What is Falcon Finance? Synthetic Dollar Protocol with Competitive APY Explained

Falcon Finance is a next-generation synthetic dollar protocol designed to offer sustainable yields. While existing synthetic dollar protocols rely solely on strategies like positive basis or funding rate arbitrage that may struggle in adverse market conditions, Falcon Finance broadens this approach by incorporating diversified, institutional-grade yield generation strategies. The protocol aims to preserve the initial value of user deposits while delivering consistent and competitive yields, even during market downturns.

In this article, we will uncover yield strategies behind Falcon Finance, a dual-token system of USDf and sUSDf tokens, the minting and redemption processes, and its risk management framework.

Yield Generation Strategies in Falcon Finance: Delivering Higher APY Rates to Crypto 

Falcon Finance employs a multifaceted approach to yield generation, moving beyond typical delta-neutral strategies. A key difference lies in acceptance of a wide range of collateral, including various stablecoins (such as USDT, USDC, FDUSD) and non-stablecoin digital assets: Bitcoin (BTC), Ethereum (ETH), and other altcoins. Such a broad collateral base allows Falcon Finance to capitalize on diverse yield opportunities, particularly from altcoin native staking and funding rate variations.

To manage the collateral assets, the protocol uses a dynamic selection framework involving real-time liquidity and risk evaluations, imposing strict limits on less liquid assets to minimize risks.

Under the hood of Falcon Finance, there are several institutional strategies:

• Negative funding rate arbitrage. This strategy utilizes perpetual futures trading below spot prices. By holding long perpetual positions while selling the equivalent spot crypto asset, Falcon Finance can earn funding payments, generating yield even when traditional methods might fail.
• Cross-exchange price arbitrage. Using institutional trading infrastructure, Falcon Finance executes strategies like CEX-to-CEX and DEX-to-CEX arbitrage, capitalizing on price discrepancies and funding rate variations across different platforms. Ultimately, the protocol uses market segmentation to gain additional profit.
• Native staking. Falcon Finance generates yields from staking various altcoins.

In between these strategies, Falcon Finance takes a balanced multi-strategy approach, allocating capital between altcoins (negative funding rates, cross-exchange arbitrage and staking) and stablecoins (focused on positive funding rates and staking). This diversified model aims to outperform simpler strategies like ETH-positive funding rate arbitrage, resulting in consistent yield generation in different market conditions and price movements. 

Overall, this advanced approach to yield generation allows Falcon Finance to offer a competitive yield compared to other synthetic dollar protocols and fiat-backed stablecoins. Locking stablecoins in savings on centralized platforms, or in farming in DeFi protocols, although more common, offers much less APY rates than Falcon Finance with the relatively similar level of risk, due to more passive strategies. 

Dual-Token System: USDf and sUSDf

Falcon Finance utilizes a two-token system: USDf serves as an overcollaterized crypto equivalent of U.S. dollar, whereas sUSDf is responsible for generating yield from a position.

USDf: Overcollaterized Synthetic Dollar

The USDf token gets minted every time a user deposits his cryptocurrencies as eligible collateral. For stablecoin deposits, USDf is typically minted 1:1 to the USD value. For BTC, ETH and altcoin deposits, an overcollateralization ratio is applied, meaning the value of the deposited collateral exceeds the value of the USDf minted. This measure is needed as a buffer against market volatility and ensuring USDf remains fully backed. Recently, Falcon also launched Innovative Mint, a service allowing users to adjust a risk level and collateral lockup duration when minting USDf tokens. On June 3, 2025, USDf supply surpassed a $500 million mark, highlighting growing demand for a solution such as Falcon Finance.

sUSDf: Yield-Bearing Crypto Asset

When users want to start earning from USDf, they can stake it in Falcon Finance and receive sUSDf tokens in return. These tokens represent a claim on the underlying staked USDf, plus the yield generated by the protocol’s strategies. As the protocol earns yield, the value of sUSDf increases relative to USDf over time, reflecting the accrued earnings.

Staking USDf for sUSDf for Yield Generation

To start earning yield, USDf holders need to stake it in Falcon Finance’s app. In return for staked assets, a user mints sUSDf tokens proportional to their deposit divided by the current exchange rate. The latter depends on the total amount of staked USDf, total rewards and the current number of sUSDf in supply.

How to Increase Yield APY Rate in Falcon Finance?

Falcon Finance allows for increasing returns by restaking sUSDf for fixed lockup periods using the Boosted Yield feature:

• 3 months (5% higher APY);
• 6 months (25% additionally to the current yield rate);
• 12 months (50% boost to the yield).

In return for higher APY, Falcon Finance gets more certainty for longer lockups, which allows it to allocate capital into time-sensitive strategies more efficiently. 

Risk Management, Transparency and Insurance Fund

For monitoring potential risks, Falcon Finance combines automated systems and manual oversight of open positions, adjusting them in real-time. During high volatility, advanced trading infrastructure is used to strategically unwind risk to preserve user assets.

Asset security is another aspect Falcon Finance is focused on. Collateral funds deposited by users are safeguarded using a mix of off-exchange custody solutions with qualified custodians, Multi-Party Computation (MPC), multi-signature schemes, and hardware-managed keys. Limiting on-exchange storage minimizes counterparty risk.

To build trust with the crypto community, Falcon Finance commits to a complete transparency of data on its usage. For this, there is a real-time dashboard page showing metrics like TVL, amounts of USDf and sUSDf issued and staked, APY, and distributed yields. Daily statistics on reserves, segmented by asset class, is also provided.

Conclusion

Falcon Finance aims to set a new standard for synthetic dollar protocols by combining an overcollateralized synthetic dollar (USDf), diverse institutional yield strategies extending beyond traditional arbitrage, and rigorous risk management. Its framework allows acceptance of a wider collateral range, facilitating advanced yield generation methods designed for consistency and sustainability across market conditions. Built on principles of transparency, security, and institutional-grade yields, Falcon Finance presents itself as a next-generation financial solution in the crypto space.