Howdy friends! As confirmed by our founder Sharlyn on our latest community call, we can now be BULLISH! Exciting times lay in store for us for sure, so let’s all be grateful for finding the Aladdin community and helping build and support products that will surely be beneficial to all defi participants through this mania. That said, I’m really excited for this newsletter as it will feature one of our newest members of the A-Team, Tao! He has written the end all, be all definitive guide for fx Protocol that is a monster. We will also feature community booster Stark’s invaluable Aladdin twitter threads that summarize everything that’s happened in Aladdin in the past month! We also do a brief overview of our new L2 bridging infrastructure provided by LayerZero. Last but not least, we will have the metrics updates for all of the protocols. Note: your buddy Kmets has been busy, so the the pricing data on the Aladdin slide is a smidge dated. But it will be fun to look back on next month and see how we’ve progressed since that snapshot! Anywho, thanks for joining us again! So sit in your favorite comfy chair, relax, grab a delicious beverage, and enjoy issue #7 of the monthly AladdinDAO newsletter!
Topics of this newsletter :
📈 Protocol Metrics
🏛 Aladdin Month in Review by Stark
🤯 The Complete Guide for f(x) Protocol: By Tao
🌉 LayerZero: Aladdin’s L2 Bridging Solution
🧞 A-Team News and Updates: Booster Games Results!
Nothing said in this newsletter is financial advice. Please do your own research and only invest what you’re ready to lose. Good luck in your Defi adventures!
📈 Protocol Metrics
🏛️ Aladdin Month in Review
Once again community booster @stark_sharingan (Discord: SKHolmes) did the yeoman’s task of curating all the things that happened in AladdinDAO in October! This effort is very much appreciated by myself and the entire community, so thanks again Stark for your efforts and sharing with all of us!
Let’s dive in:
Here’s volume 8 of the continuing curation series:
And volume 9:
Volume 10:
Volume 11:
And finally, Volume 12! Whew…thanks again Stark!
🤯 The Complete Guide to f(x) Protocol: By Tao!
Short Summary of the f(x) protocol
The f(x) protocol splits ETH into a series of "floating stablecoins" (called fETH) with low volatility and "leveraged ETH" tokens (called xETH) with high volatility, allowing users to mint either by providing ETH or stETH (ETH is converted to stETH before depositing).
Basic information about the protocol and my personal notes
fETH: fETH is a stablecoin pegged to 10% of ETH volatility (unlike other LSD projects that are pegged to the US dollar - fETH is pegged to a low volatility version of ETH).
xETH: xETH has variable leverage, no liquidation, and no holding costs. (Can be simply understood as similar to leveraged ETH products like ETH3L offered by some centralized exchanges, but xETH has no holding fees - generally ETH3L products have quite high holding losses).
What the protocol actually does:
The protocol calculates the real-time prices of fETH and xETH based on changes in the ETH price (30min TWAP of ETH), as well as the total supply of minted fETH and xETH. The equation is:
Total assets of the protocol (TVL) = NAV (fETH) * TotalSupply (fETH) + NAV (xETH) * TotalSupply (xETH)
In simple terms, the protocol splits a relatively high volatility ETH into low risk fETH and high risk xETH to meet the needs of different investor profiles/investment strategies in the market. Additionally, if ETH price fluctuations are too large (TVL/TV(fETH) < 130%), the protocol will rebalance via rigid redemption of fETH in the redemption pool to ensure rigid redemption of fETH.
Revenue and expenses of the protocol:
Revenue
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Staking rewards from staked ETH.
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Minting fees and redemption fees. (0.25% for fETH, 1% for xETH)
Expenses (updated with latest changes)
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50-100% of staking income is distributed to holders of fETH in the rebalance pool (dynamically adjusted based on xETH leverage ratio to incentivize the rebalance pool)
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Liquidity incentives for pools such as FXN/ETH, fETH/crvUSD, fETH/FRAX, xETH/ETH etc. (Current incentives come from support from Aladdin Dao and other partners, may need to be paid from protocol revenue in the future)
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75% of total protocol profits will be allocated to locked FXN holders
How to utilize the f(x) protocol
Borrowing from the diagram shared by @haowiwang, I will explain in moderate detail and provide some practical examples:
Low risk stablecoin investment methods:
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Method 1 Favors higher yield certainty stETH:
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Mint fETH from the official website
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Deposit fETH into the rebalance pool (yield around 5-7%, will continue to increase with new strategy)
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It is like using low volatility fETH to mine stETH, with higher yields than just holding stETH (staking rewards only allocated to fETH)
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Compared to other popular USD stablecoins, low volatility fETH can also share the upside of 10% ETH gains
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Specific operation steps can be seen at https://docs.aladdin.club/f-x-protocol/tutorial
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Method 2 Favors relatively higher yield Curve ecosystem liquidity providers:
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Mint fETH from the official website
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Deposit fETH/crvUSD or fETH/FRAXBP into Concentrator pools, stabilized yields around 12%
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Concentrator gas fees are high, choose times with low gas to deposit, benefit is one-time action then set-and-forget until bull returns
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Concentrator mechanism periodically puts your yield into an auto-compounding vault on your behalf.
