The reserve-backed stablecoin: a paradigm shift - Cyrille | f(x) protocol

thank you hi everyone I'm s I'm contributor to Aladin da and FX protocol so Al adinda released three protocol from starting three years ago with concentrator and clever which are both built on top of convex and the latest one is FX protocol so today I I will introduce you to the reserve back stable coin and how big of a paradigm shift it is why am I talking of a paradigm shift it because it's a perfectly decentralized stable coin which is backed only by decentralized asset which is 100% onchain nothing is happening offchain of or there is no relation to any real world asset of or whatever not decentralized stuff um the you you will be a you will you're able to stake your stable coin and earn lsts or LRT yields that means real yield real usage with the stable coin and it's way more scalable that than CDP model because the the stable coin is always collateralized 100% on the other hand you will be you you're able to get leverage opportunity in the form of Leverage tokens that are non- liquidable and you you can get up to 4.3x leverage without facing liquidation risk nor paying any funding fee let me first uh take a little look at the stable con market cap when I wrote this Slide the stable con market cap was around $160 billion dos and I I bet it's it's probably still around that but if you take a closer look at the stabal market cap not sure it's easy to read on such a screen but uh it's mostly centralized or has centralized exposure and why is that and funny thing the latest one is the 13th one is Terra classic it's uh trading below two cents uh so there is definitely room for impr improvement in the decentralized stable coin Market as a matter of fact decentralized stable coin only represent uh 0.4% of this 160 billion dollar market and why is that it's probably because of this famous stable Controla so don't worry I'm not saying we're going to crack the stable contr Emma but we definitely improve the the balance between these three uh different topics which are stability and stable con always need to find a good balance between stability so how the stable coin is actually stable and able to keep its B decentralization how resilient it is how um decentralized it is and scalability so how much can grow with the demand on on the market and as you've seen previously with the previous slide most stable going to make a compromise on decentralization to be able to scale uh enough and we figured with FX protol that we could do things differently and that's what I'm going to uh tell you about so what are the actual alternatives on the decentralized stable coin Market most of decentralized stable coin are collateral depth positions AKA CDP I'm sure you all know how it works but to to break things down you pledge a collateral most of the time it's e and you can mint a stable con against a fee whether it's fixed fee or yearly fee in that model when you mean the stable coin you have to handle the debt so you're facing liquidations or redemptions and you have to manage it obviously there are awesome tools such as def saer to help you do that but still you will you need to have to to want to face that uh leverage and people taking leverage most of the time what do they do with their uh stable coin they will sell it to get more leverage to get more exposure to the collateral that means that stable holders the ones who really want who wants to use the stable because it's stable they face a selling pressure at all time and that also means that the issuer of the stable coins need to build a massive liquidity on dexes which is very expensive to S to sustain in the you'll see that in the reserve back stable Co model none of this is true so I just made a short slide about the CDP but please now forget about the CDP because the reserve back stable Co is way different so let me introduce you to the FX envirment I'm talking about FX because FX protocol was the first protocol to introduce the um Reserve back stable coin back in March 2023 when USC usdc deeg at in Dow decided it couldn't face centralized exposure anymore and such a risk of dpeg and they couldn't find um um a decentralized stable current that where the peg would be uh trustable enough so the model as I said is way different from from the CDP so forget about the CDP and if there's one thing you should keep uh in mind is that when you mint a stable coin I'll take the example of our Flagship stable coin which is called FX USD for the purpose of this keynote it's it's backed by Steve from from Leo so when you pledge Steve to the protocol it will go into the reserve and the protocol will give you either you can choose whether you want a stable con called FX USD or if you want XD which is a leverage token and the protocol will give it either FX USD or or The Leverage token at Oracle price that means you lose exposure to Steve when you means FX USD it's just like swapping and that's all you need to remember from from this presentation today but I'm going to dive into details don't worry it can be a little burry right now but it's going to be C crystal clear and you could see the protocol as one big CDP as as a user you don't have to manage any leverage position the protocol will do it on your behalf and again it's 100% on chain so what the FX invariant is it makes it possible if you have to understand how the protocol works you have to remember the FX and variant it means that at all time the value of the reserve the Ste Reserve is equal to the value of all FX USD on the market and all X Ste on the market and that how that's how the protocol works so how do you use FX as I told you it's just like swapping you can swap from any asset to FX USD and you will have it at one USD that's why FX USD is always perfectly pegged because you can mint it and redeem it at