ZMQ Insight | f(x) Protocol, a new era of stablecoin
Background
f(x) Protocol creates two new ETH derivative assets. one with stablecoin-like low volatility and the second a leveraged long ETH perpetual token. These tokens are created by separating pure ETH collateral into a lower-volatility component (β < 1) called fractional ETH (fETH) and a higher-volatility (β > 1) one called leveraged ETH (xETH). By constraining βf = 0.1 the fractional ETH token captures some growth of the cryptocurrency market while limiting volatility enough to retain the characteristics of a stablecoin. The leveraged ETH component is essentially a long perpetual future contract with zero funding costs and variable leverage. With only pure ETH collateral the system is not exposed to centralized risk. Maximum liquidity of fETH can scale quickly compared with CDP-issued stablecoins because it is based on the high demand for leveraged long ETH positions (xETH) rather than the relatively lower demand for CDPs. with their attendant maintenance and capital in efficiency.
However, the project is not yet officially launched.
Features of the f(x) Protocol
Users can deposit ETH to exchange relatively stable fETH or more volatile xETH, with volatility referencing ETH;The β of fETH is 0.1, which means the price volatility is 10% of ETH. The volatility of xETH is determined by the ratio of fETH to xETH, as xETH essentially absorbs the volatility of fETH; Through the protocol, fETH and xETH can be redeemed for ETH based on net asset value, and liquidity pools for fETH-ETH and xETH-ETH are provided; When the proportion of fETH is too high (meaning the volatility of xETH is also too high), the protocol has four risk control measures as core measures:
- Limiting the minting of fETH;
2. Facilitating the redemption of fETH for ETH;
3. Increasing the redemption fee for xETH;
4. Increasing the minting incentive for xETH;
Among the risk control measures, fETH holders who stay in the protocol must pay a stability fee, which is used to incentivize xETH minting and fETH redemption. More specific fee design will be released in the next white paper.
Overall, f(x) proposes a general solution with advantages of decentralization, scalability (composability), and liquidity.
FX Token
The protocol token for f(x) is $FX, with a total supply of 2 million, and it has the functions of increasing LP mining rewards, governance, and receiving share dividends.
The beta test for f(x) will last for 2–4 weeks, with an undetermined starting time, during which the minting of fETH and xETH will be open, but without a second pool.
Locked FX tokens and FX-ETH 80/20 LP tokens (FX LP, speculated to be in an unbalanced pool on Balancer) will receive veFX and 50% of f(x) fee revenues. The locking mechanism is similar to the Curve ve model, and users can choose to lock FX tokens or FX LP tokens for 1 day to 4 years.
For example, if a user locks one FX token or the equivalent value of FX LP tokens for 4 years, they can receive one veFX token and corresponding governance rights.
More details on locking and revenue will be announced in future articles.
FX Token Distribution
FX tokens have two IDO rounds, raising ETH.
The first round will sell 60,000 FX tokens before the beta test, priced at 1 FX = 0.005 ETH (equivalent to 9U at ETH@1800U, with a valuation of 18M), which will raise a total of 300 ETH. The first round of IDO supply will be elastic: the amount of FX purchased during the sale period (planned for one week) will represent 3% of the total issuance. During the sale period, as long as the upper limit is not reached, users can deposit ETH to obtain FX.
The second round will take place when beta testing is completed. If the first round of IDO is sold out, 40,000 FX tokens will be sold at a price determined by market conditions. If the first round of IDO is not sold out, the sales volume will be adjusted to ensure that the total sales volume of the two rounds is 5% of the total supply. During the sale period, as long as the upper limit is not reached, users can deposit ETH to obtain FX.
The FX tokens sold in the two IDO rounds will be distributed at TGE at the end of the beta test.
FX Token Emission Schedule
At the end of the first year, less than 33% of FX tokens will be unlocked and enter circulation. The f(x) treasury will hold 10% of the share, and AladdinDAO will completely lock all of their unlocked token allocations, equivalent to permanent lock-up. Therefore, the maximum number of FX tokens in circulation after one year is approximately 15% of the total supply. Among these circulating tokens, some users may also have locked FX tokens.
Opportunity
Looking back at the issuance of Aladdin’s previous products (with governance token lock-ups in the ve model), we can draw a parallel to the price expectation of FX tokens.
The fluctuation of the FX token price is highly likely to be linked to ETH price fluctuations.
Strategies
After obtaining FX token shares through IDO and receiving token allocation at TGE, the following strategies can be executed:
- Gradually sell FX tokens for profits within a week after the official unbalanced pool is formed, and calculate the slippage loss to determine the profit and decide whether to execute;
- Provide LP after the official unbalanced pool is formed, gain a large amount of early trading fees, and passively trade out FX tokens, and calculate the impermanent loss to determine the profit and decide whether to execute;
- Lock FX for a certain period of time, continue to receive fee income, bribe income;
- Lock FX and provide ETH for LP mining, continue to receive fee income, bribe income, and short-term LP mining income;
- Lock FX and provide ETH for LP mining, and further lock LP tokens, continue to receive fee income, bribe income, and LP mining income.
Several strategies can be combined, and wear and workload must be considered.
Risks
- Price fluctuations: If locked for a long time, according to experience, it may be necessary to bear a maximum capital decline of 78% (CTR);
- Smart contract risk.
References
Discord: http://discord.gg/uSAUmXc2jw
Twitter: https://twitter.com/protocol_fx/status/1656682022495215621?s=20
Whitepaper: https://github.com/AladdinDAO/aladdin-v3-contracts/blob/main/audit-reports/f(x) whitepaper.pdf
F(x) Protocol’s Tokenomics & Offer: A Calculated Journey towards Success
f(x) Protocol: An alternative to traditional stablecoins
https://mirror.xyz/0xevix.eth/-ENSgfGJyqE0MVxK6LEw63ZMJw8qFvInt2PvCwo0aa8
By Jason Liu & Lizzie Lu
About ZMQ
ZMQ is a Leading Global Quantitative Market Maker and liquidity provider in Digital Assets. Since jumping into the crypto market in 2018, ZMQ has been focusing on providing liquidity globally for token projects and exchanges, institutional crypto investments and consulting services to bring better price discovery, trading executions, transparency to investors and efficient pricing to the market.
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