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High risk Ethereum investment methods:
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Method 1 Long-term hold of xETH
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Mint xETH from website or purchase from aggregator
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Hold long-term until your target ETH price point, then redeem directly from protocol or sell via aggregator
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Method 2 Provide liquidity for xETH/ETH pool
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Mint xETH from website or purchase from aggregator
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Deposit xETH/ETH pool into Concentrator, stabilized yields around 22%
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Compared to simply holding xETH, this method produces steady income during long sideways periods, with some impermanent loss during strong moves, but xETH/ETH remains long leverage on ETH
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Method 3 Mix-and-match (personal preference)
- Invest in xETH for strong trends, xETH/ETH for consolidation periods, fETH for downturns based on market expectations
See example for practical application
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On 12/12, 20000 USDT was exchanged for 31094 xETH at a price of $0.64 per xETH.The transaction can be viewed here: https://etherscan.io/tx/0x62eaf4dc9342987c2937b0c715c9dc93b843877b4e0186430b39df3dce177809
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On 12/24, 23694 xETH (valued at $0.84 per xETH) from the initial purchase was exchanged for 20,176 fETH.The fETH was then deposited into Concentrator to earn stable, low-risk yields.The transaction can be viewed here: https://etherscan.io/tx/0xe7ecce5dbe1f6eb60d3d9737d0dd70da761872c4b92fa6550852533a2bd417d1
In summary, this allowed purchasing leveraged xETH near its low point, then partially taking profits by exchanging to fETH as it rose quickly in value, while continuing to earn yields higher than traditional RWA and LSD products with the low risk profile of holding fETH.
Arbitrage Strategy
The underlying principle is that the prices of fETH and xETH minted by the protocol are calculated in real-time based on the Chainlink ETH 30min TWAP, so when ETH prices experience large short-term fluctuations, arbitrage opportunities exist within the Curve LP pools.
A specific example is:
Through an arbitrage contract, the user first mints xETH from the protocol using stETH. They then swap the xETH for ETH in the Curve xETH/ETH pool, when xETH is trading at a premium due to short-term ETH price fluctuations. Finally, they swap the additional ETH back for more stETH to complete the arbitrage trade. Of course, reverse trade is also possible to arbitrage in the other direction.
How to utilize the FXN token
- Protocol direct locking:
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Lock FXN at https://fx.aladdin.club/lock/ to earn stETH rewards
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Choose the lock time from 1 week up to 4 years
- Convert to Convex cvxFXN:
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If a price differential exists with cvxFXN, swap to it on Curve
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If no difference, convert and stake directly at https://fx.convexfinance.com/
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Current stabilized APR is 65%, paid in CVX which is very liquid
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Can also earn stETH rewards from veFXN distributions
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Provide liquidity for FXN-cvxFXN pair, on Convex or Concentrator
- Convert to stakeDAO sdFXN:
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If a price differential exists with sdFXN, swap on Curve
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If no difference, convert and stake at https://beta.stakedao.org/lockers/fxn
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Current stabilized APR is 79% (if not locking SDT yourself), paid in SDT
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Can also provide liquidity for FXN-sdFXN pair, on Convex or Concentrator
Personal summary:
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Protocol design avoids many risks compared to LSDFi projects
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Reduces collateral liquidation risk and avoids high protocol costs to maintain peg
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Revenue comes clearly from staking yields and mint/redeem fees
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Market needs a truly on-chain low volatility stablecoin pegged to assets like ETH/BTC, not just USD
The main changes to the Rebalance Pool this time are faster withdrawals (next day withdrawal) and higher returns (50-100% of total protocol staking rewards). So why did the protocol make these changes? I think the team wants to develop the rebalance pool into a popular product like Yu'E Bao on-chain. The fETH frenzy driven by the rebalance pool can provide xETH with a relatively higher leverage ratio to meet different gaming needs on-chain.
Using fETH for the rebalance pool has advantages over buying USD stablecoins with US treasury yields:
Returns are clearer (comes from the most stable stETH staking rewards)
Returns are slightly higher (comes from 50-100% of total protocol staking rewards, equivalent to subsidizing xETH users' staking rewards)
Lower policy risks (no KYC needed, no various legal verifications online and offline)
More transparent process (no need to trust extra entities to store treasuries etc)
More native to crypto (ETH, ETH, ETH)
Additionally, xETH has always been my ideal leverage tool - with no holding costs (can even become negative cost by providing liquidity) and no liquidation risks (not afraid of flash loans). Using xETH for buying the bottom, especially with arbitrage opportunities, has lower costs and better profit effects. Looking forward to more new gameplay for fETH and xETH on Layer 2 in the future.