all time at Oracle price without facing any price impact and now how do you get the price of XT well you'll use the invariant to do that and I'll show you a couple of example very simple examples in a couple of seconds to help you understand but basically what you have to remember is if you want a stable a perfectly stable coin that gets real yield you simply swap for FX USD and FX USD is as liquid as it's collateral since you can mint it at orac price that means fxu ISD as liquid as Steve for instance or if you want leverage without facing liquidation and without having to manage a position and with and while having composability of anc20 then you just swap for X Steve simple as that now let me explain you how The Leverage Works let's imagine we've got $200 worth of Steve in the reserve obviously there's way more but just for to get a simple example there's 200 uh value of Steve in the reserve $100 uh dollars of FX USD on the market and $100 of X thief on the market let's imagine the distribution is like that now if Market raises by 10% the reserve value is now worth $220 right pretty easy the FX USD value is still $100 because it's stable coin and as a stable coin it's back to the door so it doesn't doesn't move now remember the the invariant says at all time the reserve value is equal to the value of all FX USD on the market and all XC on the market you can just make the difference to find the value of all X and that's what the protocol does so you now get a value of all X of $120 that means when if took 10% X Ste took 20% that means at that time x holders got 2x leverage without facing liquidation risks simple as that now it's also important for you to get that the Leverage is volatile it will depend on the distribution between FX USD and X Ste AK it means it will depend on the demand on Leverage in that example there's a little less Demand on The Leverage token as you may as you can see the reserve is also valued $200 but there's $154 of FX USD on the market and $46 only of X steth on the market again let's imagine uh if price raises by 10% again the value obviously is worth now $220 FX USD is still $164 because again it's perfectly packed to the dollar and now if we make the difference again we get a value of x of $66 at that point when if takes 10% xif took 43% meaning you got a 4.3x leverage without again facing liquidation risk simply by holding the token and you don't pay any funding or anything so I choose that example on purpose because if you remember um earlier I told you that that you could see the protocol as one big CDP and the protocol would make sure that the it's always uh enough collateralized that means the stable coin needs to be always above 100% collateralization And the whole protocol even even more so we want to make sure that the collateral ratio which is the value of the whole Reserve divided by the value of FX USD is always above 130% to make sure we never go under 100% And for that we have different stability mechanisms the first one is the stability pool and that's how you actually can get yield with your stable coin you simply stake your stable into the stability pool and when you do that you will earn the protocol revenues plus FX fxn emission MXN fxn being our governance token and what are the revenue made of remember the protocol keeps a whole reserve of uh Steve and this Steve produce Revenue right so when you stake your Stables into the stability pool you will earn this revenue from the whole Reserve including the reserve backing The Leverage token because when you get the this leverage you will get the leverage without facing liquidation but you give your yield up to the stable stakers that means you get enhanced leverage with the stable to compare with the underlying leverage I hope I'm I'm I'm not losing you saying leverage so much in the same sentence but I bet you you got it so that's how the stability Pool Works and in case of under collateral ization in in case of the protocol going under 130% then the stability pool can redeem uh the stable coins for either the underlying you can choose to stake into a stability pool that will redeem for Steve or you can choose to stake into a stability pool that would redeem into X Steve and when does that happen most of the time it happens in case of a sudden Market um uh dip so what happens you end up buying the dip with the stability pool and you can buy the Deep on Steve or you can buy the Deep on X steeve at a moment if you remember correctly when the collateral ratio is 130% XT Leverage is 4.3 so if you expect the market to bounce back it's probably a good idea some some people may see this as buying the Deep some other may see this as uh catching falling knife but I like to say uh for me if is kind of a r and knife but that's my own personal opinion and if the stab pool is not enough it's obviously the best risk reward strategy with with our Stables but if the stability pool is not enough to rebalance the protocol there's other um uh incentives to uh redeem the uh the stable token and mint more leverage tokens to rebalance the the protocol coming into place such as a fee structure on the minting and redeeming fees and so on uh that you can find all the details in the documentation um um so yeah that's about the the stability pool and that's how you get as I told you in the beginning on one hand a perfectly Peg stabon which is perfectly decentralized which happens 100% on chain and which has inherent yield inference real yield and usage and on the other end you get this leverage liquidation free leverage with no funding cost I was watching uh a keynote from Dennis previously like half an hour ago he was talking about how to get uh uh beta on E beta strategy uh on if and that's X def is obviously a very good beta strategy on E because it's always above one and and it can go up to 4.

