FX offers 2 products. The first one is a leveraged
product. It delivers leverage on EVE and
BTC without funding costs. Without borrowing costs, users
just pay a one time opening and closing fee and that's it.
And in most cases they won't have to pay any fundings.
And the difference with regular CDP is that we abstract the
looping so we give overexposure to the collateral and we have
this very innovative liquidation mechanism that prevents any hard
liquidation. FX protocol is an evolved CDP.
Whenever people are longing the collateral, it involves selling
the stable coin for more collateral.
Different pack keeping mechanisms.
The first one is that stability pool on F of X.
The stability pool is a yield strategy that takes both FX USD
and USDC as pays assets. Each time FX USD is traded below
1, the USDC from the YE strategy will buy a fixed USD in the
market to put it closer to peg, and each time it's traded above
1, it's sold back for USDC and goes back to the stability pool.
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Time. Welcome to Epicenter of the
show, which talks about technologies, projects and
startups driving decentralization and the global
blockchain revolution. I'm Sebastian Kuchiro and today
I'm here with Cyril, who is our core contributor at FX Protocol.
FX is a really interesting yield bearing stablecoin that also
utilizes A perps market. There's an interesting stability
mechanism there that we'll get into.
And also right now I think it's like probably one of the best
yielding stable coins on the market with their stability pool
yielding somewhere around like 1213%.
So that's that's really sort of compelling and interesting.
And I wanted to talk to you soon today about about FX and
understand the core mechanism, you know, and also you know how,
how they fit in the broader stable corn landscape.
So hey, so nice, nice to see you today.
Thanks for joining. Hey, thanks Sebastian for having
me. It's a real pleasure to be here
today. So, so you're actually based in
France. I see you got the Ethereum
France T-shirt. What's your like, What's your
background? How did you get interested in
D5? Like a, you know, have you
worked in any of those big French protocols or?
Yeah. I, I, I started D5 because I got
wrecked with the crypto markets and I figured I wanted to make
yields that and that getting yield on stable coins would be
some somehow more predictable income than just betting on, on
the market volatility. So and I had to, I had a bit of
as funds on my on my company actually.
And I went to the bank and I asked for yield opportunities to
the bank and as a professional in France, they would offer me
.15% APR with a six month look up.
And I figured that it's point. 15% or 15%?
No, no, .15 point 15 with a not 1%.
Yeah, yeah. So I figured it was a theft and
I should find something else. And I heard about Defy at that
point. And, and actually what I didn't
hear about Defy, I heard about Celsius as I was offering
something like 8% and Nexo as well.
And I started putting Euro there at the at that time and I
figured, OK, how do these guys actually make yields?
And this is how I heard about Defy.
And it was right after the Defy summer and I bumped into a
French community called Defy France.
It's pretty close to maybe Lobster Dow, but for French
people. And it's a group of Defy
passionate people talking mostly about Defy and with 0 bullshit,
it's mostly doing about building stuff.
And there's a lot of builders actually in the group.
And I started by reading everything, every single message
in that group for months. And I learned a lot of stuff
starting practicing Defy as well and getting involved into Defy
France by sharing what I learned from the community and
organizing meetups in Toulouse. And I've organized almost a meet
up a month for the past three years.
I just stopped before this summer.
And this is how I I got to meet with people that came to the
meet up to talk about their their projects and stuff like
that and how I got people to reach out to me to get my
opinion and different stuff. And regarding F of X, I did a
meet up about F of X in September 23, so right after the
first iteration launch. I've been following Aladdin Dao
which is the the DAO behind F of X and and as well as
concentrator and clever protocols.
I've been following the DAF since the beginning and when I
first read about F of XI just loved the design so I figured I
should make a meet up about it and shared it on the community
and this is how I I started to contribute to the project.
Cool. I think like doing meetups is
such an underrated kind of low lift thing that you can do early
in your crypto journey. I organized a few meetups back
in the day, Lille in the north of France and like, yeah, I
know, like, you know, Brian, my Co founder here at Epicenter,
like also organized like quite a few minutes in Berlin.
And it's such a great way like meet people who, you know, you
don't necessarily see online, right, like, but like they come
out of the woodwork for the meet ups, right?
And they they they it it built. It's like great great way to
build a connection. Yeah, exactly.
And it's one of of these few ecosystems left in which you can
easily access to people that makes that make the ecosystem
and as and you and you can just a gift to the community and and
it will just bring so many opportunities, you know, just by
being genuinely sharing stuff, it just just meet people and and
it brings opportunity. Yeah, yeah.
I guess what I'm trying to say is like, even, you know, even
like 15 years into crypto, there's still opportunity for
people to like have to. Yeah, exactly.
It's like, like I encourage anybody to do that and like
what, what's the relationship like?
Well, what is Aladdin DAO and the relationship there?
And you know someone was already working on FX before you started
contributing to it and. Yeah, Yeah, it's a good
question. Aladdin DAO is the DAO that
builds F of X protocol. So it's the same team basically.