Original Chinese version of this article:
🌉 LayerZero: Aladdin’s L2 Bridging Solution
This month, we are going to start a new series in the monthly newsletter where we focus on partner protocols and how they interact with various Aladdin products. This month we will focus on our new bridging partner, LayerZero Labs! Let’s dive into LayerZero and find out how it works for Aladdin.
For those that haven’t done a deep dive into bridges, here is a tremendous article from Bankless that really takes apart what bridges are for crypto, and how they function: https://www.bankless.com/keeping-bridges-secure
As you all know by now, LayerZero is a decentralized bridging mechanism that allows users to transfer assets between different blockchains. It does this by creating a trustless bridge between the two chains. The bridge is secured by a network of validators who verify the transactions and ensure that they are valid. You can think of it like a separate blockchain but its sole function is to send secure messages between other blockchains…personally I think of it like a separate network from the bridging chains. Here’s a great article that dives into the simplicity of the protocol and how it functions:
Bridges use various methods to enable cross-chain communication, with the key distinction being which set of validators is responsible for verifying the transactions and other data being exchanged. Bridges are generally classified into three categories: externally verified, natively verified, and locally verified.
Natively verified bridges, such as LayerZero, only rely on the validators of the underlying chains to verify cross-chain transactions. They do not introduce a new set of validators, and therefore do not create an additional layer of trust and risk. These bridges often use light clients and relay systems. LAyerzero relies upon “ultra-light clients” for validations. Validators are responsible for generating "proofs" about the transaction data from the source chain. These proofs are then transmitted, or relayed, to smart contracts known as light clients, which verify the contents of the proof and alert validators on the destination chain to complete the transaction. While these systems are generally more secure than externally verified bridges, they are often resource-intensive as teams need to build smart contracts on each new destination chain. Additionally, the entire process is done onchain, which does mean paying native gas fees.
To use the LayerZero bridging mechanism, a protocol first needs to create a LayerZero account. Once they have an account, they can then deposit assets into the bridge. The assets will then be locked in a smart contract on the source chain. The bridge will then mint a new token on the destination chain that represents the assets that have been deposited.
To withdraw assets, users first need to send the new tokens to the bridge. The bridge will then verify the transaction and unlock the assets on the source chain. The assets will then be transferred to the user's account on the source chain. It’s a super simple concept and brings a very secure method of transferring value between blockchains. No liquidity pools = no Ronin or Multichain hack!
Aladdin is super excited to finally take fx cross-chain, and with the use of LayerZero as a secure and efficient bridging mechanism, it means the sky is the limit for ensuring that all users in defi can get liquidity for fx Protocol anywhere and everywhere safely, quickly, and inexpensively!
LayerZero Website: https://layerzero.network/
LayerZero Twitter: https://twitter.com/LayerZero_Labs
🧞 A-Team News and Updates: Booster Games Results!
Ladies and Gentlemen of f(x) protocol, we hereby declare the games of the inaugural Booster games…COMPLETE! We had two valiant and brave individuals who volunteered to sacrifice a portion of their community booster FXN tokens in order to secure purchases of their friend tech keys by The A-Team. How did the volunteer’s fair? Let’s find out!
For those who aren’t aware of the Booster Games, please read the articvle in our previous newsletter (#6), or refer to this X thread here:
Our first volunteer was Escapedwagie (@escapedwagie on X):
He bravely volunteered to sacrifice 20% of his FXN tokens for the Booster Games (4.65 tokens in total). Obviously since the completion of the games, you can see how great his sacrifice has been, but let’s look at the statistics from that particular situation to see how well of a trade off it was.
This sacrifice of 4.65 FXN tokens allowed The A-Team to purchase 1 of Escaped wagie’s friend tech keys. Interestingly, this sacrifice increased his FT key price by over 9%!
Our other participant was none other than the A-Team’s own CryptoProphet (@CryptoProphet01)! He bravely sacrificed 10% of his FXN tokens to the rest of the community boosters.
This sacrifice of 6.243 FXN tokens allowed the A-Team to purchase 7(!) of CryptoProphet’s friend tech keys! This sacrifice was amazingly profitable, as it increased the price of his keys by over 300%! Wow!
As friend tech matures, and the ability to utilize more advanced defi techniques to affect key pricing/strategy becomes prevalent, the decision to volunteer as tribute or not will become more relevant. Hint: What if you could find a way to lever up your FT keys? 👀
Until then: MAY THE PRICE CANDLES BE EVER IN YOUR FAVOR!
Important Links
AladdinDAO X (Twitter):
AladdinDAO Discord:
AladdinDAO Youtube:
A-Team Twitter:
A-Team Youtube:
A-Team Friend.Tech:
