FIP 17 - Change the distribution ratio of wstETH staking yield

f(x) Protocol Improvement Proposals
1

Summary

This proposal suggests modifying the distribution of wstETH yield within the f(x) Protocol. Currently, 100% of ETH staking yield generated from protocol reserves is directed to the Stability Pool.

We propose introducing conditional allocations tied to system growth milestones:

  • When fxUSD issuance reaches $250,000,000, staking yield will be split 50% / 50% between the Stability Pool and the protocol treasury.

  • When fxUSD issuance reaches $500,000,000, staking yield will be directed 100% to the protocol treasury.

Of the treasury’s share, 75% continues to flow to veFXN holders, ensuring stronger alignment between protocol growth and governance participants.

This change reflects the maturity of the system, the proven resilience of fxUSD, and the need to enhance long-term sustainability by strengthening the treasury and veFXN revenue streams.

Background

ETH xPOSITIONs are backed by wstETH. The staking yield generated by it currently flows entirely to the Stability Pool, boosting returns for it’s depositors.

The system has materially matured:

  • fxUSD supply: ~$120M

  • Stability Pool TVL: ~$114M

  • ETH leverage and hedging demand (via xPOSITIONs and sPOSITIONs) has grown, alongside diversified revenue sources (fees, integrations).

Given this maturity and credibility, rebalancing staking-yield distribution to include the treasury and subsequently veFXN is timely and sustainable.

Motivation

Redirecting a portion of the staking yield to the treasury (with 75% of that flowing to veFXN holders) strengthens protocol economics by providing governance participants with direct and more sustainable cash flows.

At the same time, the Stability Pool continues to benefit from meaningful yield streams, ensuring incentives remain strong while better aligning rewards with long-term stakeholders.

This conditional framework also enhances protocol durability by creating a healthier treasury, capable of supporting audits, integrations, and future development, without compromising the attractiveness of the Stability Pool/ fxSAVE yields. Finally, the adjustment reflects the protocol’s system maturity - fxUSD adoption is well established, SP liquidity is deep, and the Stability Pool can now sustainably share staking yield with veFXN holders.

Implementation

If approved by governance, the staking yield generated from wstETH collateral backing ETH xPOSITIONs will be redistributed as follows:

  1. Current: 100% to Stability Pool

  2. At $250,000,000 fxUSD issuance: 50% to Stability Pool / 50% to Protocol Treasury

    • 75% of Treasury share → veFXN holders
    • 25% retained by Treasury for reserves and operations

  3. At $500,000,000 fxUSD issuance: 100% to Protocol Treasury

    • 75% of Treasury share → veFXN holders
    • 25% retained by Treasury for reserves and operations

Informal voting:

  • Yay - I support conditional distribution of wstETH yield (50/50 at $250M issuance, 100% to Treasury at $500M issuance)
  • Nay - Keep distributing the wstETH yield 100% to the Stability Pool
0 voters
2 
**75% OK - 25% NO**

I'm torn about completely eliminating the yield once we exceed $500M. 

In the not-too-distant future, I expect platform usage to increase, thus requiring greater liquidity in the Stability Pool to maintain the fxUSD peg and avoid charging funding fees, which is the real turning point compared to other competitors, which also have a more or less efficient liquidation break system.

I wouldn't want reducing incentives to make the yield associated with the SP less attractive compared to all the new protocols promising high returns of >10%, thus triggering a negative spiral.
1 Like
3
  1. If fxUSD reaches $500M supply (TVL would pass $1B), f(x) would move from high/medium risk to low risk, thus it won’t have to offer the best yield any longer/ compete with the newest shiny things to attract deposits.
  2. If the platform usage increases → more fees distributed to the Stability Pool, which would make up for the ETH staking rewards.
4

Instead of TVL targets which imo can be considered arbitrary, I think we should target base rate + [premium] to FxSave apr and then residual yield can go to treasury/vefxn.

The timeline for tvl benchmarks is unclear and think yield % split can be immediate change which can help flywheel the system.

Would suggest targeting FxSave apr ~10% (so a premium yield to base rate in mkt) and with apr of FxSave consistently in the low-mid teens this will have residual yield immediately accruing to treasury/vefxn.

2 Likes
6

How does this distribution work once the milestone has been crossed for say, 250m? Automatically turns on right then and there?

This is a variable milestone, and the tvl can go below the 250m threashold, does that mean redistribution pauses if it dips below 250m, and activates after 250m? Just curious about the mechanics

7

I’d like to highlight that ALD, which holds ~30% of FXN, plays a significant role in the ecosystem. To better align incentives, I suggest considering that a portion of staking rewards be directed to ALD.

This would:

  • Acknowledge ALD’s substantial commitment to the protocol,

  • Strengthen alignment between major holders and long-term protocol growth,

  • Ensure that the largest stakeholders remain incentivized to support governance decisions and ecosystem health.

8

AladdinDAO locks the FXN holdings, once the revenue sharing is activated for ALD, the income from veFXN will be streamlined to holders

1 Like
9

hope happen soon after bfxn? any time line please

10

The TVL targets are chosen conservatively such that the fee switch can be made with enough safety margin that it is unnecessary to pause the distribution of fees if the TVL should dip below the thresholds.