And Aladdin started as an investment DAO something like
four years ago and but it quickly created it's first
protocol to just to to get what was missing to them in the
define landscape. So this they they launched, I
wasn't there, I wasn't contributing there at that
point, but I was a user. Actually, they launched
concentrator, I believe in 2021 maybe or 22.
And and then clever, so considerate in a, in a nutshell,
is an auto compounder protocol. So it auto compounds your
yields, but instead of compounding into the underlying,
it lets you compound into another yield bearing assets
such as Steve, for instance, or, or since since Aladdin that has
been very close with the Curve ecosystem in the first days,
you, you can compound your CRV, for instance, instead of
compounding stablecoins. So it's kind of it's a protocol
that lets you DCA with your D5 farming basically and that was
so that's the first protocol. It's still around with the over
100 million TBL. And the second is clever that
lets you leverage your CVX farming basically with without
liquidation. And so the first two protocols
are very deep into the Curve and convex ecosystem, while the
third one, which is F of X solves the, the, the problem of
decentralized Stabrocoins basically.
And what I've loved, what I loved about, about the design is
that it brings a real decentralized alternative into
the Stabrocoins landscape. And it was the the origin of F
of F of X is actually the USDCD peg in March 23, because Aladdin
DA with the existing 2 protocols had a treasury mostly made of
USDC. And they just figured it's such
a nonsense to build defy in, in, in, in on the most centralized
infrastructure and to rely on on centralized stable coins and to
depend on on Trotfy even such as the SVB failure.
And this is how the idea of F of X was raised in the 1st place.
And and if it evolved to what it is today and today we managed to
to bootstrap FXUSD to over 100 million market cap as well while
having no VC funding while doing things 100% organically.
Yeah, No, I I agree that like the the IT, it's, it's, it feels
like such a huge failure on the part of the ecosystem.
Sometimes. I think like the fact that
centralized Sable coins have of dominance over the stable coin
market feels like a pretty big failure on the part of, you
know, proponents of decentralized tech.
And it's really unfortunate that, you know, protocols like
die and, and other decentralized stable coins haven't picked up
more, more adoption than than they have.
I mean, like there's sizable adoption, right?
But it's like it's nowhere near where USDC and Tether are at.
I mean, there's like a lot of regulatory risk there.
And also, you know, DPEG risks and, and these sorts of off
chain risks, what what is like the kind of core value that you
think sort of the core tenants that a decentralized stable coin
protocol should embody? Like, you know, if you had to
kind of put characteristics on what's like an ideal
decentralized stable coin protocol looks like, what would
those be? Yeah, I think for a
decentralized stable coin to work, people need to to to trust
it to be reliable. So he needs to have a good peg
obviously, and and to be liquid enough so that you can come and
and buy it and set it in size. And it had, it needs to be
collateralized so that the peg actually stays.
So it's not just liquidity, but it's actually a good peg by
design and good backing and and it also needs to to be scalable.
It it all goes back to the stable control lemma.
It needs to be, in my opinion, mostly on chain because so that
you can abstract trust from it and just trust the code instead
of trusting entities and and people.
And yeah, that's that's and and and and it also brings
censorship resistance with by by being on chain.
So that's all these different key components.
I guess that makes a good decentralized stable coin.
In my opinion, the beauty of Ethereum is and, and
decentralization is that it abstracts trust and abstracting
trust from finance reduce the risk, right?
And it's just like people just forget about this and, and, and,
and just like the the trust file is used to, to, to, to trust and
to have someone to sue if anything goes wrong.
And why we can't just avoid trusting people using Ethereum.
And in my opinion, makes a lot of sense to, to embrace that
technology and to, to bring and, and this is actually what we do
with FOX. We manage to deliver higher risk
with lower, higher, sorry, that's higher rewards with
lower, lower risks because there is no trust involved.
And and in my opinion, that's a, a, a paradigm change that will
come at some point with when they most of the new transfer
guys would be crypto native and understand that that value
proposition. Yeah, I certainly hope so.
I mean like there's there's a, you know, centralized stable
coins, you know, have a lot of have a lot of tailwinds.
So, you know, and, and they have, I think, like for for that
to happen, I mean, you know, it could happen, it could happen
that like decentralized stable coins take over.
But they would have to be some catastrophic event that like
really erodes the trust in like tether or USDC to the point
where, you know, decentralized stable course can kind of like
come in and start taking that. I, I don't know that I think
that, you know, decentralized stable coins can like slowly
start creeping up and, and, and building up issuance to, to
really surpass in a meaningful way, you know, the, the main
centralized ones. I don't think, I don't think
they will take over because the the centralized one will
probably always be more convenient and and scalable That
that's that's a fact. But I also believe that
centralized table coin will all eventually disappoint at some
point. And, and at that point, people
will need a reliable alternative to use.
And why would you use a more risky stable coin?
So a more trusted stable coin with low risks, while you can
most of the time use a decentralized one with higher,
higher yields. You know, the idea is just to,
to, to offer a reliable alternative.
And this is what what we're doing.
And and looks like people understand it since the protocol
has grown pretty well lately. Yeah, that makes sense.
