Summary:
This proposal seeks DAO consensus to initiate discussions and pursue integration of ynETHx as collateral within the f(x) Protocol.
Description of f(x) Protocol:
“f(x) Protocol is a decentralized perpetual trading platform offering Liquidation Protected Leverage on blue-chip crypto assets and high USD-based real yields to fxUSD stakers. It utilizes the f(x) invariant, a DeFi primitive that splits yield-bearing assets into a decentralized stablecoin (fxUSD) and a leveraged asset (xPOSITION), offering up to 10x leverage with minimized liquidation risk and funding costs.”
Motivation:
As a composable LRT, ynETHx aggregates and auto-compounds ETH yield sources—including native ETH staking, restaking rewards via EigenLayer, and integrated DeFi strategy yields—into a single, efficient token. Integrating it as collateral within protocols like f(x) enhances its utility, supports capital efficiency for holders, and aligns with YieldNest’s goal of growing adoption and on-chain liquidity for MAX LRTs.
Key benefits of this integration include:
- Increased utility of ynETHx across DeFi ecosystems.
- Support for leveraged yield strategies (e.g., looping, delta-neutral, or long ETH positions).
- Broader distribution and visibility for YieldNest assets.
- Strengthening multi-protocol composability
About f(x) Protocol’s xPosition (Leveraged Position):
From whitepaper:
"xPOSITION is a non-fungible, high-beta leveraged long position that provides a powerful decentralized tool for on-chain high-leverage trading. When a user opens an xPOSITION, the process is seamlessly facilitated through the use of a flash loan. This is executed via an atomic transaction, ensuring that all steps are completed successfully or the entire transaction is reverted, preserving the integrity of both user funds and the protocol.
Here’s how the process works:
- Collateral Submission
The user provides collateral (e.g., stETH, ynETHx or WBTC), which is used to mint fxUSD, the protocol’s stablecoin, and fund the leverage mechanism.
- Flash Loan for Collateral
The protocol employs flash loans to obtain the required amount of collateral to back the leverage position. The flash loan and the position creation occur atomically, ensuring the entire transaction either execute completely or not at all, thus avoiding partial execution risks.
- Minting fxUSD
For every unit of xPOSITION, the protocol mints the required amount of fxUSD to manage volatility and maintain full collateralization. For example, a 7x leveraged position will have 1 unit of xPOSITION backed by 6 units of fxUSD. Meanwhile, the underlying collateral remains in stETH or WBTC, harnessing its yield while maintaining the desired leverage ratio.
- xPOSITION Creation
Once the collateral is secured through flash loans and the necessary fxUSD is minted, the leveraged position (xPOSITION) is activated. At this stage, the user gains exposure to the underlying assets, and their position is opened."
Conclusion:
Integrating ynETHx into f(x) Protocol would enhance its composability, increase utility for holders, and reinforce its role as a DeFi-native, yield-optimized ETH asset. Discussion for this initiative is requested to explore integration with f(x) Protocol.