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There are only two products in DeFi which consistently generate annualized volume in the trillions of dollars: stablecoins and leveraged trading markets.

Despite their success, both of these products tend to put their users at critical disadvantages.

Many of today’s most popular stablecoins suffer from some combination of the following three problems:

Additionally, traders face major disadvantages from using leverage. For example, liquidation levels can be “hunted,” causing many traders to automatically close their trade for a loss plus additional fees. And even while positions are open, funding rates can eat away at profit margins. 

Today’s featured project, f(x) Protocol, combines both of these products to create one of the most unique futures trading platforms in all of crypto. 

Its unique construction stems from the f(x) Invariant, which ensures that leveraged positions always have sufficient collateral via the following mechanism:

Total collateral value = total value of existing leveraged positions + total value of fxUSD (the platform’s native stablecoin)

By rethinking how stablecoins and leveraged markets can work together, f(x) enables:

To get the full picture of f(x) Protocol, we must understand four central components:

The native stablecoin of f(x) Protocol, fxUSD, is used to ensure that leveraged positions and collateral remain balanced. 

For example, whenever a leveraged long position is executed, new fxUSD is minted to ensure all positions are fully-backed (we’ll dive deeper into this in the xPOSITIONs and sPOSITIONs section). 

fxUSD can be minted via f(x)’s fxMINT feature by depositing ETH, stETH, wstETH, or WBTC as collateral. To withdraw your collateral, you must repay the fxUSD that you minted, plus the one-time fee paid to mint the fxUSD. fxUSD’s collateral backing can be found here.

Earlier this week, f(x) Protocol added another unique feature to fxUSD: private minting. 

Specifically, f(x) Protocol has integrated Railgun’s anonymous asset pools, which allows users to transact privately onchain. As a result, borrowing against collateral onchain can be done anonymously for the first time. 

This is possible due to f(x) Protocol’s unique infrastructure. For context, whenever someone mints fxUSD, two things happen:

Now, anyone can use their Railgun-shielded ETH to borrow fxUSD – this creates an anonymous fxUSD position, as well as an anonymous collateral NFT. The ETH collateral is visible onchain, but the ownership of it (NFT), as well as the ownership of the newly-minted fxUSD, remains fully anonymous.

The Stability Pool (accessible via the autocompounding fxSAVE vault) was created to maintain fxUSD’s peg. Specifically, fxUSD’s value is pegged to that of USDC, so the fxSAVE vault accepts both USDC and fxUSD as deposits.

At a high level, the Pool creates buying and selling pressure on fxUSD to keep its value pegged to USDC:

Providing stability to fxUSD’s peg is vital to the protocol’s safety; if a severe and sustained depeg occurs, all leveraged positions could be at stake. However, even if fxUSD’s value declines significantly, each fxUSD token will still be redeemable for $1 worth of wstETH or WBTC collateral.

In return for providing stability to fxUSD, fxSAVE depositors are rewarded with 3 sources of yield:

When it comes to trading on f(x) Protocol, there are two types of leveraged positions: xPOSITIONs and sPOSITIONs.

xPOSITIONs are leveraged longs, which use stETH and WBTC as collateral. 

When a new xPOSITION is created, fxUSD is minted to keep the f(x) Invariant intact – the higher the leverage, the more fxUSD is minted. For example, a 7x leverage long consists of 1 xPOSITION unit and 6 units of newly-minted fxUSD.

sPOSITIONs are leveraged shorts, which use fxUSD as collateral.

When a new sPOSITION is created, the protocol executes a flash loan, which includes the following sequence of actions:

By performing all of these actions within the same transaction, f(x) Protocol is able to create leveraged short exposure on stETH and WBTC.

One of f(x) Protocol’s most unique features is its ability to automatically rebalance positions to minimize liquidation risk. 

If an xPOSITION (leveraged long) reaches its liquidation price:

Conversely, if an sPOSITION (leveraged short) approaches its liquidation level:

In addition to the fxUSD stablecoin, f(x) Protocol also offers a governance/utility token: FXN. 

FXN’s primary function is incentivizing participation within the platform. Specifically, FXN tokens can be paid as incentives to depositors within the Stability Pool (depositors have a choice to receive FXN or wstETH/WBTC), as well as LPs of certain Curve pools which provide liquidity for fxUSD and fxSAVE, on a weekly basis.

Additionally, a specific amount of FXN is set aside for Stability Pool rewards every week. However, the budgeted amount assumes that all Pool depositors have “max-locked” their FXN tokens for 4 years. Since the odds of this scenario are very low, there will always be a remainder of “leftover” FXN, which is then rolled into the next week’s rewards. This creates a rolling “extra” incentive to fuel boosts even more.

Out of FXN’s 2M total supply, 49% (980K) are used as incentives, or “emissions,” over 50 years. Each year (starting in August 2023), the number of tokens drops by 10%:

Like Curve’s CRV token, FXN uses “ve-tokenomics.” 