I think. I think also maybe there's still
like some lingering fear about decentralized stablecoins,
right? Like where with with UST.
So that might also contribute a little bit.
I think also generally they're they're, they're harder to
understand right then like a centralized stable coin.
Like centralized stable coin people know like, hey, there's
an institution behind this. There's all these banks, there's
like, you know, KPMG audits to save the money's there.
I, you know, I get that because that's like the model that most
people are familiar with, with the decentralized stablecoin.
Like, you know, you have to listen to our one podcast like
this. So like, understand what the
fuck's going on and. Again, it goes back to that
trust paradigm of, of of the the old word in a, in a way.
But yeah, definitely there's a PTSD of of UST and in most
people I meet and and when the first question they ask about
FXUSD is, is it an algorithmic stable coin because they heard
about this. Yeah.
It's dangerous and yeah, now it's fully collateralized with
exogenous collaterals distance like stable coin.
Cool. Yeah, Well, let let's maybe get
into a little bit of how it works.
And like the first time we chatted, you described it as
sort of an evolution on the CDP model that Maker introduced to
the world, I guess back in like 2016.
So maybe maybe using that as a, you know, if that's helpful,
using that as a comparison, 'cause I think a lot of people
have that model and understand that model.
Yeah, you know, how's it work and what are the different
components? Yeah, for for people used to the
CDP model, it's the easiest way to understand how FX works.
It's it's indeed an evolved CDP design in the way that.
So FX offers 22 products. The first one is a leveraged
product. So it it, it delivers leverage
on EVE and BTC or BTC. You can.
You can choose directional leverage with without funding
costs, without borrowing costs. Users just pay a one time
opening and closing fee and that's it.
And in most cases they won't have to pay any fundings.
It can happen in very rare occasions, but so it brings
predictability in the cost. And the difference with regular
CDP is that we abstract the looping.
So we give overexposure to the collateral just just like if you
would use ACDP with looping protocols such as Defy Saver or
Contango or stuff like that to get directional leverage, we
abstract it, we, we include it into the, the, the product.
So that's called expositions for the lungs, expositions for the
shorts. You get directional leverage up
to 7X predictable cost, just a one time fee.
And we have this very innovative liquidation mechanism that
prevents any hot liquidation. So you don't you don't get the
half or 100 or the the entire position wiped out with a with
if the market goes on the opposite side and you get this
very progressive liquidation that keeps you as much exposure
as possible and reduce the the risk.
So on the leverage side, in a way it's a zero stress leverage.
It's just a Zen perp if if you want using the CDP model in in
the back end. OK.
So maybe we'll stop it there and and kind of go over those
different parts yet. So, right.
So comparing to the CDP model, CDP you borrow against
collateral, but leverage isn't included in the protocol.
Typically people get that leverage by going through some
external protocol like D5 saver or maybe Insta DAP and they're
they're do they're kind of exporting the looping
functionality to that protocol and then.
Bringing the collateral by Yeah, like of the.
Yeah, yeah, it's a huge pain in the ass.
Like I've done this. It's just really painful and
kind of scary to do. So like, and then you bring the
collateral back and then they'll, you know, you're doing
this loop and you may like get some levers from that.
F of X has this built in so you can do up to 77X leverage.
And then the the other part that you mentioned is that there's a
gradual liquidation mechanism, which means that your collateral
isn't liquidated in sort of a single transaction, It's more.
It's very progressive. It's progressive, right?
So, and I guess I've never thought of this, but like what
makes that possible? And why is it that typically
lighting protocols don't have a progressive?
It's a very good question. Liquidation mechanism.
Yeah, thank you for asking this. The why the other CDP don't do
this is is because most of them we're.
Just lending protocols basically, like, you know, why
wouldn't Ave. kind of have this, you know?
Progressive. Lending mechanism.
Can't do this because they handle each leverage positions
individually. So to make the liquidation
profitable, it needs to be large enough so that the the keeper of
the liquidator will actually be profitable to by handling the
liquidation. And the the main difference with
F of X is, is that all the leverage positions are handled
together based on the the on on price ticks basically.
So we aggregate every positions at risks to together to process
the the liquidations. Meaning the liquidations are
profitable even if the individual liquidation is very
small. So to to illustrate the the
design, if you're familiar with the LTV concept, each time your
leverage position crosses 88% LTV, the protocol puts it back
at 88% LTV, no matter the amount.
It represents the dollar amount, the value of the liquidation so
that your position never reaches 95% hard liquidation team.
If that process ever fails and your position reaches 95% LTV,
at that point the whole position is liquidated.
So. But in most cases it shouldn't
happen because yeah, it it it works.
So you're kind of socializing the liquidate, the liquidation
mechanism, Is that exactly the way we look at it?
Yeah, it's a good way of of saying it.
Yeah, it's so socialized. OK, interesting.
And and no other D5 protocol does this like your lending
people. Yeah, recently Fluid came up
with a similar approach. They have this whole base
liquidity layer, but it it's way, it's a way bigger machine,
you know, because it's a it's a whole lending protocol and decks
and and so on. We need it's on the FX side is
way syncher it's just two collaterals and and CDP, you
know, but they have a a similar approach in a way.
