f(x) Protocol | Notion

4 Decomposing ETH using f(x) Protocol f(x) protocol will accept either stETH or ETH to mint low and/or high volatility (β) tokens. Supplying stETH or ETH allows a user to mint fETH and/or xETH, with quantities based on the price of ETH and the current net asset value (NAV) of each token. Conversely, users can redeem fETH or xETH for their NAV worth of stETH from the reserve at any time. 4.1 Liquid Staked ETH Reserve At genesis the f(x) reserve will consist exclusively of Lido’s stETH liquid staked ETH. Over time, if there is community support, the reserve may be diversified to include pure ETH and/or other ETH LSDs. As long as the reserve is comprised exclusively of stETH all minting and redeeming of fETH and xETH must be done using stETH, however f(x) provides a simple zap function to mint stETH from ETH for deposit. For the purpose of internal calculations, any LSD in the reserve is treated at par with its equivalent amount of staked ETH, so all NAV calculations for fETH and xETH are done using pure ETH price. As the LSD reserve generates ETH staking yields, those yields are harvested as protocol revenue revenue, used primarily for maintaining system stability (see section 5.1), keeping mint and redeem fees low, and revenue sharing.