The Edge Podcast - Is $fxUSD The Best New Stablecoin?

In this episode of The Edge Podcast which took place on February 27, 2024, DeFi Dad and Nomatic hosted Cryptovester from f(x) Protocol to discuss the evolution of f(x) protocol, $fxUSD mechanism, stablecoin dynamics, yield opportunities, and more! Read our notes below to learn more.

Background

DeFi Dad (Host) – Host of Edge Podcast

Nomatic (Host) – Co-Host of Edge Podcast

Cryptovester (Guest) – Contributor at f(x) and AladdinDAO

f(x) Protocol – a dapp that creates a new class of decentralized low volume asset paired with a new leveraged long $ETH perpetual token

Aladdin DAO – a decentralized builder and incubator of cutting-edge DeFi protocols

Designing Stable and Volatile Tokens: Innovative Approach with $fxUSD

Cryptovestor creates a stable version of the token and a volatile version, explaining the potential of zero volatility on one side and full volatility on the leverage side through the $fxUSD mechanism, which aims for stability without pegging to a dollar-denominated unit.
Cryptovestor explains f(x) protocol‘s origin from the $USDC crisis, aiming to create a stablecoin not pegged to any specific dollar-denominated unit, using a design that separates tokens into stable and volatile versions, with $fETH tracking 10% of ETH’s volatility and $xETH absorbing the rest.
Cryptovestor explains the design evolution towards zero volatility with $fxUSD, aiming for a 1:1 peg while transferring all volatility to the x-token side. This design uses an invariant formula for stability rather than relying on external incentives or complex strategies.
Cryptovestor mentions the introduction of $fxUSD, highlighting its novel peg mechanism and the upcoming inclusion of two Liquid Staking Derivatives (LSDs), $stETH and $frxETH, at launch. This setup allows for multiple token pairs per LSD, offering users flexibility in choosing x-tokens while maintaining a stable $fxUSD through automatic staking in rebalance pools.
Nomatic mentions that looking at $fxUSD for the first time seemed quite novel and recalls being impressed by the f(x) protocol, noting the significant price increase of $FXN since their first discussion.
Nomatic asks about stablecoin mechanisms on the market that are similar to $fxUSD, highlighting recent interest in T-bill yield and stablecoins and mentioning Ethena Labs’ approach, which the founders describe not as a stablecoin but as a tokenized basis trade.
Cryptovestor considers Ethena Labs a good but not direct comparison to $fxUSD, describing them as opposite ends of the spectrum. Ethena uses centralized exchanges and perpetual contracts to manage its peg, while $fxUSD offers a decentralized alternative, yielding returns from Ethereum staking.
Cryptovestor explains the appeal of $fxUSD, highlighting its ability to earn Ethereum staking yields when staked in the f(x) protocol. He says that a portion of users opting for x-token forfeit their yield, enhancing the rebalance pool yield for $fxUSD stakers, potentially offering higher APY than typical Ethereum staking yields.
Cryptovestor mentions Lido as a potential partner with $fxUSD, suggesting that incentives or bribes could further increase yields for stakers, positioning the f(x) protocol as a competitive platform for LSTs.

