You can use this referral link to start trading on f(x) protocol.

Note that none of our highlights are financial advice. The value of any of the tokens highlighted may go to zero.

See you next week!