This will strengthen the Curve Protocol and lower the risk of stablecoins issuers acting malicious
Feels great to see CRV guidance choosing wisely to keep CRV decentralised. hip hip huraaay
I am supportive of this - it should also include FRAX though!
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.
Yes please. This would be great on Polygon and FTM too.
excellent proposal, the fear is imho
USDC: might be replaced by a Centeral Bank (FED backed) Stable coin
USDT: backed by varying currencies + Bonds (not US T-Bills)
this is an excellent proposal, well done team
very well said and so happy to see you engage in meaningful conversation, hope to see you in Mt Olympus 3,3
This is a great initiative but I think other truly decentralized stablecoins should be considered, for reasons alluded to in the “against” section. FRAX has shown to be stable and resilient through market turbulence. Additionally, alUSD, just added to gauges, should be at the top of the list: strong peg through volatility, huge liquidity pool, partially collateralized (sometimes overcollateralized) by DAI (no centralized tokens).
I support this initiative. Trying to find more places to use LUSD. This is a great idea and will vote on chain for in.
Love the proposal, but indeed weird to not include FRAX in a decentralized stablecoin pool given it has held its peg probably better than any other algo/decentralized stablecoin over the last months.
While it might not be as decentralized as some of the alternatives yet, its concept strives for decentralization and usecases like this will allow FRAX to get there at a faster pace.
The proposal is excellent and the intent to keep curves as decentralized as possible puts me in a good mood. At the same time I am happy that 40% of the few replies received are dedicated to Frax. It is at least questionable that the stable coin that has best kept the peg during the crash of the last few days has not been considered.
I read the reply on twitter that says that stability in the short term does not mean safety in the long term. The long-term security of a protocol such frax finance also derives from collaboration with large entities such as curve finance. Defi is collaboration, I understand not to risk but including Frax is not a risk. The goal of the protocol is to be less collateralised by usdc as possible and this can happen thanks to integration like this one. Think about it!
Great step towards decentralization, good job guys! And I’m confident Frax will be added to this pool or a similar one soon.
This is a great initiative to direct the whole space towards more decentralization. Unfortunately, as previous comments already pointed out, FRAX is missing. The fractional-collateralized stablecoin has never lost its peg and has been moving more and more towards decentralized collateral (from 100% to 85% within a few months). However, I fully support this new pool and hope this will have a lot of traction in the ecosystem.
Hey, Scoopy from Alchemix here.
I’m obviously biased, but I think that alUSD makes a lot of sense to add to this pool. We have a lot of liquidity already in curve in the 3CRV meta pool, and have been stable and healthy since our launch 3 months ago. According to parsec, alUSD has been the second most stable decentralized stablecoin, with only DAI being more stable. What’s more, that’s with an A value of 60, meaning we are a little more loosely pegged than coins with higher A values. And despite that, we still were extremely stable.
The alUSD3CRV-f2 LP was a demonstration of how powerful the curve factory metapools are. We have had the deepest factory stable pool by a large margin, with only the 3CRV pool itself being deeper than alUSD3CRV in all of Curve. Our pools have also generated respectable volume, with a rough average of $15m per day. I think the success of this pool has shown that Andre was right – the curve is the price, and opening these metapools has been a game changer for new projects. These pools have shown that utilizing them over other AMMs can make or break the design of a stablecoin. In my totally unbiased opinion, I think Alchemix demonstrated how valuable they can be.
alUSD performed extremely well even during Black Wednesday, an event that distressed several other decentralised stablecoins. alUSD briefly dipped to $0.995 but quickly came back up to $1 or slightly over it. It was our first real test and alUSD performed remarkably well. We believe that alUSD is positioning itself as a promising crypto dollar.
For v2 of Alchemix (expected to be released within 3 months), alUSD will accept practically any viable stablecoin with enough liquidity and yield on chain as collateral for alUSD, which will improve it’s stability across the various stablecoin pairs. We believe with that release, alUSD will continue to grow and become a major decentralized crypto dollar, and as such, it would make sense to include alUSD in a decentralized stablecoin pool.
Another added benefit of adding alUSD into the pool is that it has a large amount of liquidity in the alUSD3CRV pool, over 400m presently. This pair could also strengthen the peg of other shared assets in the pool by being a liquidity bridge to other tokens bundled in 3CRV.
