FIP 08 - Allow for the Creation of a f(x) Protocol Friendly Fork with Bao Finance

f(x) Protocol Improvement Proposals
1

Summary

This proposal outlines a strategic partnership between Bao Finance and Protocol f(x), establishing Bao as a friendly fork of f(x) Protocol. Bao Finance’s upcoming minter is a customized fork of the f(x) Protocol v1, designed with specific adaptations and optimizations to align with the goals and functionality of the Bao ecosystem. Through this partnership, Bao aims to integrate fxUSD as a collateral option, provide benefits to both communities, and establish a collaborative framework for ongoing development and liquidity support.

Background

As Bao Finance prepares to launch its new minter on mainnet, this development represents a significant milestone for the protocol. The minter will be based on the f(x) Protocol’s framework but with targeted adaptations to optimize its performance and alignment within Bao Finance’s ecosystem. Recognizing the shared goals and potential for mutual growth, the Bao and f(x) teams have negotiated terms for a friendly fork to facilitate collaboration and maximize value for both communities.

By structuring this partnership, f(x) Protocol aims to set a precedent for creating friendly forks with mutually beneficial results for itself and the forked protocols. The collaboration with Bao will focus on building liquidity, expanding collateral options, and creating additional revenue opportunities for both protocols.

Proposed Terms and Structure

The friendly fork arrangement includes the following terms:

  1. Profit Share: Bao Finance will allocate 15% of the revenue generated by the minter above $250k per quarter to Protocol f(x) for the first three years. This profit-sharing model supports Protocol f(x) and aligns both parties interests for shared success.
  2. Token Supply Allocation: 3% of the total BAO token supply will be airdropped directly to veFXN holders. An initial 20 million tokens will be distributed upfront, with additional allocations each year based on any increase in the token supply.
  3. Collateral Integration: fxUSD will be integrated as a collateral option within the Bao Finance ecosystem, expanding the collateral choices available to users and increasing flexibility within the Bao platform.
  4. Community and Liquidity Support: Protocol f(x) will assist Bao Finance in establishing relationships within the f(x) community, co-marketing efforts, and liquidity initiatives. This collaboration includes pairing fxUSD with other assets, building depth in liquidity pools, and fostering mutual community engagement.

Regulatory Compliance and Liability

Protocol f(x) waives any liability related to regulatory actions concerning assets that Bao Finance integrates into the platform. Bao Finance assumes full responsibility for ensuring compliance with regulatory requirements, including any designations as securities or otherwise. This provision enables both parties to operate with a clear understanding of their respective roles and responsibilities regarding regulatory considerations.

Goals

  • Enhance Collateral Options: The integration of fxUSD as collateral for Bao synthetics provides a stable ETH backed asset for users within the Bao ecosystem.
  • Aligned Incentives for mutual growth: The profit-sharing agreement creates a new revenue stream for Protocol f(x), incentivising the f(x) community to help Bao grow.
  • Increased Liquidity and Market Depth: Co-marketing and liquidity pairings with fxUSD foster liquidity and engagement, benefiting both communities by enhancing trading opportunities and market access.

Poll

  • In favor: Bao Finance is granted permission to instantiate a friendly fork of f(x) Protocol
  • Against: Nothing
0 voters
2

It’s will be good if some other protocols forked and have partnership with fx .

I have some questions that I would like to ask :
1)How to keep tracking the revenue generated? And if their revenue lower than $250k ( for the all first three years) is that mean they don’t need to share anything?
2) Does the airdrop also included FXN 's liquid wrapper?
4)Does a new channel will create in AladdinDAO’s discord for helping them ?

3

Addressing the Concerns: Bao’s Friendly Fork Proposal

After reviewing the feedback and questions raised by the f(x) community, I’ve broken them down into key concerns and provided context to address them.

A Short History of Bao

Bao Finance launched in late 2020, during the height of DeFi Summer, attracting over $200M in TVL and reaching a fully diluted valuation (FDV) of $1B. The hype centered around the founder’s bold vision: to tokenize any discrete, quantifiable event or data feed. However, at that time, Bao’s only functional product was a yield farm, and its ambitious vision was technically out of reach.

Over the following years, the project struggled to find product-market fit (PMF) with the tools it had released. The hype fizzled, and the founder eventually moved on, handing Bao over to the community. Many assumed the project was dead.

