Deploy a "FRAXBP" Pool & whitelist Frax for veCRV Staking

Hey everyone, Sam here from Frax. I’ve been talking to c2tp, Michael, and others to create this proposal which I hope the community likes :slight_smile:

Summary:

Create a FraxBasePool (FBP) of FRAX-USDC and put up for vote for gauge+base pool candidacy. Then whitelist Frax Protocol to stake veCRV to permalock majority of earnings as veCRV (and cvxCRV) from all FBP emissions.

Abstract:

The Frax Protocol has been a steadfast Curve+Convex ally for well over a year. FRAX’s Curve AMO has proven to be a very important innovation in DeFi & stablecoins. The AMO smart contract essentially keeps the Curve pool balanced+managed entirely onchain deterministically & allows the FRAX protocol to deploy its protocol owned liquidity to Curve, earn tx fee revenue from it, earn CRV+CVX from it, and allows FRAX to participate in the greater Curve ecosystem.

This is in contrast to pre-AMO stablecoin designs where their entire Curve TVL was rented by emitting large amounts of governance tokens always at a loss to the stablecoin protocol and fizzling out after a few short months. FRAX has created a sustainable, positive-sum flywheel.

Additionally, FRAX has brought a lot of revenue and efficiency gains for veCRV and vlCVX holders. For the first time in Curve history, there is a stablecoin protocol that can earn fees, yield, and sustainably distribute this back to veCRV+vlCVX holders through “bribes” (aka gauge incentives on Votium). FRAX has been distributing millions of of dollars every voting period back to the Curve+Convex community sustainably for many months.

This symbiotic system continues to bring liquidity to Curve and helps power a yield engine that has benefitted both FRAX, Curve, and Convex over competing AMMs like Uniswap, Balancer, etc. For example, FRAX’s pool alone subsidizes about 50% of all of 3Pool’s liquidity. Of the $1.5B TVL in Curve’s flagship pool, ~$700m of that demand is paid for by FRAX in our metapool.

Lastly, we also would like to bring even more value creation to the Curve ecosystem by proposing FRAX be whitelisted as veCRV stakers. One common, and understandable, criticism of FRAX has been that the protocol sells a majority of its CRV earned in the AMO to fund the next round of Votium incentives and market operations. This is not out of choice, but out of an inability to lock veCRV which we hope to change with this proposal.

We propose to lock the majority of CRV emissions earned from FRAXBP in a combination of veCRV and/or cvxCRV to further bind FRAX’s revenue generation to the underlying CRV cash flow that its liquidity is creating. This will make the FRAX stablecoin essentially “backed by” the underyling cash flows of the Curve ecosystem, aligning FRAX<>Curve incentives permanently & contributing to continuous CRV demand.

Deploy a FRAX-USDC pool named FRAXBP to Curve. Afterwards, the Frax team will propose a Curve DAO vote for a FRAXBP gauge. If and only if this gauge vote passes, then propose a vote to make FRAXBP a base pool & initiate a vote to whitelist Frax Protocol to stake veCRV.

Motivation:

This new FRAXBP Curve pool can become one of the pillars of Curve+Convex ecosystems, permanently locking CRV+CVX it earns. It also encourages other smaller stablecoin projects to pair with it. FRAX will make a commitment to return revenue generated from FRAXBP demand back to metapools paired with FRAXBP thus allowing us to contribute more cash flows back to the ecosystem. Essentially, FRAX will proportionally distribute revenue to any project that pairs with FBP equal to the demand for FBP in their metapool. For example, if Abracadabra creates MIM-FBP metapool with TVL of $500m, that is ~$250m of FBP growth it subsidizes. Because the Curve AMO can mint FRAX into the FRAXBP pool to balance this new demand, it will earn more CRV+CVX+fees due to the MIM-FBP metapool. FRAX can then distribute the revenue it generated back to Abracadabra through veCRV+vlCVX incentives the MIM-FBP pool in the next voting period essentially returning value back to any project that pairs with FBP proportional to its size. This would be a new flywheel and liquidity engine for stablecoin projects looking to sustainably keep liquidity in Curve.

Specification:

This proposal requires a series of concrete steps that require individual onchain Curve DAO votes:

Step 1) Curve team launches FRAXBP pool (this cannot be done from the factory contracts as no pools with USDC can be created other than 3CRV metapools). Thus, FRAXBP pool has to be deployed by Curve core devs.

Step 2) Create on chain proposal for adding gauge to gauge controller for FRAXBP. Anyone can initiate this vote in a permissionless manner.

Step 3) Create an on chain vote to add FRAXBP as base pool.

Step 4) Create an on chain vote to whitelist FRAX to stake veCRV.

For:
1.) A new base pool that is safe, highly reliable (only has FRAX & USDC) and positive sum commitment to every stakeholder in the ecosystem from Curve, Convex, to all potential projects that use this base pool.
2.) Permanently locking a vast majority of CRV and driving CRV demand over a long, continuous period.
3.) FRAX has shown to be a helpful, honest, transparent, and value creating participant of the Curve & greater DeFi space.