3 so I gave you the example of FX USD and you can also see the whole protocol as a DEX without a price impact without slipage because remember all the assets are minted and redeemed at Oracle price and that's probably the reason why aggregators such as open ocean and cow swap routed the protocol as a DEX uh making liquidity accessible and that also the reason why um Blue Chip assets such as go and DOA and other stable coins paired with FX USD because by pairing with FX USD on curve for instance not only are they building liquidity with a perfectly PID stable coin but they're also building instant liquidity with its collateral because the protocol is used as has a DEX by aggregators so that's a good way uh I remember the previous keynote with the Fig from Paladin saying yeah it's hard to provide liquidity without facing impermanent loss in a way when you provide liquidity to a stable pool with FX USD you also provide providing liquidity for the stable to the collateral without facing impermanent loss so yeah I said it and um so I told you about FX USD but we released the couple of other stable coins so the first one uh on on the left is FX USD the second one is RUSD it's exactly the same model except is backed by lrts being backed by lrts when you stake your stable into the stability pool and that's a unique usage not only will you get enhanced yield but you'll also get enhanced point up to 4X point on EFI and up to two x points on um igen layer and and this stability pool there's an alpha here this stability pool is about to be tokenized into yield bearing stable coin giving you this Forex point I'll let you imagine all the usage we can have with such a token this third one is btcusd was the first trial of having a re Reserve back stable coin backed by non yield bearing token because it's backed by right Bitcoin which is not generating yield so on this iteration we charge a very small funding to The Leverage holders uh to pay the stability pool and last but not least F was actually the first stable con to be released was released in August 2023 and that's my personal favorite because it's only stable because it keeps 10% of e volatility that means when if goes by uh 30% F if only takes 3% and I love it because I I like to call it the if native stable coin because uh it only relies of if economics rather than Bank Central bank's decisions and I just love this model that's how I discovered FX in the first place so yeah if you if we look back at um the stable control am as you may see we achieve to get a perfect stability because I think I said it enough but the Stables are perfectly pegged it's decentralized because fully unchain and back by decentralized ass sets and it's scalable because it's 100% collateralized at all time so more scalable that the CDP so I understand it's a way new model and that was the purpose of this keynote today I hope I raised your interest and um I've been very very quick so if you have any question feel free any question maybe yeah there's a question here I don't know what time I started the the keynot but when I rehearsed it was I I did 25 minutes and it's only 5 past five hello s what's up yeah you were quick but you're usually quick I wanted to maybe uh ask you to like how how much of a of a difference does this uh approach how unique do you see this uh approach taken by FX and how much of a game changer it is and what are the like if you can try to sum it up like in uh as as simply as you can what are like the main uh few benefits uh of uh this new model presented by FX to previous models that uh like coexist in the industry for away yeah I think I think uh the main benefit is this um there are a couple of actually that the factor obviously it's it has a perfect begged while being decentralized and it's it's been a compromise most people wouldn't want to do previously with all decentralized stable coins because you never know how the peg is going to be and the fact that this model doesn't rely on external liquidity to be pegged because the that the protocol itself is the burst liquidity Source there is for the stable coin and that's that's pretty new that's a brand new model and on the other hand like the non- Equitable leverage token is a pretty pretty new narrative as well I believe I hope I I answer your question is there any other question another one yeah do you think this model can play a role in attracting uh different types of capital into the ecosystem like for example can we make uh this model attractive to participants such as like I don't know thread participants institutional participants whatever and also maybe after that if you can elaborate on how maybe other participants like native participants within the defi