When users lock FXN tokens, they receive veFXN in return, which can be used to vote on the weekly distribution of FXN emissions.

FXN can be locked for up to 4 years, and the longer the lock period, the more veFXN is received. That means longer locks are rewarded with greater voting power, which can be used to improve the locker’s FXN emissions from various LP pools.

veFXN holders also receive 75% of the fees allocated to the Treasury – this includes:

These fees are paid in wstETH, and they currently offer one of the most enticing organic yields in DeFi at 21.66%. When the vote incentives are factored in, FXN lockers are currently earning over 34%:

So far this year, each veFXN token has earned $3.19 in cumulative fees and rewards, which is roughly $8.50 extrapolated over a year. At FXN’s current price of $17.25, that’s a 49.3% APR!

Currently, over 339K FXN are locked, representing 69.76% of the total circulating supply – this means there are ~486K FXN in circulation.

This alone is a major testament to the f(x) community, as other “ve-tokens” have nowhere near a 70% locked ratio. And to reinforce the community’s dedication, the average locking period for veFXN is 3.44 years!

While markets in general have been slow for much of 2026, activity is finally beginning to pick up. This increase in activity has had a major impact on f(x) Protocol’s stats. 

For example, there’s been a recent resurgence in leveraged open interest – from ~$56.8M at the beginning of April to $144M on May 17th – growth of 153%.

This surge in leverage has resulted in significant fxUSD minting activity. Since the beginning of April, the amount of fxUSD in circulation has increased by more than 3x, from $17M to $54M – over $20M in fxUSD tokens was minted in the first 11 days of May.

Overall, since f(x) V2 launched in January 2025, it’s generated over $1.67B in trading volume. Through May 17th, cumulative volume is approaching $1.67B in trading volume – including over $300M so far in 2026.

Now, let’s dive into our most recent portfolio addition!

This week, we added a position that combines high yield with speculation: aFXN.

Essentially, aFXN is a unique form of veFXN which has two extra benefits: 

In addition to the extremely attractive yield offered by veFXN, we’re gaining exposure to the upside of the FXN token, which currently has a fully-diluted value of just $21M. 

Before we dive into how we added this position, we’ll provide some brief context on how Convex and Concentrator work – if you’re familiar with these apps already, feel free to skip ahead!

To understand our portfolio addition, you should first be familiar with four topics: Convex, cvxFXN, Concentrator, and aFXN.

Convex maximizes yield for assets that are constructed with ve-tokenomics. It was initially created to maximize CRV rewards, and has since expanded to support veFXS, veFXN, and RSUP.

Over the years, Convex has become a common place for DeFi users to maximize their yield. In fact, Convex currently holds over half of the veFXN in circulation:

Since Convex assets are denoted with the cvx- prefix, cvxFXN represents FXN tokens that have been deposited and/or staked on Convex. In addition to the original veFXN yield, cvxFXN earns boosted yield from activity on Convex.

Here’s how it works:

It’s important to note that once FXN tokens have been converted into cvxFXN, they cannot be converted back. This is because Convex automatically stakes cvxFXN as veFXN, and continuously updates the staking time to be the maximum 4-year duration. However, unlike veFXN, cvxFXN can be swapped with low slippage on Curve via the FXN/cvxFXN pool.

Concentrator is a platform that maximizes rewards earned by various locked assets on Curve and Convex – such as cvxFXN. It was created by the same team as f(x) Protocol (Aladdin DAO), and is the home of the fxSAVE vault.

aFXN is Concentrator’s auto-compounding cvxFXN vault. By automatically compounding rewards back into cvxFXN, aFXN has outperformed cvxFXN by ~42% since it launched in July 2024.

While the underlying mechanisms to boost FXN yield are complex, adding this trade was incredibly easy. It only involved two steps: 

Step 1: Swap USDC for cvxFXN on Curve

This was just a straightforward swap on Curve using the FXN/cvxFXN pool. The slippage was surprisingly low considering cvxFXN is not a naturally-liquid asset!

Step 2: Deposit cvxFXN into Concentrator’s aFXN vault

Taking aFXN’s excess returns into account, we’re receiving roughly 20 aFXN in return for our cvxFXN. And once our transaction went through, we could see our deposit live on the Concentrator Vaults page. 

As you can see in the above screenshot, the “Current Index” is ~1.42, which represents aFXN’s outperformance over cvxFXN since inception.

Overall, we believe that aFXN is a great value here, from a yield and speculation perspective alike. Our position is essentially a bet that fxUSD will continue to be in demand, which is a bet that liquidation-protected leverage trading will continue to be in demand. The unique and capital efficient design used by f(x) Protocol gives them a moat; unlike many DEXs, its design is not easily replicable. As it continues to generate activity and gain adoption, veFXN should continue to generate some of the most consistently-high yields in DeFi.