Against:
Not much reason that I can see to vote against it unless the community wishes to keep only 3CRV as the basepool or a limited number of metapools. But seeing as how there have been (and currently are) a number of base pool proposals floating around the governance forum, I think this should hopefully be appropriate to consider.

Poll:
Pool coming soon after temp check/discussion :slight_smile:

24 Likes

I really love your idea. Keep working in such excellent manner.

1 Like

Very supportive, and it would be nice to have a base pool option that does not include USDT.

2 Likes

Hey Sam! Good to finally see this proposal come to life, and happy to see that FRAX has updated their basepool implementation requirements to a 2pool instead of a 4pool. A basepool without Tether USD has been a constant ask from the community as a de-risk from Tether-related FUD, and more basepools with legit assets are always cool in my opinion. I just had a few Qs here, would be cool to hear back from you on this:

With regards to:

Lastly, we also would like to bring even more value creation to the Curve ecosystem by proposing FRAX be whitelisted as veCRV stakers. One common, and understandable, criticism of FRAX has been that the protocol sells a majority of its CRV earned in the AMO to fund the next round of Votium incentives and market operations. This is not out of choice, but out of an inability to lock veCRV which we hope to change with this proposal.

  1. Does FRAX have a new revenue source to replace farming and selling CRV? That would be interesting!
  2. How does the implementation look like? What is being whitelisted? A multisig or some contract controlled by a multisig? If there are some interesting contracts being written, the risk folks would love to have a look at what’s actually being whitelisted and how the implementation looks like.
  3. Does FRAX plan to take part in Curve’s on-chain governance as well? It would be super cool if the whitelisted veCRV stakeholders participate/opinionate in key Curve protocol enhancements via on-chain votes (say bumping up A for a key pool, ramping it down, changing fees, etc.).
5 Likes

great idea, great team. He always supported the curve and the cvx. you have my support. It will help bring in more growing stablecoins. :+1:t4:

2 Likes

I would support this proposal.

1 Like

Hey, Tube here from Stake DAO.

We unequivoquely support this proposal since it will be extremely beneficial for Curve! This will enable Frax to use their farmed CRV, whereas until today they were forced to dispose of them. Really looking forward to this proposal being implemented!
Also very nice to see protocols working together like that, Convex, Frax, Curve, extracting synergetical value for the ecosystem.

Quick suggestion: if the objective of allocating partly the farmed CRV to cvxcrv is to keep a share of farmed rewards liquid, then I guess it would also make sense to have a part allocated to sdCRV which is liquid but would still enable Frax to vote for the FBP since sdCRV has voting power. Obviously, sdCRV liquidity is much lower than cvxCRV, so it would not make sense to go full sdCRV, but in case peg is lost, sdCRV would just represent a boosted veCRV so the risk is very limited for Frax.
Would you say this makes sense?

2 Likes

Hi. Please share the address of the sc that you propose to whitelist.

4 Likes

Absolutely based.
An important step forward to move in the direction of security with the FBP.
Plus, locked veCRV just recently surpassed CRV emissions.
This is going to provide acceleration and further exacerbate that process.
Very bullish CRV, hence very bullish CVX, hence very bullish FRAX.
:ferris_wheel:

2 Likes

Good questions Fiddy, re 2. I don’t think multisigs can be whitelisted, so it would have to be a contract controlled by a multisig

2 Likes

They can be whitelisted.

2 Likes

@wavey the smart contract that we would like listed is the standard veCRV locker contract that Convex uses. We have not deployed this contract yet as we are still at the temp check for this entire proposal but we are not planning to propose a general msig. We are planning to propose the standard functionality for a veCRV locker that Convex uses and have discussed it with them.

@bout3fiddy
1.) We expect lending and interest rate revenues to increase in the coming weeks as Fraxlend goes live and the $200m of RWA lending that governance has passed :slight_smile: This should be a very healthy amount of diversified revenue. Fraxswap is also launched which means TWAMM orders are monetizable in the future as people use our protocol owned liquidity to conduct long term TWAMMs. There’s also a few other things we are working on like the Frax Staked ETH derivative (frxETH) similar to Lido’s stETH that is still work in progress but will be quite lucrative. So the answer is yes, there’s a lot of big things coming or in the process of currently generating revenue other than the Curve AMO.
2.) As I answered above, we plan to use the Convex veCRV locker contract with minimal changes in functionality, if any.
3.) Yes! We definitely do plan on it and have been taking part through Convex’s vlCVX voting for a while now. We’re very excited to do it in a more direct manner :smiley:

@Tube Yes! This is a great point and we’ll definitely look to figure out how sdCRV fits into the general framework of this proposal as well. It’s important to note that either sdCRV or cvxCRV locking for the FRAXBP strategy should be approved by FXS voters which is why c2tp has made the appropriate thread here: FIP 76 - Allocate a portion of CRV farmed to create a staked cvxCRV holdings - FIPs - Frax Finance Governance

So yes, definitely interested in including sdCRV as the 3rd option of locking should it pass a similar direct vote so that the options could be: veCRV, cvxCRV, sdCRV. That is a great overall trifecta.

