F of X? - Cryptovestor's Alpha Corner #7

Nov 21, 2023
F of X? - Cryptovestor's Alpha Corner #7

Things have been very quiet on the Frax front lately. The only new juicy alpha specifically related to Frax that I have is regarding a recent deployment of FraxChainPortal.sol and FraxChainEthMinter.sol on the Frax Repository on Github. So, it appears that Fraxchain is a lot closer that we think!

Also, since the Prisma wars are in full force, it appears that 2 new bribe markets have emerged for Prisma emissions, and I can only assume that Frax will be a major player in that bribe market. Both Votium and Hidden Hand have announced support for Prisma last week and Votium will be functional for round 58!

But today I want to talk about something new, something related to Frax, but not directly about Frax, more specifically, Protocol f(x) or F of X as some call it. This is a protocol that has a special place in my heart next to Frax, Curve, Convex and Prisma.  

What is f(x) protocol? Wow it’s hard to describe, its so many different things. At its core, f(x) allows you to split an ERC20 token into 2 parts, a volatile version and a stable version. f(x) was born out of the USDC depeg event that happened earlier this year and boy did the Aladdin team deliver. They were looking to develop a stablecoin that is not tied to the US Dollar, based on ETH and as such is completely decentralized. Their flagship tokens, fETH and xETH were released a little over a month ago and so far, they have attracted 8m in TVL. Still small but wait until you understand what this token pair can do.

So, what is fETH and xETH? Without getting overly complex, fETH is a stablecoin that tracks the price of ETH with a .1 beta. That means if Eth goes up 100% then fETH goes up 10% and vice versa if the price of ETH drops by 50% then fETH is down 5%. Its full backed by staked ETH, right now its Steth, which while staked earns a yield for depositors into the rebalance pool. xETH on the other hand absorbs the rest of the ETH volatility giving you a form of synthetic leverage, all without carry costs and the risk of being liquidated.

Example: Let’s say the Eth price goes up to $10,000, or a 5x from here. xETH can go up anywhere form 1.5x to 4x leverage. So, in this example with Eth at $10,000, xETH, which is currently trading at about $1.00 will likely be worth $7.50 or a 7.5x instead of a 5x. It’s a great way to bet on the price of ETH without incurring the risks of liquidation. Please don’t misunderstand me, there still are risks even with xETH, so I encourage everyone to read the f(x) whitepaper and understand how the protocol works before investing.

fETH on the other hand is more stable and less risky than xETH. I can see Dao’s who want a decentralized stablecoin, not pegged to the US dollar but based on ETH who still want some upside exposure over the long-term using something like this in their treasuries.

I was chatting with Sharlyn in the f(x) discord and the plans they have are staggering. The ideas are endless. They can apply this “f(x) invariant” formula to any ERC20 token, create baskets of tokens like a traditional ETFs. And even create short versions of these tokens as well! They are even working on yield bearing tokens like CVXCRV with 0, yes, I said ZERO BETA. So, imagine a stablecoin that has 0 volatility but is backed by CVXCRV that can earn 20%+ yield in the rebalance pool??? Crazy right!! What will this do for the demand of CRV tokens? What if I told you they plan or releasing Atokens or auto compounding Aladdin Dao tokens like Facrv, Facvx and FasdCRV!!! Oh, did I mention that they are also integrated directly with Cowswap now! So minting fETH or xETH is as easy as a DEX swap! And f(x) does not need to pay for deep liquidity since they just tap right into existing deep liquid pools across the Defi space including Curve and Uniswap pools! MIND BLOWN.

So how could this benefit Frax you ask? Well right now their fETH and xETH pair are based on Steth or Lido’s staked ETH. But what if they used sFrxEth instead??? Follow me??! In addition, a bribe market might form for FXN tokens which is part of the Convex family now. This means that Frax will be ready to vote/bribe for certain Frax rebalance pools!

Anyway, that’s enough alpha for one sitting. I will bring you more on FX protocol as I learn about their upcoming developments. See screenshots below.

Cheers Anon

Follow me @Cryptovestor77 on X for 24/7 Alpha on the Curve and Frax and now the f(x) Ecosystems.

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