Should this pool include alUSD, there is high likelihood that it would also be incentivised with ALCX rewards – subject to Alchemix community governance.
For an all-in-one rundown on Alchemix and Dashboards for key metrics, please check out this site:
Ok I am not a veCRV holder but as a believer in the FRAX vision I propose that after this proposal gets added that another one is proposed to add FRAX to this pool.
Alright so that might be a little bold but let me explain my thinking. This pool is a smart move toward decentralization and is important to all of us and so is the yield but taking the short term approach is limiting veCRV hodlers from long term yield. By adding FRAX to this pool it helps bring more volume and liquidity which in term will bring more yield to veCRV hodlers.
Why - because new liquidity is entering the market and FRAX and other algos will benefit from this. We are better to group this liquidity together. Lets together bring cefi to defi and not just create an API for banks.
Oh ya forgot to mention FRAX held peg better then most other stables - that has to be the most attractive thing.
I definitely agree with the addition of both FRAX and alUSD to this pool, unless there is a very obvious reason to omit them in this pool (in which case I would be happy to learn what such a reason might be).
The more these decentralized stablecoins are highly connected with each other, the more robust DeFi will be as a system against shocks like the most recent one. Also, increasing interconnectivity in the system will reduce operational barriers for users to put their currencies to use, which should encourage adoption and benefit both Curve and the ecosystem as a whole.
Disclaimer: I am an active member of the Alchemix community.
Combining all stablecoins with each other will definitely create a domino effect. But linking stablecoins will definitely contribute to the ecosystem.
If the d3Pool is intended to evolve into the safest foundation of decentralized finance stablecoins I’d be comfortable including fully collateralized tokens with low smart contract complexity & risk like DAI, LUSD, etc.
While I respect FRAX as a project and hope it succeeds long term, fractional reserve stablecoins are inherently more experimental & subject to risks as we saw with the recent IRON+TITAN collapse (a fork of FRAX handled more recklessly, but with fundamental similarities to consider). Additionally, FRAX FXS collateral inherits a high degree of smart contract risk by allocating funds across Compound, Aave, & Yearn. Yearn fundamentals inherit among the highest risks in defi as its fund managers actively seek the highest yields in the ecosystem. A flaw anywhere in the tech stack of projects Yearn touches presents risk to FXS, which already balances a fine line as an experimental fractional reserve to FRAX.
That FRAX has held a stable peg for a few months is a promising start, but is that sufficient to bet your life’s savings on it holding its stability perpetually? If not, it may be premature to include in a d3Pool intended to provide the safest fundamental risk profile for defi stablecoins.
Less familiar with alUSD, but the recent exploit allowing unauthorized withdraw of $6,000,000 of ETH is an unfortunate oversight in software engineering best practices & unit testing that should have been avoided. If alUSD has similar downstream risk via Yearn that’s additionally a point against it from a stablecoin risk perspective. If alUSD relies purely on heavily audited / lower complexity stacks like Aave that’s potentially fine with Aave’s Safety Module, but it’s still higher risk than ideal for a stablecoin.
One potential solution for addressing the above concerns could be including FRAX & alUSD on the condition they are included with insurance from an entity like Nexus Mutual. Nexus Mutual already offers insurance for smart contract risk associated with Yearn. If they can additionally offer insurance on bank run risk with fractional innovations like FRAX+FXS, that not only lowers the risk profile significantly for d3pool participants, but makes a compelling narrative about the robustness of the next generation of defi stablecoins & their supporting ecosystem.
If professional underwriters like Nexus Mutual (or similar entities) are unable or unwilling to provide insurance here, that might be a sign the associated risks are not yet ready for prime time in a d3Pool.
Don’t intend to come across as overly negative, but didn’t see anyone else raising the obvious concerns of a stablecoin d3pool inheriting myriad risks via Yearn. I’d like to see all of these project succeed, and would love to see them included in a d3pool if the obvious risks can be addressed via insurance or some other solution. If the above risks can’t/won’t be addressed, I don’t see a few months of peg stability as sufficient reason to rush inclusion.
As Curve governance participants, if you wouldn’t personally risk your entire life savings in one of these stablecoins, the less informed defi user who trusts your expertise probably shouldn’t either. Overcollateralized options with low complexity are easy to support. Experimental options that inherit substantial downstream risk, not quite the same.
