FAQ
f(x) splits ETH into a mix of low-volatility “floating stablecoins” called fETH and high-volatility “leveraged ETH tokens” called xETH. You can supply ETH or stETH to mint either one (pure ETH is zapped into stETH before deposit).
f(x) charges minting and redemption fees. Those can be avoided by swapping in and out on secondary (some fees are waived in certain circumstances. See whitepaper for details).
Aside from that, you don't pay any fees. Protocol revenue and stability services (see Rebalance Pool) come from staking yields earned by stETH in the reserve.
You can mint fETH/xETH on the protocol's official website and pay a certain fee, or you can buy it directly through the secondary market, like Curve Finance.
Every fETH or xETH token is instantly redeemable for stETH at any time, in the amount of its current net asset value (NAV). The NAV of xETH and fETH changes continuously based on the ETH price.
NAV is the current value of fETH or xETH as determined by the protocol. You can mint or redeem xETH or fETH for their respective NAVs.
fETH can be used like a stablecoin. It’s decentralized (backed only by stETH) so it avoids exposure to the shenanigans of central banks or other IRL entities.
fETH isn’t exactly a stablecoin, though, because it gains and loses a small amount of value as ETH rises and falls. Those price movements are fixed at 10% of the size of ETH. In this way it’s anchored to the Ethereum economy, rather than the US one. If you think that USD will devalue over time compared to ETH, you might like to hold it instead of USD stablecoins.
xETH provides powerful, free leverage on ETH: no funding rate and very low risk of liquidation. It’s a great token to amplify your gains on a long-term bet on the growth of ETH price.
xETH has no concept of “liquidation” (unlike leveraged perps or CDPs). When talking about the risk of xETH “liquidation”, it does mean the risk of xETH’s price going to zero due to an extreme drop in ETH price (see Bad Things section).
f(x) used ETH daily price data analysis back to 2017 to characterize this risk at various collateral ratios. As long as the f(x) collateral ratio is above 130%, the risk is below 0.1%. This doesn’t even factor in stability mode, which automatically kicks in and deploys the capital in a rebalance pool to push the CR back up if it ever drops below 130%.
f(x) was created to avoid centralized risks from real-world assets. Apart from smart contract and oracle risk, which are common to nearly all DeFi protocols, the main risk for f(x) is the rapid dropdown of ETH price, which is larger than the ability of the currently minted xETH to absorb. In that case, xETH price would go to zero (sort of like a liquidation) and fETH would lose its low volatility nature, reverting to 1:1 ETH price movements.
f(x) has extensive and thoughtful risk management systems to prevent this from happening. Please see the whitepaper for more details.
Rebalance Pool is a farming vault for fETH which earns high yields (in stETH) sourced from the staking yields of the reserve. fETH in this vault can be automatically redeemed into stETH or xETH if the amount of fETH minted ever gets too high compared to xETH (see the risks above and whitepaper). When this operation is needed, the protocol redeems only as much fETH as necessary to return the protocol to stability, with fETH sourced proportionally from all depositors. Until it’s claimed, withdrawal-requested fETH earns no yield but may still be used for redemptions.
To sum up: Deposit fETH to Rebalance Pool to farm high stETH yields and periodically DCA into stETH or xETH.
In the unlikely (<0.1%; see Whitepaper) event of a price crash in ETH that’s so big that the rebalance pool and minting incentives fail to restabilize the system, the price of xETH can fall to zero, which is the closest thing to a liquidation on f(x). In that case, fETH will have sole claim on the reserve. If that happens, the fETH NAV will start following the full price swings of ETH, rather than just 10%. As always, it'd be redeemable.
If this ever were to happen, there would be provisions for recapitalizing the protocol described in the Whitepaper.