2 Likes

I dont know if I got this right:

If frax vote passes, its over for veCVR holders. Frax will stop dumping crv and start accumulating but will also stop bribing veCRV as they have different mission here.

They will also become too powerfull to compete with and veCRV bribes will become… well, crap.

Ironically, convex will hurt veCRV holders as cvxCRV and all the others xyzCRV variants are way less riskier and both people (and bribers with them) will turn to them, leaving veCRV with some peanuts bribes and 5% APR for their 4 year commitment?

1 Like

You’ve pretty much got it wrong in exactly every way unfortunately @Eklapic. This is about as positive value as we could possibly think of. Let me explain:

1.) There is absolutely no plans to stop bribing veCRV+vlCVX holders or lessen that amount. This was not mentioned anywhere in the proposal so I found it odd that you assumed this. In fact, we expect to continue to bribe/incentivize at current rates for the foreseeable future. We will just have to attain those bribe rates from treasury FXS allocated for these incentives. This shouldn’t have a negative impact on FXS price because even though we would be emitting FXS for these bribes, the FRAX balance sheet is increasing in assets with cvxCRV+veCRV proportionally.

2.) I think you have a lack of sophisticated understanding of the veCRV+vlCVX mechanics. If the bribe rate for normal veCRV lockers dramatically differs, there is an arbitrage between bribing veCRV directly rather than vlCVX on Votium. It’s actually for this reason that Votium and Pitch.money recently released their dedicated veCRV bribe incentives exactly so that the difference in incentive rates will normalize to the exact same APR.

While I appreciate your comment, I think you have to study the mechanics a bit more and better understand how things work. Let me know if I can be helpful in any way to better explain different pieces of this proposal that might be confusing.

Thanks for your time and feedback so far ser.

4 Likes

Thanks for putting up this proposal @samkazemian. I might have misunderstood but hope you could clarify some questions I had:

  1. Previously FRAX has been “backed” by USDC + FXS; more recently it’s been backed by 3crv + FXS; With the introduction of FRAXBP, what will Frax be “backed” by?
  2. If this proposal goes through, will Frax be using its current vlCVX to vote for the new FRAXBP pool rather than the FRAX-3crv pool?
  3. In your MIM example, would you be distributing the proportionately earned CRV, CVX, and 3crv to LPs in the MIM-FRAXBP or would you be doing so directly to SPELL holders? Tangentially, would you distribute earned CRV as cvxCRV?
1 Like

Actually the minted FRAX is ‘virtual’ liquidity. The reason I call it ‘virtual’ is as follows.

Per my observations, Curve AMO works with some disciplines. Please correct me if I am wrong.

  • Minting of Frax is dependent on the Frax/3Crv ratio of the Frax-3Crv pool. The balance of the pool is the prerequisite for minting more Frax, so only the 3Crv volume in the pool grows, Curve AMO can mint more Frax.

  • The 3Crv liquidity mainly comes from LPs other than Frax protocol itself. Frax protocol may provide some 3Crv liquidity when bootstrap the pool but it is trivial after that.

  • The only thing Frax protocol can do with these minted Frax is to withdraw them from the pool and burn them. The protocol can not use these Frax to redeem underlying assets, as there are no underlying assets for these minted Frax. Neither can these Frax be used in other use cases, say swap in other DEX.

I believe it is fair to call these minted Frax as ‘virtual’ liquidity. Now I have a question for Curve team. Should the ‘virtual’ liquidity be counted the same as other stablecoins when allocating Crv emissions? Seems not fair for other stablecoins, as I don’t think 1 such Frax should be counted as 1 dollar.

1 Like

1.) Technically you’re right but FRAX is also backed by a diverse set of debt in Lending AMOs (although that has recently drawn down a lot due to lack of demand for leverage in this market) and also other kinds of liquidity AMOs and a bit of ETH+WBTC. You can see that at app.frax.finance/amos So I would say that it is not really just “backed by USDC+FXS” but is predominantly that, sure.

2.) Yes we will but only in a slow and multi-week process to see how both pools behave.

3.) We’d be distributing it to the voters of the MIM-FRAXBP itself, but we are open to talking to each individual protocol to automate their own strategy as they see fit. If they would like to receive the incentives in different ways or in different assets, we can work with them to do that. Ideally, they’d like to receive the assets in either veCRV or vlCVX incentives through Votium to keep everything to the benefit of Curve/Convex and keep the value within the ecosystem.

2 Likes

The proposal is interesting indeed. The only reason “against” is that Frax is not used very much as a stablecoin across the ecosystem (e.g. what’s the use case?) while it had very large liquidity (so liquidity is not a problem). But maybe there will be more use cases for it than just being stable? Will leave up to the community to decide anyway

3 Likes

Thanks a lot for your answer Sam, looking forward to see this live!! Am pretty sure it will receive massive support from the community.

1 Like

Hi Sam, is there any update on this thread / regarding upcoming proposal?