F(x) Application: Simplifying Stablecoin Minting & Yield Generation

DeFi Dad asks about the functionality and launch details of the f(x) application, anticipating its live status.
Cryptovestor explains that f(x) aims to simplify the minting process by enabling users to mint $fxUSD, which will be automatically staked in the rebalance pool, removing the complexities of CDP loans.
He highlights the innovation of f(x), offering a USD-pegged stable token that earns $ETH staking yields, simplifying the process of bringing various assets to mint $fxUSD.
Cryptovestor estimates the yield for $fxUSD could range between seven to fifteen percent, influenced by variables such as the base Ethereum staked yield and additional yields from token holders who forfeit their yields.
He discusses the advantages of $fxUSD in attracting liquidity provider incentives, which can significantly increase the APY compared to traditional DeFi mechanisms due to its novel rebalance pool system.
Cryptovestor reveals an upcoming product, a $fxUSD auto-compounding vault on Concentrator, which enhances yields through a clever leverage system and possibly a looping mechanism, potentially doubling the investment and significantly increasing the effective yield on stablecoins.
DeFi Dad says that with f(x)’s distinct product, shorting an asset results in converting to stablecoins to earn yield without leverage, contrasting it with leveraged products like $xETH.
DeFi Dad asks about the process and outcome of converting 1 $ETH to $fxUSD through either CoW Swap or directly via the f(x) application, using a hypothetical $ETH price to understand the amount of fxUSD received.
Cryptovestor explains that converting 1 $ETH should yield close to an equivalent value in $fxUSD, minus any protocol fees or slippage, illustrating with an example of a $10,000 conversion potentially resulting in around $9,900 fxUSD.
Cryptovestor explains the seamless conversion process of $ETH to $fxUSD via CoW Swap, highlighting it as an innovative integration allowing direct minting of $fxUSD within the f(x) protocol.
DeFi Dad asks about the assets eligible for deposit to mint $fxUSD directly, contrasting it with purchasing $fxUSD from liquidity pools in the future.
Cryptovestor says that initially, Ethereum and certain staked forms of Ethereum, along with $USDC, will be accepted for depositing to mint $fxUSD, hinting at the addition of more assets in the future.
Cryptovestor explains the underlying mechanism when depositing non-staked assets like $USDC, highlighting the conversion into the highest-yielding staked Ethereum variant within the system to back the issued $fxUSD.

$fxUSD Utility, Yield, and Integration

DeFi Dad asks about the utility and yield-earning opportunities of $fxUSD once minted, specifically inquiring about the potential for holding it to earn yield versus available liquidity pools.
Cryptovestor explains that initially, $fxUSD is auto-staked, earning higher Ethereum staking yields. He highlights the importance of utility through integrations with lending protocols and the availability of several Curve pools to boost momentum and supply.
He mentions ongoing discussions for creating a $PYUSD, $fxUSD pool, highlighting that demand for $fxUSD will drive higher APY rates during rebalances, thereby encouraging more LSD minting for its yield opportunities.
Cryptovestor shares that pairing $fxUSD with $PYUSD allows users to earn attractive APYs and seamlessly swap $fxUSD for $PYUSD in Curve pools. This integration enables users to utilize $PYUSD within the PayPal ecosystem, offering a significant advantage for a relatively small decentralized stablecoin by facilitating payments to millions of merchants and funding debit cards.
Nomatic asks about the security measures and audits conducted for the introduction of $fxUSD, a product built on somewhat battle-tested and audited protocol products.
Cryptovestor says that Aladdin releases fully audited code, mentioning $fxUSD’s completion of another audit and its high security and stability system, similar yet distinct from the $fETH model, with a focus on maintaining a collateralization ratio for stability.
Cryptovestor explains $fxUSD’s peg mechanism, highlighting its difference from typical AMOs, and highlights the unique feature of $fxUSD not needing curve pools for liquidity, which provides deep liquidity from the start by tapping into existing $stETH and $frxETH pools on Curve.
Nomatic asks about how f(x) protocol’s products, including $fxUSD, contribute to the value of the $FXN token. Cryptovestor explains the distribution of Ethereum staking yield to the f(x) treasury and $FXN stakers and foreshadows the development of new products like LRTs for stable/leveraged pairs.
Cryptovestor reveals plans for an immediate launch of LRTs following $fxUSD’s introduction, aiming to offer a stable farming environment without Ethereum price risk exposure, a novel approach in the field.
Cryptovestor teases the potential creation of a lending market, FXLend, utilizing $fxUSD as its primary point of stability, with anticipation for future developments.

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Show Information

Medium: YouTube (Video)

Show: The Edge Podcast

Show Title: fxUSD: Is This The Best New Stablecoin?

Show Date: February 27, 2024