The main difference on their side is I believe that the the
liquidation penalty can fluctuates while on F of X it's
it's fixed 2.5, on fluid I believe it goes from 1% to 8%
so. Maybe just to put this another
way, say we compare with Ave. Like Ave. each position is can
be liquidated, has to be liquidated individually to
protect the underlying collateral.
Here, the underlying collateral is kind of pooled to represent
all of the positions. And you know that that
collateral is going to secure your position as much as it's
going to secure someone else's. And the different positions may
have different sort of collateral ratios relative to
the overall collateral, which which is where you get this kind
of socialization mechanism. So someone else's collateral is
kind of like backing your position.
Right. Not, not, not exactly.
Your position is actually like your, your position collateral
ratio is is monitored, you know, so there's no, you're, you're
not actually. Each long position has its own
collateral, but it's all cooled together and and all the, all
the, the the leverage positions are monitored together.
So and instead of of liquidating each position individually, you
look at what's at risk on each position considering the current
price and you liquidate everything all together.
Is that is that easier way? Yeah, I think, I think that
makes more sense. OK.
And what kind of complications does this in does this because
there's always trade-offs, right.
So like what? What's the SO trade off of this
approach? Regarding other landing, landing
and liquidation design or or even CTPI think it's just it's
just better because it enables higher LTV.
This is how we we managed to deliver up to 7X while on RV for
instance, you would get like 5X stops on on E for BTC.
It is it, it gives us like I liquidating way more
progressively. It it's, it's, it's, it's more
secure in a way. Right.
But is it, are there like unintended trade-offs like for
example, like the the fee, you know, the the fees you can
charge are lower or like you know, liquidations liquid like
liquidators are less efficient. Like there must be some some
trade off, right? On the liquidation side, no, I
don't think, I don't, I don't think, I can't think of any
trade off here. It's it's actually a more
efficient way of of doing things now.
I don't think of any trade off on that on that side.
Actually the the cost of liquid of the liquidations is like the
liquidation penalty, which is a keeper bounty.
It's actually the same. It's way lower than on, on other
money markets. For instance, if you compare
with RV, when you get liquidated in RV, I believe it's, it's at
least 5% penalty or maybe 10. And and the, the liquidation on
TV on, on if it's or, or stiff something like 80% while it it's
88 on F of X and, and when you get liquidated, you can get up
to 50% of your position instantly rebate.
That's a hit. You know, on F of X it can be as
small as just .1% of your position wiped out.
If the price just touches it and, and goes up again, you
don't, don't get wiped more. The penalty is just .5%.
These are our money market. It's, it's way more secure and
efficient and it, it brings like relief in terms of how you see
liquidations to compare with a regular centralized perp.
It's still, since it's on chain, it's the, the liquidation of the
TV, even if it's a partial progressive liquidation is still
lower than on, on their centralized perp because like
liquidations are processed with a 99.5% of TV on, on Binance,
for instance. But it's a, it's just a
different approach. You know it's.
And so with this approach, you have near capital 100% capital
efficiency like border to lending is nearly 100%.
No, it's, it's still over collateralized, but it, it's
since since it's more efficient, we, it's we, we can have a, a
lower collateral overall collateral ratio than on the
other CDPS. So it's more capital efficient
than than previous CDPS. It's still obviously less
scalable than a centralized stable coin, obviously because
it's over collateralized, but still it it brings it a better
compromise than anything before. OK.
I'm I'm looking at the website, it says that $4 billion for
almost $5 billion have been liquidated last month on other
perp solutions and FX has 0 liquidations.
Yeah, because like the hot liquidations only happened once.
It was in the first days of the the current iteration of the
protocol when there wasn't enough keepers processing the
the, the the liquidation break. So that's the some position
reaches not reached reached 95% LTV and got liquidated.
But since that evidence, it wasn't on February the second or
something like that, there was a massive liquidation event on the
market. And since that dates there,
there was no hard liquidations on Evox.
Some got partially reduced in a way, but there was no hard
liquidations. And the main, the main, the main
point of of this design is that the leverage users keep as much
exposure as possible to recover with the market.
If the market ever recovers, if they made a bad trade, it won't,
it won't save them. You know, if the market just
crashes and goes to 0, they will go to 0, you know, but way more
progressively than on any other Unchained leverage solution.
Another thing you mentioned is that the that there's no funding
rate for the leverage trades. You just have this one time fee.
What's unique? What's unique about this
approach? What does it enable?
It's been it has been done before by Liquidy for instance.
With the LUSD it was similar in a way people would just pay a
one time opening fee. But the the main difference here
is that CDP elect LUSD could couldn't scale because they had
massive peg issues like the the LUSD peg is is not reliable
enough to actually hold the LUSD because you end up buying it at
11.05 and setting it at at .99. So it's not reliable enough.
And we fixed this by still having this just fixed one time
opening fee and closing fee. But we only add a small funding
if the stable crime is ever depegged.
