August 30, 2023: The Strange Case of Dr. $fETH and Mr. $xETH ๐ญ๐ฉ
Curve gauge votes for Aladdin DAO's f(x) Protocol derivatives pass
In the dark alleyways of mainnet, not far from the bustling Curve marketplace, a tale of two tokens unfolded. The esteemed Dr. $fETH was a figure of stability in the community. With a consistent value, almost pegged, he was revered for his dependability. Many sought his company, believing he was the beacon of safety in the tumultuous world of cryptocurrency.
Yet, rumors swirled about his association with the mysterious Mr. $xETH. This entity was the very embodiment of volatility. While Dr. $fETH moved with predictable grace, Mr. $xETH's value swung wildly, sometimes in unpredictable fits of gains and losses. The market watched in both awe and horror as he gambled recklessly with traders' emotions.
One chilling evening, beneath the dim glow of a geth node, an old investor recounted a peculiar event. "I had seen Dr. $fETH transform," he whispered, "Into the erratic and unpredictable Mr. $xETH. It was as if a switch had flipped, turning the predictable into the unpredictable, the stable into the volatile."
Indeed, the secret many had begun to suspect was clear: Dr. $fETH and Mr. $xETH were two sides of the same coin. One represented the calm and steady, while the other was the wild and unbridled spirit of the crypto market.
Yet, as the proverbial moon waxed and waned, one question remained - which of the two would dominate? The reassuring stability of Dr. $fETH, or the thrilling unpredictability of Mr. $xETH? In the shadows of the market's fluctuations, only time would tell.
Aladdin DAO has shipped its third straight winner headlong into a brutal bear market, this third time in the form of f(x) Protocol.
The team first dropped the white paper earlier this year:
The team opened the protocol for testing on August 17th, with a cap of 1000 ETH. It sold out within just 5 days, at which point they upped the cap to 2000 ETH.
This early test drive has given us a look at how the protocol would actually function outside the confines of a white paper. Thus far, itโs been smooth sailing.
The ratio cited at the above checkpoint has held consistent, presently sitting at 63% fETH to 37% xETH. Is this going to be a relatively constant ratio going forward? Is it the case in crypto that roughly two thirds of us seek stability, while one third of us are reckless gamblers? Or is this simply a function of current market conditions?
Launching into the market troubles on August 17th may have been a traumatic time for the earliest users gambling on the volatile xETH.
At present, the $xETH token is accordingly down, trading at $0.8254. At the current ratios, the token has been offering 2.54x leverage.
The volatile nature of $xETH means good news for its most recent minters. Several recent minters doubtless celebrated 2.54x harder yesterday on the news that the courts again slapped down the SECโs blatant and harmful overreach. Yesterday $xETH printed a 14% gain, while the rest of the market cheered closer to 5%.
Given how it seems retail only likes to FOMO into $ETH after the prices go up, weโll be watching to see if more users opt to increase the size of their wagers by plowing their $ETH into $xETH. After all, with no funding costs, itโs an attractive bet for thrill-seekers.
Meanwhile, the more lethargic side of the duo, $fETH, is also functioning precisely as intended.
The $fETH half of the pairing is meant to function like a pseudo-stablecoin โ not precisely pegged to $1, but capturing about 10% of ETHโs volatility. This would theoretically keep holders of the asset modestly aligned with the ebbs and flows of the crypto community. Yesterday $fETH holders could share a thimbleful of champagne to lightly toast in celebration of Genslerโs smackdown.
Despite some utterly unhinged swings of the market lately, $fETH has essentially remained pegged. The token is currently trading at $0.9934, which could only be considered as volatile next to the excessive stability of a $crvUSD ($0.9993). We could imagine $GHO ($0.9809) and $MAI ($0.9477) might kill for such stability.
The pseudostable comes with a healthy collateralization.
In the absence of an onchain Jerome Powell, the team offers an answer for high-yield treasuries in its rebalance pool. The rebalance pool, which exists to provide a reservoir in case the collateralization drops further, also offers a competitive 5.44% APR for depositors.
f(x) Protocol may even have accompanying Curve pools earning yield soon enough. Liquidity pools for both tokens have launched onto Curve, and their gauge votes raced past quorum with unanimous approval.
The stable $fETH is paired with $crvUSD in a v2 pool designed to allow for a potentially floating peg should ETH become more volatile.
Meanwhile the wilder $xETH is pegged with ETH in a v2 pool, for an LP token that may be an interesting asset in and of itself.
Of course, these pools are relatively small at the moment. If they gain traction, they could become the primary rails by which f(x) Protocol users access the rest of DeFi.
For a bit more, check out these several great threads on the protocol:
Again, kudos to Aladdin DAO! Weโll go ahead and push our luck by leaning on the genie to grant a world record fourth wishโฆ perhaps we may be so bold as to wish they could contrive the end to this insufferable bear market?
great work ๐