Hey guys, I definitely think the 3 protocols proposed are completely deserving of being in this innovative pool.
Full disclosure: I’m the founder of Frax so I obviously have a bias, but I’d be interested in knowing the steps we could take to be added/included in this pool going forward. I’m sure the biggest hurdle for us being included is that we are predominantly backed by USDC, currently 85% collateralized with it and 15% purely algorithmic/fractional. The USDC defeats the underlying purpose of this pool somewhat and I concede that upfront. Secondly, it should be noted that DAI is 38% backed purely 1 to 1 by USDC and rising quickly: https://twitter.com/jp_koning/status/1397188113118662658
I’m not here to propose removing DAI as I’m a huge fan of Maker and everything they stand for. I’m here to point out that we are dramatically lowering our reliance on USDC collateral while other protocols are increasing theirs, so I think that FRAX’s trajectory to shift away deserves some kind of consideration into this pool as a nascent gamechanging protocol.
The first thing to note is that we are a fractional stablecoin (the first that introduced this concept of partial backing) so if you’re not familiar with the FRAX mechanics AMO Overview - Frax ¤ Finance is a great place to get started. Essentially, FRAX is the first stablecoin designed from first principles to create the partial/fractional category using a market set collateral ratio. The collateral ratio is set by the market’s pricing of FRAX. If FRAX is under $.990, the CR goes up. If FRAX is above $1.01, the CR goes down. FRAX can always be redeemed for $1 of value from the system or minted by placing collateral into the system at the CR and burning the remainder in the governance token. This finds the optimum market desired collateral ratio that can support FRAX perfectly staying at a tight 1 cent peg between .99-1.01. The idea is to get to a very decentralized CR, perhaps substantially below 50% or lower than what Maker might be at with the current 38% USDC PSM. The design essentially allows the market to vote what the fractional backing of FRAX needs to be through their holding or selling of FRAX.
Lastly, consider our stats since numbers don’t lie. We have never broken our peg a single time since launch.
Additionally, Coingecko has also analyzed FRAX and shown that through 2020 Q1 we have actually had the tightest peg of any non-fiatcoin even though we are not fully backed by one.
Our current mcap is above that of USDP if we were added to this pool. We would not be the smallest protocol and are growing rapidly. Lastly, we also have a very successful FRAX3CRV metapool which we are a huge fan of and has consistently had 7 figure daily volume on average with respectable TVL. The performance of FRAX has been good enough to be the first algorithmic/fractional stablecoin added to Curve gauges and we’re very proud and honored of that achievement. To put it in perspective, FRAX has never, a single time, traded outside of its peg range on Curve, Uniswap, or anywhere since it launched in December 2020.
I spoke to Charlie, Michael, and Ben who weighed in on perhaps it not being the right time to include FRAX until the CR goes substantially lower so that it is not as reliant on USDC even though FRAX is partially algorithmic/decentralized already. I pointed out that it’s kind of a chicken and egg problem. Our reliance on USDC would dramatically go down the more we get into these kinds of pools and recognition for what we’ve been able to do so far would help us build even more Lindy effect. I think that we are making progress in the algostablecoin space faster than any other group, and while there is rightful skepticism of algostables due to their past performance, FRAX’s numbers look different. An objective look at our achievements without prejudgment of other algostables would be very appreciated. I believe that the market would set the CR of FRAX much lower than 85% if we were to make it into this pool which would increase our decentralization as an immediate positive sum effect. I believe the market could set our CR in the 70s or even the 60s in the near term if we are included in this pool. The goal would be to work with the Curve community and other protocols that have FRAX deeply integrated to continue to lower the reliance on other stablecoin collateral to under 50% and even approaching low double digits in the coming few months. But getting there could become achievable quicker if we have recognition of what we’ve achieved so far.
I wanted to take the time here to make sure we voice our opinion and make it known we are huge fans of Curve, love our FRAX3CRV pool, and also share the vision of this decentralized pool. We’d love to know what the Curve community thinks here and if we can find a path to inclusion.