At the start of this year, I stepped into a leadership role alongside my colleague, friend, and long-time Bao community member, Fabiaz, with the goal of revitalizing the protocol.

Why the f(x) Protocol?

While exploring ways to rebuild Bao and realize its original vision, we discovered f(x) Protocol’s implementation of pegged tokens. This was a breakthrough for us, as it solved one of our longstanding challenges: the reliance on stable liquidity pools to keep pegged token markets healthy.

Traditional CDP-based systems require liquidity pools capable of handling large transactions to prevent bad debt during liquidations. However, the f(x) implementation of pegged tokens uses its own liquidity pool, where anyone can mint or redeem tokens with zero slippage. This design removes a major friction point and aligns perfectly with our goals.

Our Team and Expertise

For the first time since the original founder’s departure, Bao has a strong and capable team to execute on its vision:

• Lead Developer: Over 30 years of experience in traditional finance (TradFi) at the highest level, now focused on crypto. Responsible for implementing our fork of the f(x) Protocol.

• Additional Developers: We’ve brought in a younger but talented dev and seen significant growth in Fabiaz’s technical skills over the past two years.

• With this team, Bao is finally equipped to bring unique, innovative products to market.

Improvements to the f(x) Implementation

While the f(x) implementation is groundbreaking, we’ve made several key optimizations in our fork to make it cleaner and more efficient. These include:

  1. Simplified Pegged Token:

• f(x)’s pegged tokens interact with multiple contracts, adding complexity.

• Bao’s implementation supports any token with protected mint and burn functionality, streamlining the design.

  1. Simplified Leveraged Token (xToken):

• f(x)’s xToken tracks its NAV and treasury source.

• Bao’s xToken is a bare-bones ERC20, reducing complexity.

  1. Advanced Fee Configuration:

• Multiple fee levels based on system state, enabling better user incentives and reducing the likelyhood of rebalancing.

  1. Comprehensive Testing:

• Numerical regression testing with visual graphs for inspection.

• Gas usage, contract size, and test coverage monitoring.

  1. Efficiency Enhancements:

• Updated Solidity, OpenZeppelin libraries, and proxy technology, reducing gas usage by half and simplifying upgrades.

These changes not only improve efficiency but demonstrate that value can flow both ways through collaboration between our teams.

Addressing the Concerns

Airdrop Size

• While it’s true the current airdrop may seem small, Bao is positioned for growth. Especially with help from the f(x) team and community. At a $400K market cap, many have written off the project. However, with the minter launch, Bao will be closer than ever to realizing its original vision of tokenizing any quantifiable event, potentially recapturing attention.

• We are open to community suggestions, such as allocating the tokens to the f(x) treasury instead, saving individual veFXN holders from gas fees.

Audits and Security

• Bao has been on Immunefi since 2021, with bug bounties of up to $100K although this has recently been reduced. Many of our previous contracts are forks of highly audited, battle-tested systems like Compound v2, Curve’s veContracts, and inverse AMOs. The community decided that paying for audits on these contracts was not a good use of our limited resources.

• However, the minter is our most customized product to date. We recognize its importance and will seek formal audits from reputable firms to match our treasury’s resources. Our lead developer’s background in TradFi ensures rigorous testing and code quality.

Reputational Risk

• Bao is a completely independent project, and any issues would be seen as Bao-specific. The broader DeFi industry understands the nature of friendly forks—Aave has repeatedly approved forks from less-proven teams without tarnishing its brand.

• Bao also has a strong four-year track record with no major incidents.

Why This Partnership Matters

This partnership isn’t just about Bao using f(x)’s code. By supporting Bao, f(x) signals that it is open to partnerships and innovation, rather than competition. This helps position f(x) as a leader in the DeFi space and creates opportunities for shared success. This is an opportunity to create something greater than the sum of its parts.

Negative impacts to f(x) are limited:

• Bao will handle all regulatory considerations for its assets and has committed to legal consultation for token design.

• There is no direct integration risk for f(x).

In return, f(x) gains:

• Expanded utility for fxUSD within Bao’s ecosystem.

• A strong precedent for future friendly forks.

• A long-term collaboration that could lead to mutual technical improvements.

2 Likes
4

Have worked with the Bao team for a while, it’s a great signal for FX to have such a high quality project looking to do a friendly fork.

2 Likes
5

I agree, and friendly forks are always a good idea (have a look to balancer and lqtyV2)