Proposal to add ZCHF/USDT to the gauge controller

Gauge Proposals
#1

Summary:

This proposal aims to add a gauge for the ZCHF/USDT liquidity pool to the GaugeController. By incentivizing this pool, we intend to:

  • Establish Curve as the primary on-chain liquidity hub for the Frankencoin (ZCHF), a Swiss franc stablecoin
  • Minimize slippage for traders and improve market efficiency
  • Accelerate the adoption of ZCHF as the preferred Swiss franc stablecoin locally and globally

This initiative supports both ecosystem growth and seamless trading experiences for participants.

References/Useful links:

Website: https://www.frankencoin.com/
Frontend: https://app.frankencoin.com/mint
Documentation: https://docs.frankencoin.com/
Paper: https://app.frankencoin.com/thesis-frankencoin.pdf
Telegram channel: Telegram Web
X profile: x.com
Github: Frankencoin · GitHub

Protocol Description:

Frankencoin is a decentralized stablecoin tracking the Swiss Franc (1 ZCHF = 1 CHF).

As there is no oracle, there is also no technically enforced hard peg. Instead, the peg is softly enforced through a combination of the following three elements:

  1. Collateralization: Minting Frankencoins is always done against a collateral asset. There is an auction-based challenge mechanism that ensures that there is sufficient backing at all time, i.e. that all the collateral is always worth more than all the Frankencoins in circulation. Economically, this means that those who provided the collateral are willing to pay at least one Swiss franc per Frankencoin in order to get their collateral back.

  2. Interest rate: The system has a general interest rate on which all interest charged on minted Frankencoins and the interest paid out on deposits is calculated. This is similar to the lead interest rate typical central banks set in order to steer the value of their currencies. It can be adjusted through the governance process and is expected to mirror the (risk-adjusted) interest of the Swiss franc. Finance theory says that if two assets of non-zero value have the same returns (interest rate) over an infinite time horizon, then their value today is also the same.

  3. Arbitrage: Thanks to (1) and (2), we can expect the Frankencoin to track the value of the Swiss franc in the long run. To hold the short-term peg, we rely on the market recognizing temporary deviations from the peg as profitable arbitrage opportunities.

Overall, this means that the peg is not as hard as with other stablecoins and one has to expect short-term deviations. That is the price of having a very high degree of decentralization. To minimize the risk of temporary depegs, it is important to be present on all the relevant exchanges with high liquidity, most notably Curve.

Overall, the Frankencoin enables the Swiss economy to:

  • Tap into the attractive DeFi yields without forex risk (currently at 5% p.a. for holding ZCHF)
  • Have an open and global Swiss franc payment system
  • Ability to unlock liquidity by using tokenized Swiss securities (e.g. Shares, Bonds, Real Estate) as collateral for Lombard loans in Frankencoins

Internationally, Frankencoin creates a serious alternative for web3 native investors to hold risk-off assets. Currently 99% of this market is denominated in USD. We believe the CHF is better as the Swiss franc trumps all other fiat currencies in terms of stability.

Frankencoin is compliant with Swiss law and the European MiCA regulation.

Motivation:

We want to establich the Frankencoin as the preferred stablecoin to get Swiss franc exposure. It already is the largest Swiss franc stablecoin and we believe it to have enormous potential as the Swiss franc is internationally recognized as a safe haven. To that end, it is of pivotal importance to have highly liquid trading venues for the ZCHF and Curve offers a unique way to incentivize the creation of liquidity.

Specifications:

  1. Governance: Frankencoin has a veto-based governance system. Veto power can be obtained by owning at least 2% of the governance token FPS. At the moment, there are 15 addresses that have accumulated veto power. Each of them has the power to veto proposals. Proposals can be used to add new modules to the system and new types of collateral. But the smart contracts themselves are immutable.

  2. Oracles: The Frankencoin system does not rely on oracles. It uses a novel auction based liquidation mechanism in which the auction serves two purposes: price discovery and the liquidation itself.

  3. Audits: The initial set of modules has undergone three audits, by Blockbyte, Code4rena, and ChainSecurity. The modules added in 2024 habe been audited by Decurity and ChainSecurity.

  4. Centralization vectors: The most centralized part of the Frankencoin system is its frontend. Almost all users use (app.frankencoin.com)[https://app.frankencoin.com], Only a small minority uses the copy (app.frankencoin.net)[https://app.frankencoin.net].

  5. Market History: The Frankencoin has remained fairly stable, although at low trading volumes. A Uniswap pool has existed for a little more than a year with moderate liquidity. The Curve pool is new and has just been created.

3 Likes
#2

This is going to get interesting! :moneybag::thinking: I’m looking forward to seeing how these pools will be paired with other USD pools, etc.