And that funding is an an just like most of the fees generated
by the protocol are distributed to a stability pool that acts as
a peg keeper to attract more USDC earning.
That's that's organic yield and helping with supporting FXUSD
spec. So we have this organic peg
keeping mechanisms that that just work and that let's FXUAD
scale pretty well since we launched earlier this year.
Yeah, let's, let's talk about that stability mechanism, the
stability pool And there's, there's also, I think like I, I
guess FX save is also. Related to here, yeah.
Correct. Yeah.
So, so, so like what's really impressive here, I think is the
yields which range between like 10 and 20%.
No, yeah, those, those, those approach Terra level anchor
level yields. But yeah, why, why, why is this
sustainable? How?
How is this sustainable? It's it's a good question.
Yeah, indeed Fxsafe, which is the main yield strategy on the F
of X protocol as since we launched it has been one of the
best yield, stable yield in Defy.
If you look at the dashboard created by Inverse Finance
called stable yields.info, you can compare all the main yield
bearing stable strategies around such as FXF obviously S Dollar
Stack, USR, SCRVUSDSUSDE and stuff like that and and most of
them. And if you get this on different
time frames, you see that FXF has been above all the time and
like the next one is like 4 points below FXF.
And, and that's, that's a huge success for us.
We're very, very proud of of this.
And, and most, and the main thing is that most of this youth
is 100% organic and doesn't imply any human active
management. It's 100% smart contracts on
chain. There's yeah, nothing to trust
as than the, the, the code, you know.
And so to understand what's how it works, maybe I can break down
the different, the, the, the back keeping of FX USD.
So if you understand that FX protocol is an evolved CDP,
whenever people are longing the, the collateral, it involves
selling the stable coin, right? Because in the back end the
stable coin is sold for more collateral.
So it brings selling pressure. And this is This is why for
instance LUSD ended up under peg are are are the the people
getting leverage on liquidity ended up being redeemed because
USD was massively sold. And we solved it with different
Peck keeping mechanisms. The first one is that stability
pool on F of X. The stability pool is a yield
strategy that takes both FXUSD, the decentralized stablecoin,
and USDC as pays assets and it acts as a Peck keeping
mechanism. Each time FXUSD is traded below
1 on on the main liquidity pool which is on curve against USDC.
Each time FXUSD is traded below 1, the USDC from the year
strategy will buy FXUSD in the market to put it closer to peg.
And each time it's traded above 1 it's sold back for USDC and
goes back to the stability pool. So that strategy keeps FXUSD
spec and to attract capital, the incentives comes from all the
the the the fees generated by the protocol.
At the moment, the protocol generates close to $1 million a
month and most of it is distributed to the stability
pool or the governance truck and lockers.
OK. So just just to stop there for a
second, so, so the protocol does rely on on USDC at least in the
stability mechanism to find its price.
Yeah, it's not backed by USDC at any point.
But like USDC is the like if you want, if you want any assets on
chain to be back to USD, it's back to USDC or USDT.
And actually on chain USDC is the most liquid.
So This is why USDC currently is the most liquid device stable
coin around. So if you.
Is, is, is, is it? Is it?
Is it safe to say then that like this mechanism it wouldn't be
possible without an on chain stable coin that has a really
high peg stability? The the other option would be
companies that could handle their redemption with real
dollars, for instance. But yeah, since we don't want to
rely on, I guess the biggest company that does this currently
is is Circle and and and Tether. But the most liquid on Shine is
is circled with USDC. So that's.
Currently the obvious choice. At some point if we scale FXUSD
enough, we may not need it anymore and people will build
liquidity with FXUSD because they want to be paired with
FXUSC. But when you build the stable
coin, if you want it to be liquid and at peg, you need to
build liquidity with Currently the the the the most obvious
choice is USDC. Right.
And and so if if there was a USDCD peg, you know, highly
unlikely, but like it happened before, right?
What happened before and that actually triggered the creation
of FOX? If the the stability pool cannot
accept USDC like the USDC peg is monitored and when if ever D
pegs, the stability pool won't accept more anymore USDC.
So it's exposed but protected from USDCD peg.
So you get exposure to both assets FXUSD and USDC, but it's
protected from any USDC D peg. So the main risk here in that
strategy for any LP is the FXUSD spec.
And This is why there's different layers of peg keeping.
The first one is the stability pool itself.
And, and, and so the, the yield comes from the protocol economic
activities. So people taking leverage, they
pay this one time fee I told you about they can have in some, in
some situation of funding. And I'll, I'll go through this
in a, in a second. And and most of the leverage
positions are backed by yield generating assets such as RAP
state, EEF and that yield also goes to the stability pool.
So if, but if it's not enough, so actually whenever FXUSD is
trade below 1 is actually below .998, the stability pool buys
FXUSD the market. But if there's not enough USDC
into the stability pool. So whenever the ratio of USDC
goes below 5%, we may not have enough USDC to support the PEG.
So in that very situation, all the leverage positions get a
small funding cost applied to their position.
It's temporary and it's it's here to support the PEG.
