If Falcon Finance wants to launch USDf as a usable synthetic dollar I’m not convinced by the claim that arbs will handle it. I've heard that too many times. The real test is straightforward actually, when markets shift rapidly can USDf continue to redeem, can liquidations clear, and does the collateral math remain accurate?
USDf is presented as an overcollateralized synthetic dollar based on the universal collateralization concept of @Falcon Finance . This includes stablecoins, non-stablecoins and the whole range. That’s fine. But the peg holds only if the backing doesn’t secretly become a risky bet while no one is paying attention. Falcon Finance emphasizes delta-neutral and market-neutral management of the collateral for a reason. Don’t find yourself unexpectedly long on risk just because market conditions seem favorable.
A lot of peg difficulties basically begin with modest drift, not catastrophic breaks. The collateral slowly transitions from behaving like collateral to acting like a trade you never intended to make. Funding changes. Basis widens. Hedges become costly. Then you look up and realize your market-neutral position isn’t neutral unless you keep paying to maintain that neutrality.
It’s like operating a flat book with a slow leak. You don’t notice it at $1.00... you somehow notice when the waterline rises. #FalconFinance
And yeah, if the backing relies on perp legs to stay flat, the key question is what happens when perp liquidity decreases or funding becomes harsh, just when everyone tries to reach for the same hedge. Falcon’s setup doesn’t get a pass here. That’s when it really becomes important. You can appear overcollateralized on paper and still face issues in practice. It’s a different problem, but the same outcome if overlooked.
Overcollateralization is the first line of defense. It’s essential. It separates price fluctuations from everyone scrambling for the same exit in the same hour.
With non-stable collateral, haircut policies are more critical than any catchy phrase. OCR, risk bands, liquidation thresholds that's the real peg policy, whether or not people like the terminology. If the OCR is too tight, you’re allowing people to mint Falcon's own USDf on shaky ground. If it’s overly conservative, capital efficiency suffers, and usage shifts elsewhere. There’s no free option here. You’ll pay either way. Falcon Finance has to navigate that tradeoff.
Now, here’s the bit most teams overlook, selling collateral when no one wants to buy. Universal collateral sounds appealing in a presentation, but during stress, everything moves together, spreads widen, and the real question is what you can actually sell without incurring losses.
Not what looks varied in a list.
What sells. What remains liquid. What gaps. What gets stuck in the market depth and pulls everything else down.
Liquidation design becomes critical once stress hits. It’s all about implementation. Positions breach, keepers appear (or don’t), auctions occur, collateral is sold, debts are paid down, and bad debt either gets absorbed or lingers.
If auctions are slow, if fills are incomplete, if slippage is uniform, you won’t get a neat depeg event to label and move past. Instead, you’ll face liquidation cascades that affect pricing. The microstructure causes damage first; the chart reveals it later. That’s the part Falcon needs to manage effectively under stress, not just in calm periods.
Think of it like an emergency exit. It can appear fine in a walkthrough. Under load it either allows for quick movement or becomes a bottleneck, causing panic.
You also need a backstop that can spend. A real liquidity fund or insurance pool is necessary, not just confidence. You need capital to cover severe edge cases auction shortfalls, timing mismatches, and unexpected liquidations that don’t come up in optimistic scenarios because they’re tough to model.
Overcollateralization is a passive measure. A backstop is what you rely on when passive buffers are insufficient.
USDf inside Falcon Finance has grown in size, so the tolerance for vague assurances decreases. If you want to track the peg accurately, don’t get distracted by $1.00 values. I’d rather see if redemption options remain viable when people are anxious, if haircuts tighten quickly, if auctions fill smoothly, and if keepers continue to show up. And if the backstop is ever utilized, how quickly it gets replenished.
That’s where the real promise lies. Or where it begins to fail. $FF