space can uh use uh this model to their advantage as well by working integrating effects or working uh with this model or whatever yeah I I think there's tons of stuff to to do in terms of Integrations and so on but about on boarding uh triy institutions and so on I guess it's it's possible since the protocol is is very scalable I mean you can if you if you guys want to try whether you go on cwap on or on the uh dep directly if you guys want to try to Mint FX USD with very large numbers you'll you'll probably be impressed even on on cwap sometimes you you get you get more because cow swap will take benefits of Market inefficiency between between let's say your usdc and uh Steve which is backing the FX USD so it's it's definitely ready to on board large amounts uh actually just the protocol is about 60 60 million tvl at the moment we on boarded 7 million just just today uh in a blink and uh it's so it works pretty well and um your second question about Integrations I think there's of Integrations to do especially with the tokenized uh stability pool we're about to release uh it's easily bridgeable easily uh it makes a very good collateral as well to borrow against and do whatever you want because it's already has uh leverage on points and and and a pretty decent yield there's like I don't know tons tons of stuff to do is there any other question okay any other questions guys so I just wanted to jump in and say a big thanks to sarl we've had some real ogs on the stage pleas you know in the you know in the reserve back stable coin Niche and I think you know how can people follow you and how can they come in and work with FX protocol want to maybe share your handle and stuff and because I know you you do also have referral links on your on your X profile so maybe just tell people your hand handle they can come in and work with FX protocol and you guys you know I'm sorry I didn't get your first question and how can people come in and work with you you know maybe give them share your handle your socials and oh yeah sure uh actually my oh yeah there's no no uh you can you can find me on twitteren uh if you can put the stren find my my Twitter handle here sorry yeah yeah the my name is on the slide so it's Ser Brier you can find me on X and you can find you can just join the Aladin da Discord this is where all happens and uh it's it's really a community community focused uh Dow all members all contributors came out of the the community I actually started by just sharing a couple of IDs when I discovered when I read the white paper and and that's how I got onboarded on the protocol so everybody is welcome to provide IDs and so on and we also have this yeah this referral system uh that you can um harness because actually using the referral system you can even get paid for getting the leverage tokens so I was just reading about that the LRT tokens that you can then leverage so honestly guys what a what a session and what a session to finish today's off can we give a big round of applause for cherl here guys let's put our hands together thank you very muching thank you very much um and put it this way if they you know Aladin Dow check them out Aladdin Dow X if you're going to be working with contributors ambassadors like sirel honestly I would get there soon and you know and start and start making some money so let's do it yeah and feel free to to catch to catch me if you want to build stuff together and I'm always up put to Integrations IDs perfect and I was actually about I was side events will you be the 18am yeah we conduct we conduct eight The A Team space uh almost every Wednesday on on X so you can join the the The A Team uh X page as well if you want to know about all the different interrogations with buildt and so on I'm going to be asking you about that later will be the speaker dinner this evening yeah perfect absolutely we'll put this way I was about to close off today so I'm going to do it with sir on stage with us another big round of applause for today and all the speakers today guys thank you also want to say a big thank you to all the engineers all the sound technicians everybody that's making today possible we have one more day left guys today this whole week has been flying through so I just want to say a big thank you as well to all of you for all of your attention today but we have a whole list of of events this evening so make sure you head along to some of them and there's a speaker dinner on there's also uh madi's Rave so I don't know if you guys like music like partying and who knows maybe we'll see each other there later and I hope everyone has a great evening no matter what you do chiao Chow take care see you thank you amazing thank you man s