And that funding cost is the RV boring cost of USDC and that
goes to the stability pool to attract more USDC deposits that
will support the PEG and and then cut the funding because as,
as soon as the distribution of USDC, it goes above 5% again,
then the funding is, is off. But if it's not enough, there's,
you know, different layers you always have to, you know,
anticipate what could go wrong. If it's enough and FXU starts to
depend for too long, it means when the EMA 42 minutes of FX
USD on curve goes below .998. So it's pretty small DPEC, but
long enough to be modicable, we trigger what I call the DPEC
mode. And in in that situation, people
can no longer open any long positions.
So it prevents any further selling pressure on FXUSD.
And at that point, a second layer of funding is applied to
their leverage positions, which is way higher.
It's, it's 5 or 1010 times the UEDC borrowing costs.
I don't believe it happened yet because the previous layer of
keeping were have always been enough.
But in that situation, it brings a very high incentive for
leverages to to to for either leverages to repay to close
their loans because they can buy FX USD cheaper and close with a
bigger profit and they can avoid these high fundings.
If they keep their lungs open then it brings a very like like
massive yield to the stability pool thus attracting USDC That
will cut repair FX USD quickly and and cut the fundings.
And there is a one last layer of peg keeping mechanism which is
the redemption. When FXUSD is in in the PEG
mode, people can can buy it and redeem it against the collateral
minus a .5% redeeming fee. So that's sets the worst case
scenario PEG at .995 basically. One question here is like, you
know, I'm looking at the stable yields dashboard, which is great
by the way. And you know the, the yield, the
30 day average is almost 6 points above the second
position, but only has well has less than half the the TBL.
And if you look at Athena, Athena has 5.7 billion in TBL
with also but the same you know 30 day average, there's about
100 million in TBL as we were recording this on on September
3rd. You know, with yields, with
yields so attractive and a mechanism that appears to be
sustainable and sort of safe, why in your view, why, why isn't
there more TBL on FX? There's probably different
reasons for that. First thing is that we are doing
things 100% organically. There is no VC backing.
So there's no, so we don't get it.
We, we had to make all of our connections ourselves, you know,
just by reaching out to people and meeting people into events
and stuff like that. And, and the overall protocol
TVL is over 400 million now and it's been built 100%
organically. So it takes and I guess it takes
time to build as you, as you said it previously, it takes
time to build trust towards a decentralized stable coin.
So for people to actually understand that the team want to
rack pool, that it's actually secure and that there's the, the
liquidation mechanism works and the, the, the state, the pack
keeping mechanism works and and so on.
And that did the yield will also be sustainable.
The stable coin would be liquid enough so that people can come
and exit in size and stuff like that.
It, it, it takes time to, to build that.
And we've, we've done that and we, we keep doing it and
reaching out to, to getting in touch with more and more people.
But I guess it takes longer when you're doing this just
organically and without any massively back token TG event to
come and stuff like that, You know, because the token has been
liquid from scratch with fixed emissions over the next 50
years. And yeah, there is, it's
probably less speculative in a way than other VC back projects.
And then obviously Efina is not exactly AD 5 products.
It's it's highly centralized and relies on uncentralized
fundings, which makes it obviously more scalable.
And if if we were having 5 billion right now, the yield
wouldn't be that high. But it's what we observed over
the past few months and and scaling the protocol to over 400
million is that it actually scales by growing progressively.
The more TV there is into the stability pool, the more
leverage activity we observe on the leverage side and the more
fees we collect. And, and when, when you look at
the collected fees over each month, you can, it's pretty
clear that there's a pattern of, of, of stabilizing these fees
and having them way more steady over time and growing steady.
I don't know if I exactly answered your questions.
I, I went to all different topics, but I guess doing things
and you can do not VCs and 100% on chain.
It's, it's the probably harder to, to, to, to scale a protocol
that way. But in my opinion, and our
mission with F of X and Aladdin DAO is to build stuff that will
last for decades, if not centuries.
And so, yeah, we're here for the long term.
Do you think that like with, you know, the track record now that
you've built, you know, this TVL and and a, you know, a, a peg
that has held and kind of demonstrated that this works?
Do you think that it would be useful to now go and like raise
money to accelerate growth, to accelerate, you know,
fundraising into the protocol, marketing, etcetera.
Is that something you consider? We don't consider raising money
from VCs because it's, but people are free to buy the token
on, on the market. And it's if people do it
actually helps because there's other strategies which are
incentivized with the the token. But we're, but it, it definitely
helps on one side is that when we talk to new funds and stuff
like that. And it's way easier now that
the, the, the, the stable coin is more liquid and, and the
protocol is bigger than in the in the beginning.
So it helps to, to raise in a way stable TVL for the stability
pool because the more TVL there is in the stability pool, the
more volume we can process on the reverse side because it, it
can be PEC keeps. And so yeah, it helps on and we,
and we've definitely seen the difference.
For instance, we were discussing it with Paul, another team
member like went to ECC with me this year as well as last year.
And we've seen a major difference between the two
editions in how people were interacting with us.
Like when when we're talking to people and other builders, like
last year, we felt like they were things.
