d3 (alusd, fei, frax) pool + gauge

[AIP-28] d3 Alliance

We propose a new curve pool that consists of decentralized stablecoins, alUSD, FRAX, and FEI. Each of our respective protocols spends a lot of resourcing providing liquidity for our respective 3crv pools. By forming the d3 pool, we can pool our resources together and offer deep liquidity between our tokens.

The Alchemix, Frax, and Fei teams have discussed this, and together, we can leverage each protocol’s individual strengths. Currently, between these three teams, we control over 500k CVX, deep treasuries, and the ability to bootstrap with our respective governance tokens.

For this proposal, Alchemix will split its pool incentives and cvx voting power equally among alUSD3CRV, alETH, and d3 (pending gauge acceptance). The Fei and Frax teams will also be contributing towards incentives to maximize our collective efforts.

Each protocol can contribute in the following way:

Alchemix

Alchemix currently holds over 70k CVX, and this number is growing steadily. We also can offer ALCX to incentivise CVX and veCRV holders to allocate more to the d3 gauge. Furthermore, in the v2 of Alchemix, we can make FEI and FRAX accepted collateral types (pending governance approval). By including FEI and FRAX as collateral types, we can strengthen their stablecoin projects by bringing them the amazing utility of self-repaying alUSD loans, providing Alchemix with more TVL and income in the process. Furthermore, the more alUSD is backed by decentralized stablecoins, the more resilient it will be.

Frax

Frax controls over 450k CVX and is aggressively accumulating more. They too are involved in curve gauge incentives via the votium protocol built on top of convex. Their power in Convex would allow for enticing incentives for the d3 pool, and make it one of the top places to provide liquidity for in all of DeFi. Frax also has an advanced Algorithmic Market Operations Controller (AMO), which allows FRAX to expand and contract the supply of FRAX by minting FRAX into liquidity pools and withdrawing and burning from them. This allows them to safely grow the supply when it is warranted, and also to shrink the supply when off peg. This is a powerful lever at their disposal that can also benefit alUSD and FEI. If FRAX is on peg, they could mint it into the d3 pool, and such an action would cause alUSD and FEI to trade at a premium to it. When alUSD is at a premium, it makes it an attractive currency to mint to arbitrage the difference away, and in the process, more backing goes to the transmuter, increasing system yield and strengthening the peg. So when FRAX grows, so do its counterparts in the pool.

Fei

Fei has the deepest reserves of ETH over any other protocol in the space. This protocol controlled value (PCV) allows them to have a rock-solid peg for FEI, because they can add and remove liquidity to tightly peg Fei to $1. In this regard, FEI and Frax are very similar, albeit executed in differing ways. The fully decentralized collateral base and ethos of FEI makes it a strong censorship resistant stablecoin. Coupled with the high collateralization (over 300% currently), FEI is an extremely logical addition to the pool.

Future Goals

Fei’s deep ETH reserves present a strategic opportunity in this alliance. Right now, the 3crv meta is so dominant because on all of the major DEX’s, there are deep DAI, USDC, USDT pairs with ETH. This allows any of these three tokens to be used as a bridge to any other token on Ethereum. By making a pool akin to the tricrypto pool, but with d3 and ETH, it will open the d3 pool to all of the liquidity across DeFi without having to over rely on the big three stablecoins. Having this alternative is critical if some regulatory black swan happens, and would be an excellent fall back for our respective tokens.

Poll:
https://dao.curve.fi/vote/ownership/93

The only argument for this pool is that it could make us less reliant on USDC/USDT but both are alUSD and FRAX are at least partially backed by both USDC/USDT so this appears to be fragmenting liquidity unnecessarily away from metapools.

Is there anyone in the ALUSD/FRAX metapools who is thinking “I don’t want exposure to USDC but still want exposure to either FRAX or ALUSD?”

Metapools are why Curve can still bring the very best stable liquidity on high volume pairs (DAI/USDC/USDT mostly which is where fees come from) even though bribes are pushing liquidity to newer (and often smaller) assets like MIM or ALUSD. Starting plain pools is not the way forward.

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A correction to this, in the Alchemix system, we are backed by DAI and not USDC or USDT. Frax is also moving away from USDC for their backing.

We’re facing an issue where there is ever increasing competition for gauges, and by our protocols teaming up, we can be much more efficient in sourcing liquidity. We still plan to maintain our alUSD3crv pool, as will frax and fei, so any imbalances in this pool will directly lead to more volume via arbitrage.

In the end, I think having more options is a good thing and fits with the decentralization ethos of DeFi.

alUSD is backed by DAI which is partially backed by USDC and deposited into Yearn vaults.

If we are pretending we’re doing this to not have exposure to custodial stables then we’re missing the mark (FRAX 40% USDC, alUSD through DAI and AAVE receives exposure to USDC and every coin on AAVE).

My opinion is that there is no demand for such a pool and that whilst FRAX has made progress to be less reliant on USDC, this is about as decentralized as the 3Pool.

Convex voters voted yes here which is fair enough but this is detrimental to efficient capital use on Curve.

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