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Absolutely not. All stablecoins issued by f(x) Protocol, including its flagship fxUSD, are fully collateralized with top-tier DeFi assets. Specifically, fxUSD is backed solely by Lido's stETH. The f(x) invariant ensures unparalleled capital efficiency by maintaining the stablecoin's 100% collateralization, while the xPOSITION/sPOSITION (v2.1) and leveraged tokens (v1) manage the protocol's over-collateralization.

Stablecoins can be minted and redeemed at the oracle price, ensuring seamless functionality. For fxUSD, several mechanisms guarantee a perfect peg:

• f(x) Protocol establishes and maintains a deep fxUSD/USDC liquidity pool.
• The fxUSD stability pool offers high and sustainable yields derived from stETH staking, xPOSITION/sPOSITION opening fees, and FXN emissions. This stability pool, which accepts both USDC and fxUSD, also acts as a peg keeper by purchasing fxUSD when it trades below peg and selling it back to USDC when it trades above.
• xPOSITION cannot be opened if fxUSD is trading below peg.
• If fxUSD trades below peg for too long, xPOSITIONS can be charged a temporary funding cost that is delivered to the stability pool. It instantly creates an attractive APR for new USDC to come in and repeg fxUSD.
• If fxUSD ever trades below peg, it can be redeemed at the oracle price for stETH or WBTC, safeguarding it against any significant de-peg events.

f(x) Protocol uses its rebalancing mechanism to minimize any risk of liquidation. This means scenarios where a sudden market drop that would normally liquidate your entire long position just before a rally are unlikely to occur. However, this doesn't eliminate the risk of losing money as leverage amplifies both potential gains and losses.

xTokens (v1): In highly extreme scenarios, leveraged xTokens could potentially lose all of their value. However, the protocol's primary goal is to prevent this. Multiple stability mechanisms are in place to ensure this doesn't happen.

xPOSITION/sPOSITION (v2.1) : If your position reaches a price level that would normally trigger liquidation on a regular perpetual exchange, it will instead be rebalanced to a different leverage level. While this operation incurs a small fee, it keeps you as much as possible exposed to the market, giving you a chance to recover. In extreme cases where the rebalancing operation fails, liquidation may occur to protect fxUSD's backing and peg. But there is a very small risk of this occurring.

xPOSITION/sPOSITION (v2.1): rebalancing and liquidation thresholds are carefully calibrated to prevent such scenarios. In an unlikely worst-case scenario where both rebalancing and liquidation mechanisms fail, the protocol may incur bad debt. To safeguard users from this, f(x) Protocol allocates a portion of its revenue to a reserve fund specifically for such extreme cases. If the reserve fund is insufficient, the bad debt would be distributed among all xPOSITIONs/sPOSITIONs.

xTokens (v1): In the worst-case scenario, all xTokens could potentially lose their value. Before this happens however, the stability mechanism is designed to trigger and rebalance them. However, if the mechanism becomes exhausted, xTokens could drop to zero. In such extreme cases, the protocol's total collateralization ratio remains at 100% and the stablecoins are always backed and pegged to the dollar. If the market continues to decline, the stablecoin may temporarily de-peg, with a strong likelihood of recovery if the underlying market (e.g., ETH) rebounds. For more details about the stability mechanism, please refer to our documentation.

xPOSITION (v2.1): rebalancing and liquidation thresholds are carefully calibrated to prevent such scenarios. In an unlikely worst-case scenario where both rebalancing and liquidation mechanisms fail, the protocol may incur bad debt. To safeguard users from this, f(x) Protocol allocates a portion of its revenue to a reserve fund specifically for such extreme cases. If the reserve fund is insufficient, the bad debt would be distributed among all xPOSITIONs.

From a user perspective, v1 offers variable leverage tokens, providing up to 4.3x leverage on ETH and 5.6x on wBTC. Most leveraged tokens incur no funding costs. With its unique value proposition—leverage without liquidation or funding costs—and a scalable decentralized stablecoin, v1 serves as a robust solution. However, the unpredictability of variable leverage may not suit everyone's needs. This is where v2.1 steps in, introducing a groundbreaking feature: fixed Leverage Long exposure of up to 7x (xPOSITION) & 6x Leverage Short exposure (sPOSITION), fully on-chain, with minimal liquidation risk and funding costs.

v2.1 also offers an exclusive feature through its stability pool, which delivers exceptionally high and sustainable yields derived from PERP trading commissions. These yields are achieved without exposing stakers to market volatility. The pool is USD delta-neutral and avoids counterparty risk, unlike other perpetual exchange protocols.

v1 still remains an excellent option, offering a unique use case by splitting any yield-bearing asset into two tokens: a stablecoin and a leveraged xToken. The stablecoins can harness enhanced yield without market exposure, while xTokens enjoy enhanced market exposure without yield.