Oh, that's interesting. Let's see how it goes, you know,
and now it was mostly, wow, guys, Congrats on Congrats on
the growth. And it definitely it's way
easier to to build partnerships when people already heard about
the protocol and and start trusting it.
So I wanted to switch gears a little bit.
You you guys published an article a couple of days ago on
your Twitter. It's Ethereum security model and
strategic importance of decentralized stable coins.
Yeah, give give me a jest of like what you're arguing for in
this article. And you know how how you're
thinking about, you know, Ethereum security long term.
Yeah. So, yeah, the idea, the idea of
the article is what it was to, to point out that the, the value
secured bar if you're in, in centralized asset mostly, which
is, which are real world assets and USDT and USDC and stuff like
that is going so high that at some point these guys and, and
today's Tether tomorrow, it could be another entity has
major weights into any, into the, the, the, the protocol
security, for instance, if there is any hot fork tomorrow for a
new update, for instance, and that that major centralized
entity doesn't want to support it, what's going to happen?
You know, and by supporting all these centralized entities, we
make that possible. We make, it's may, may not be a
technical issue because obviously it's, it's very hard
to compromise the proof of stake, but it could be a
political issue at some point and, and, and economic issue.
And, and the, the idea is not to say, as I told you earlier, that
we should replace centralized table coins with decentralized,
but the idea is, is that we want to make sure that there's always
an, an alternative that you can use in most cases and just use
centralized solutions when it's absolutely needed.
And I like to compare some decentralization with privacy,
for instance, It's not, it's not white or black, you know, it's
not, it's not binary. You don't, you, you cannot be
totally private and, and anonymous on Internet.
It's, it's a, it's a scope, you know, and I know people
decentralize decentralization. The scope is some kind of a
meme, but it's actually true. You do your best, you just do
your best. And if you can, you can use
private product in most cases, like let's say in for search
engines, you can use DuckDuckGo most of the time.
And if you don't find the answer, then you'll go on
Google. And it's actually better than
using Google all the time and giving them all your private
data. And it's, I think it's pretty
much the same thing. If, if you can achieve what you
want to achieve with your stables using the decentralized
1, there is no point in using a centralized 1.
So if you can get better yields while staying decentralized, you
should just do it. And whenever you want to off
ramp, because today on on off ramp goes through centralized
solutions, then you can go with the centralized solution for
that very moment. But in yeah, that's, I guess
that's the main idea of what we wanted the the message we wanted
to pass with that article. I mean, and I think it makes
sense to kind of promote the use of decentralized stable coins.
But like, yeah, it was, as we were saying earlier in the
conversation, it's like, you know, at this point, USDC and
Tether are so ingrained. It's like it, it almost feels
like a little bit of like Ethereum's Achilles heel that,
you know, we've built like the ecosystem has built all this
amazing decentralized infrastructure only to recreate
kind of similar systems that exist in tradfire.
And yeah, the the it's not, it's not clear like what, what the
solution is there to kind of mitigate for this as a as a
space. Yeah, it's, I think it's a
shame, especially when there there are actual, actual
reliable alternatives. It's always a compromise between
decentralization and, and convenience.
You know, if it's convenient, if it's not convenient, you won't
do it. It's just like ecology as well.
Is, is, is very similar. People won't recycle if it's a
pain to recycle. If they can just do it very
easily, they will do it. And and as it and, and now that
I believe we we brought a design that is convenient, reliable and
secure and, and, and with attractive yields, then why are
you using anything else you know?
Now one, one other thing I wanted to talk about is kind of
where FX sits within the broader perps landscape.
So, you know, you guys are competing with Gearbox, GMX and
Hyper Liquid and DYDX. It's a, it's a market that's
very dynamic and it's changing all the time.
It's like 2 years ago, DYDX was, you know, leading that market,
had a lot of traction and now that's sort of lost prominence.
Now everyone's kind of focused on Hyper Liquid.
And I, I think it is, there is a big part of that that is driven
by incentives that's also like driven by capital.
And you know, like Hyper Liquid has a lot of money.
How do you guys succeed in that space and, you know, maintain
relevance long term when we know that like really well
capitalized projects. I do IDX, you know, have lost
prominence since in in such a such a short period.
And who knows me like maybe hyper liquid in two years from
now is like totally irrelevant in something new came along and
it's much more interesting. Yeah, maybe.
We don't know. Yeah, I think we mostly do our
own path in that market, in that very competitive market, as you
stated by we have our own blue ocean.
I don't know if you heard about that book, but it's like we have
our niche market in a way because we're not exactly a
perp, we're not exactly ACDP. We're kind of in between
delivering 0 stress leverage. And for many people, getting a
leverage position just is a headache.
You know, they don't sleep well and they are very nervous and
they get liquidated. We've seen that James Wynn guy
getting liquidated all the time and if that guy had been longing
or, or trading on F of X, he would still be rich, you know,
and, and we, we bring a solution to these guys basically.
I don't know. I don't know who that is, but I
feel his pain. Yeah, it's a it's a guy on on X
that's shares his trades and people just observe.
And there was another one fund, I don't remember the the name.
