fxUSD: A New Era for Decentralized Stablecoins on Ethereum
September 3, 2025 – The f(x) Protocol, a decentralized finance (DeFi) platform built on Ethereum, is making waves with its innovative stablecoin, fxUSD [1]. Designed to compete with centralized stablecoin offerings, fxUSD combines a robust peg to the U.S. dollar, built-in yield, and zero-slippage swapping, positioning it as a user-friendly and scalable solution for DeFi enthusiasts. Backed by high-quality assets like Lido’s stETH and Wrapped Bitcoin (WBTC), fxUSD is redefining stability and efficiency in the DeFi ecosystem. It makes use of flash loans.
A Fully Collateralized Stablecoin
Unlike algorithmic stablecoins that have faced significant challenges in maintaining stability, fxUSD is fully collateralized, ensuring its peg to the dollar remains secure. The f(x) Protocol employs a deep fxUSD/USDC liquidity pool and a stability pool that offers high, sustainable yields derived from stETH staking, trading fees, and FXN token emissions. These mechanisms work together to maintain fxUSD’s value, even during volatile market conditions. If fxUSD trades below its peg, the stability pool acts as a peg keeper, buying fxUSD with USDC to restore balance, while selling it back when it trades above. Additionally, fxUSD can be redeemed at the oracle price for stETH or WBTC, providing a safeguard against significant de-pegging events.
Minimizing Liquidation Risk with Innovative Mechanisms
The f(x) Protocol introduces a unique "Liquidation Brake" mechanism to minimize liquidation risks for leveraged positions. Unlike traditional perpetual futures platforms, which often face high liquidation rates during market downturns, f(x) Protocol’s v2.1 rebalances leveraged positions (xPOSITIONs and sPOSITIONs) when they approach liquidation thresholds. This rebalancing incurs a small fee but keeps users exposed to the market, offering a chance to recover without immediate liquidation. In extreme cases, a reserve fund, built from protocol revenue, protects users from bad debt, ensuring the system’s integrity.
According to recent data, while other perpetual futures platforms saw significant liquidations last month, f(x) Protocol reported zero liquidations, highlighting the effectiveness of its rebalancing approach. Furthermore, the protocol eliminates funding fees under normal circumstances, allowing users to hold leveraged positions longer without the burden of rising costs.
fxUSD’s Role in the f(x) Ecosystem
f(x) Protocol version 2.0 advances the groundbreaking mechanics introduced in its initial release, f(x) Protocol v1.0. While maintaining the robust stablecoin design (fxUSD) from version 1.0, this upgrade significantly enhances the leveraged position feature (xPOSITION), offering high fixed-leverage trading without the risk of individual liquidations or funding fees. Additionally, version 2.0 introduces enhanced stability mechanisms, prioritizing a streamlined and intuitive user experience [2].
How it Works
The f(x) Protocol 2.0 operates by separating yield-bearing collateral, such as stETH or WBTC, into a low-volatility stablecoin (fxUSD) and a high-volatility leveraged position (xPOSITION or sPOSITION). Users open leveraged positions by depositing collateral, which mints fxUSD as a byproduct using the f(x) invariant formula to maintain system stability. The leverage is fixed in v2.1, up to 7x long and 6x short, differing from v1's variable leverage tokens where leverage fluctuated with market conditions.
Stability is ensured through multiple layers: fxUSD is minted and redeemed at oracle prices, backed 1:1 by reserves. The stability pool, accepting USDC and fxUSD, provides yields from staking, fees, and emissions while acting as a peg keeper—buying fxUSD below peg and selling above. If depegging persists, temporary funding costs on xPOSITIONs incentivize repegging.
For leverage positions, the "Liquidation Brake" triggers automatic rebalancing by keepers when positions near liquidation thresholds, adjusting leverage to safer levels. If rebalancing fails, liquidation occurs to protect fxUSD's backing. Funding costs are minimal, with no fees under normal conditions, and volatility is absorbed by xPOSITIONs proportionally to their leverage.
In extreme crashes, mechanisms like rebalancing pools and minting incentives stabilize the system, though in rare cases, leveraged tokens could lose value to protect the stablecoin. Overall, v2.0 enhances v1 by introducing fixed leverage, delta-neutral stability pools with high yields, and improved risk management for scalable DeFi trading.
A Scalable and Transparent Solution
Developed by Aladdin DAO, a decentralized collective of blockchain and DeFi experts, f(x) Protocol emphasizes transparency and security. With 15 audits conducted on 100% of its deployed code, fxUSD and the broader f(x) ecosystem are designed to be reliable and resilient. The protocol’s integration with major DeFi platforms, such as Curve, where the USDC/fxUSD pair sees significant trading volume, further enhances its liquidity and accessibility.
fxUSD’s economic design automatically grows liquidity as a byproduct of providing value to its underlying assets, such as stETH and WBTC. This scalability allows fxUSD to compete with centralized stablecoins like USDT and USDC, offering a decentralized alternative without sacrificing user experience or efficiency.
Looking Ahead
As the DeFi landscape evolves, fxUSD is poised to play a pivotal role in the stablecoin market. Its ability to offer high yields, minimal liquidation risk, and a strong peg makes it an attractive option for both retail and institutional investors. The f(x) Protocol’s recent listing on platforms like Pendle and Morpho, along with its planned expansion to the BASE blockchain, signals a commitment to growth and innovation.
Cyrille Brière, a contributor to f(x) Protocol, emphasized the protocol’s potential in a recent interview: “fxUSD is about having a strong risk-reward ratio. Being exposed to a decentralized stablecoin means you don’t rely on any person or company. Everything is on-chain, and you can track it all the time.”
With its unique approach to stability and leverage, fxUSD is not just another stablecoin—it’s a step toward a more resilient and decentralized financial future.