After extensive discussion in the Discord and last Community Call, we are calling on the Aladdin and f(x) community members to share their opinion about a potential expansion of the f(x) stablecoin strategy to include a dollar-pegged coin in addition to fETH. We refer to this as a “beta=0” coin, whereas fETH is a “beta=0.1” coin. This is a complex question with a lot of implications, so the team has tried to boil it down to a few broad options for discussion.
The community should keep in mind that this is all in service of our high level mission: to use the f(x) mechanism to create the deepest liquidity decentralized stablecoin in DeFi. Given that, this change should be viewed completely through the lens of:
- (1) growing TVL (and liquidity) for our stablecoin(s)
- (2) maximizing adoption now and in the future
A few high level points regarding fUSD:
The f(x) model easily and simply supports beta=0;
fUSD will offer the strongest peg mechanism in DeFi as it is always pegged to $1 mathematically. The pegging mechanism is also reinforced by trading activities as the stable token can be arbitraged both ways;
Any f(x) pool offering fUSD would require slightly more conservative stability mode thresholds; CR=133 instead of CR=130. This means we need slightly more xETH to support the same quantity of stablecoin;
There are two ways to implement this; either fully isolated with its own reserve and its own “x” token, or expand the current fETH model to a 3-asset system, where both fETH and fUSD are volatility-controlled, and xETH continues to absorb all uncontrolled volatility from the reserve.
Important side note:
- f(x) will very soon be rolling out new f/x pairs for yield bearing DeFi tokens. For these pairs, the fXXX tokens will have beta=0 so in fact f(x) will be launching 0-beta tokens, however DeFi tokens have lower liquidity, and these are meant for farming rather than scaling. This discussion is about a second scale-worthy stablecoin to complement fETH.
Option 1: Add a second two-asset pool (equivalent to fETH) that is fUSD-xxETH
- Fastest to launch, simplest; technically possible with no further code;
- Isolated risk (esp. regulatory) between fUSD and fETH.
- Creates a second xETH (xxETH?) which will diverge from first in both NAV and leverage at any given time, potentially confusing users, fragmenting liquidity on x side;
- fETH and fUSD are in direct competition with each other for hearts and minds as well as fragmenting reserve asset liquidity.
Option 2: Expand the current fETH pool to a 3-asset model fETH-fUSD-xETH, with existing xETH absorbing volatility from both fUSD and fETH
- No fragmentation of reserve;
- Only one xETH required to absorb volatility of both fETH and fUSD.
- Significant development work required, would take ~2 months at least;
- Potentially brings regulatory risk to fETH.
Option 3: Don’t do fUSD at this time
- Does not preclude doing fUSD later. Moreover, one long term possibility is a factory pool system that would allow permissionless creation of pairs with arbitrary reserve token and beta.
In the end, all users seem to be aligned that the discussion must center around maximizing sustainable adoption and growth, measured by TVL. Does USD-pegged stable availability or specific mechanism dilute narrative of f(x) or fETH more than it benefits? There doesn’t seem to be much argument in the community about whether fUSD is a good thing to have or not; most seem to think we should offer it sooner or later in some form, but the decision about whether we implement it right now and how must be based on what we think can sustainably drive TVL growth, given the tradeoffs (practical, narrative, regulatory) discussed.
- Add a second two-asset pool
- Expand the current pool to a 3-asset model
- Keep only fETH for now
posted on behalf of Aladdin DAO team