And these guys just keep getting liquidated and a hyper liquid.
And, and I've seen there's not even a a meme saying hyper
liquidated. That's a good one.
Because the other thing is that on all these semi centralized
solutions, there is more risk. And, and on the hyper liquid
side, there is a massive trust me, bro stuff on this on the
Oracle side, and we've seen it recently.
People got liquidated for no reasons on I don't recall what's
what ticker it it, it cannot happen on F of X.
Everything is 100% on chain. There's no, there's no, there's
no to. To play devil's advocate here,
like, like you know, there, there is kind of an Oracle and
that Oracle is the US is like the Treasury bonds that are like
backing the USDC that they're backing the USDC peg, right,
because that that's a mechanism that's in that enables the
stability pool to function. I think it like sure there's
there's no Oracle and there's maybe no centralized Oracle, but
there is a reliance on some centralized thing that.
Yeah, of of. Of course F of X relies on chain
link as an Oracle just like all Defy.
And obviously we we were talking about Taylor being a, a, a
democlist sword for defy earlier and and chaining is another one
obviously. But yeah, as yeah, there is a
reliance on, on chaining on, on, on F of X and and on USD spec,
yes And no, not, not exactly because as I told you, like for
instance the stability pool and FXA which is built on top of the
stability pool is protected from from any USDC.
OK. Maybe not vulnerable, but it
like it relies on on the price on that price feed if you will
like that, that's kind of the the equivalent of a price feed.
But we believe that so far Chain Inc is the most secure and
reliable Oracle provider, and if chaining fails on the E for BTC
Oracle, I guess F of X is going to be the least of your
problems. Yeah, yeah, yeah.
It'd be, it'd be great to have just like a simulation where
that happens just to see like you know how how we just all get
rugged. Like a Defy dystopian story.
Yeah, yeah, just just like build the simulation where you know,
the, the, the, the, the, the, the chain link Oracle price for
ether BTC just goes off haywire and then what happens?
Well, I I don't have a because I I'm not the technical guy in the
team. I I don't recall the exact
Oracle design, but if I recall correctly there is different
safeguards in the Oracle design on on F of X.
Looking to the future, like Ethereum aspires to secure
hundreds of billions, trillions in in RW as like stable coins
are becoming a large part of the kind of crypto narrative.
Institutions are hopping on the stable coin.
So train there. I think we all kind of
anticipate a proliferation of stable coins with many branded
stable coins like PayPal is just like one of many.
I think that will come. What are the opportunities here,
I think for us as an ecosystem, and where does F of X fit in
there? Yeah.
So again, very good question. It it we actually already see
opportunities and I think I will also answer in a different way
one of your previous questions regarding how we can compete and
and why the TBL is lower than Efinas for instance.
These products since they are not hardcore define in a way
that they're C defy stuff. They are already institution
ready, you know, they can talk to institutions and they can
build, they can sign contracts, actual legal contracts, not spot
contracts with these guys. And so that these institutions
can deploy capital. I know for instance, usual
scaled like crazy by onboarding capital that was had no idea
about crypto in the 1st place. That's that's crazy.
They managed to scale to two 2 billion, if I recall correctly,
with people from all around the world that had never done any
transaction. You know, and, and, and as a
Defy protocol is, is way harder because these institutions don't
want to hear about this. And, and hopefully there's
solutions now and there's new protocols filling that gap
between OG Defy in a way and, and, and, and institutions.
And we're currently working on a product with different partners
such such as Lagun Finance 9, Summit, Nexus, Mutwald, APC
custody solutions to build a tailored product for
institutions so that institutions could harness the
FXFX save yield in a very Safeway.
And you're actually the first person I'd I'd talk about it
publicly. The idea is to call this FX safe
because it could. It would be the FX safe without
the defy risks all created and and and institution ready.
So that's a way to embrace the arrival of institutional money.
And the other way is all these new stable coins you mentioned,
I don't really see them as competitors because most of them
are very attracted with our organic yields and some of them
are already harnessing them. Many of these new yield bearing
stable coins are made of other yield bearing stable coins on,
on harnessing, on chain or off chain yields.
And they actually use FX save or, or stability pool in the
back end. So they contribute to, to our
growth in a way. So there's, it's not just
centralized solution versus decentralized solutions.
There is a synergy between the, the, the 2 worlds and it's
actually good because in the first places I could, I could
see it in the like the good guys and the bad guys way.
But it's actually, we can build synergies and, and, and these
guys can help us bring build the alternative to what they're
doing. Well, that's a great note to end
on, said, Hey, thanks so much for spending the time on
Epicenter Day. And yeah, looking forward to
seeing, looking forward to seeing FX go up and to the
right. Yeah, yeah, thank you very much
for having me. If you enjoyed that episode,
feel free to to join the Aladindao Discord.
It's a very open community. We all started by popping up on
on the Discord and asking questions and sharing ideas
about the design. So it's always a pleasure to to
meet new people and and discuss things, discuss defy between
passionate people. Great.
Thanks, David. Cheers.
Thank you very much. Bye.