FAQ
For any questions, join the Felix Discord, and reach out to contributors.
General
What is feUSD’s peg mechanism?
feUSD inherits Liquity V2’s market-driven design. Borrowers pick their own fixed interest rate; positions offering the lowest rate are redeemed first whenever feUSD < $1.
feUSD > $1 → borrowers lower rates (cheaper debt), making feUSD less attractive to hold and nudging price down.
feUSD < $1 → arbitrageurs redeem, burning supply; borrowers raise rates to avoid redemption, boosting feUSD demand and price.
Why use the CDP Market / feUSD?
Capital efficiency – higher LTV than vanilla lending because the Stability Pool backstops liquidations.
Choose your cost of capital – fixed, self-selected rate; no governance switches.
Trust-minimised dollars – peg holds without off-chain backing or oracles on the debt side.
What collateral can I use?
HYPE and UBTC. LSTs and additional Unit assets coming soon.
Is there a minimum debt?
Yes, there is a minimum debt of 2,000 feUSD per position. This number will go lower in the coming weeks.
When do I need to repay my debt?
There is no set maturity. Repay whenever you like, or let the position run indefinitely as long as your collateral ratio stays above the liquidation threshold.
How do I decide my LTV?
Choose a collateral ratio that matches your monitoring cadence:
≥150 % if you watch markets daily.
≥180-200 % for a more passive stance.
How do liquidations work?
If your account / position health falls below 1, the protocol burns feUSD from the Stability Pool to cancel your debt, then transfers your collateral (plus a 5 % penalty) to pool depositors.
How are liquidators compensated?
Liquidators get a small fee for calling liquidations.
What is a zombie position?
A zombie position is any loan whose debt falls below the system’s minimum debt threshold, currently set at 2,000 feUSD. These positions cannot be adjusted — they can only be fully closed by repaying the remaining debt.
The purpose of enforcing a minimum debt size is to ensure that redemptions remain economically viable. If positions become too small, the gas and operational costs of redeeming them could outweigh the benefits, weakening the system’s ability to maintain feUSD’s peg efficiently.
Interest Rates
How do I decide on the right rate?
Lower rate → cheaper debt but higher redemption probability; higher rate → costlier debt but safer from redemptions.
Active, short-term borrowers often sit in the bottom quartile of rates and monitor daily.
Passive, long-term borrowers generally choose a rate at or above the median to minimise maintenance. Keep a buffer of lower-rate borrowers ahead of you and watch feUSD <$ 1 activity to gauge redemption pressure.
Can I adjust my interest rate?
Yes. Changing the rate within 7 days of the last adjustment (or position creation) incurs a premature-adjustment fee equal to 7 days of average market interest, added to your debt.
Redemptions
What are redemptions?
Redemptions are Felix’s on-chain “price floor” for feUSD. Whenever feUSD trades below $1, anyone can send feUSD to the protocol and receive exactly $1 of collateral (less a redemption fee). Because the redeemer immediately pockets the spread, the trade is only attractive when feUSD is under peg enough to cover the redemption fee; the buying pressure plus the burn of redeemed tokens lifts price back toward $1.
What you swap: 1 feUSD → $1 of whatever collateral mix currently backs the Stability Pool (e.g., HYPE, UBTC), proportional to pool weights.
Who gets hit first: the system cancels debt starting with the positions with the lowest fixed interest rate, so under-priced debt is removed before higher-rate, “safer” positions.
What borrowers feel: their debt shrinks by the redeemed amount; an equal USD value of collateral leaves their vault (minus the fee credit that stays behind). Net USD value stays flat or rises slightly thanks to the fee.
Why it works: supply contraction + higher average borrow rates incentivise Stability-Pool deposits and fresh borrowing, reinforcing the peg without any off-chain reserves or third-party market makers.
What happens if two Troves have the same IR?
“Last-In, First-Out” applies: the position that most recently set that rate is redeemed first.
When can redemptions occur?
A redemption can occur at any time, but will likely only happen when it is profitable to do so. This is usually the case when the price of feUSD is less than $1 (minus the current redemption fee).
Is there a redemption fee?
Yes, there is a redemption fee. The redemption fee percentage is given by min (0.5% + baseRate, 100%).
Redemption fees are based on the baseRate state variable, which is dynamically updated. The baseRate increases with each redemption, and exponentially decays according to time passed since the last redemption (half-life of 6 hours).
Upon each redemption of x feUSD: baseRate is decayed based on time passed since the last fee event and incremented by an amount proportional to the fraction of the total feUSD supply to be redeemed, i.e. x/total_feUSD_supply
How do redemptions work with multiple collateral assets?
The protocol supplies the redeemer with a mix of collateral that mirrors the Stability-Pool backing. This improves overall backing. Backing is quantified as the debt: stability pool ratio per collateral.
Stability Pools
Where does the yield for Earn come from?
Borrower interest: Borrower interest flows to its Stability Pool as well as upfront fees.
Liquidation gains: feUSD is burned to cancel bad debt; depositors receive collateral at ~5 % discount.
What mechanisms are in place if the Stability Pool is empty?
Liquidators can choose:
Just-in-Time (JIT): bring feUSD to cover remaining debt and receive 105 % of that value in collateral.
Redistribution: the liquidator triggers a redistribution, through which the position's entire debt and collateral is redistributed to all fellow borrowers of the respective collateral market, in proportion to their own collateral amounts. Thus, the respective borrowers will receive a share of the liquidated collateral and see their debts increase proportionally.
Miscellaneous
How do I transfer feUSD to HyperCore?
Send your feUSD to the following address: 0x20000000000000000000000000000000000000f1.
Please test with a small amount first.
What is the feUSD token address?
0x02c6a2fa58cc01a18b8d9e00ea48d65e4df26c70
What are general risks to the protocol?
1. Collateral Asset Failure
Collateral asset failure occurs when the value of a collateral asset falls drastically and irreparably. Felix combats this risk by over-collateralizing feUSD with three of crypto's most trusted collateral assets (BTC, ETH, SOL), but the introduction of newer assets like HYPE and PURR will require close monitoring in the early days of the protocol.
2. Bridge Receipt Failure
While Felix supports trusted majors as collateral assets, the aforementioned assets aside from HYPE and PURR are not native to Hyperliquid. In the event of a bridge receipt failure, the bridged versions of these otherwise-trusted assets could abruptly be worth $0.
3. Liquidation Cascade Risk
Related to collateral failure risk, but slightly different, is liquidation cascade risk. This is the risk caused by self-reinforcing drawdowns in collateral value as liquidations further pile on to adverse price action. It is unlikely that Felix liquidations will materially impact the valuations of BTC, ETH, and SOL, but it remains a relevant concern for assets like HYPE or PURR.
This risk is addressed mainly by the presence of Stability Pool liquidity as well as collateral-specific minting caps.
4. Smart Contract Risk
Felix is based off of the Liquity V2 codebase which has undergone substantial auditing as well as formal verification. Still, the protocol has yet to see material time in the wild and cannot be considered battle tested just yet.
Along with these audits on the current codebase, any codebase change is audited before implementation, and Felix has plans to become an immutable protocol in the future.
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