Disclosure: I’m not affiliated with any of the above projects or entities, don’t work for Nexus Mutual & am not trying to shill the insurance business. I’d love nothing more than to see all these project succeed long term, but patience & reasonable risk management are necessary steps to that goal.
First of all, thank you for a well thought out and reasonable view. I think your concerns about FRAX are valid. As the founder, I’ll try my best to address them.
So IRON was one of the worst implemented forks of FRAX which has had many. To say that IRON’s collapse brings up any questions other than cursory ones about FRAX is like saying Ethereum Classic was exploited for a double spend which brings up whether Ethereum itself is vulnerable to a double spend fundamentally since it is the same code and forked idea. If this sounds nonsensical, it is just as nonsensical in my opinion bringing up IRON to FRAX. Their fork of us was an old version of the protocol (I wrote the code they forked) and as you said with many of the safeguards and features removed intentionally to pump the governance token price since more of it would be burned for seigniorage fees. So I don’t think it is something to really bring up as you brought up much more necessary issues to address below.
This seems like a rather odd and strange bar for inclusion in a highly experimental pool? First of all, I don’t trust all my own life savings in ANY one of these stablecoins myself. I hold FRAX the most but that’s for obvious reasons. But I would not tell anyone to put their ENTIRE LIFE SAVINGS in a single stablecoin Honestly don’t put your entire savings in stablecoins full stop. I’d recommend an FDIC ensured tradfi bank for some chunks of life savings. So we might agree to disagree on this one but that is definitely an overly odd bar for a new experimental stableswap pool? Additionally, if someone asked me to put their “entire life savings” in any of the stablecoins in this pool (or even the 3Pool or anything tbh) I’d tell them to run. But if you’re talking about a majority or a large part of one’s net worth, I’d be more than comfortable.
So this is actually one of your best points here, and I don’t have much to add other than it’s true. But I personally think that even DAI inherits this risk in the reverse direction which might be counterintuitive. There’s basically 9 figures of DAI out of a couple billion that is on Yearn. If Yearn gets hacked and the DAI gets stolen/drained, then such a large amount of dump/sell pressure of DAI would surely be existential to Maker’s peg as well as to this pool. It would be kind of the same as FRAX losing a massive part of its collateral. The difference is just that Maker would be trying to defend its peg against a huge exploit of 9 figures of DAI dumpage while FRAX would be trying to keep its peg while losing part of its fractional reserve. They are both risky but in different directions. DAI in the forward direction in a hack and FRAX on the backward direction losing its collateral. If the hack is small to both DAI and FRAX, then I think it’s irrelevant whether FRAX loses a small portion of its fractional collateral or DAI loses 7-8 figures of dump pressure as I’m confident both can hold their pegs soundly against such a small, isolated exploit. It’s only the large ones that matter imo and DAI (and alUSD and LUSD etc etc) have such a gigantic amount of supply on Yearn that a full exploit there would be existential to each token but for different reasons. FRAX for losing its collateral backing while DAI for essentially losing a large enough part of its supply to a hacker that would surely break
So this is a fantastic idea and we’d be willing to take voters up on this offer. If we get included in this pool, we can achieve a 60 day turn around to engage with Nexus and other onchain insurance providers to supply insurance for the event of a peg break/exploit. If we don’t get anything running in the first 60 days, we should be auto-removed from the pool. As an aside, we’ve actually explored a Hedge AMO module at FRAX which ensures/hedges against collateral drainage/exploit and peg break for some time and we think your suggestion is fantastic here. We’d be willing to do it on a quick turnaround of our inclusion in the pool if it helps meet Curve’s criteria.
Cheers and thanks for your post.
Thanks for the thoughtful reply.
If you want to suggest someone’s concerns about fundamental similarities between IRON & FRAX are “nonsensical”, there’s probably better reasoning available than a hand-wavy analogy about Ethereum Classic. I’ve heard repeated claims about IRON removing FRAX’s “safety rails” and do see IRON’s overall approach as far more reckless. However, despite reading FRAX’s whitepaper & actively searching, I have not been able to find any technical documentation of substance elaborating on exact differences in FRAX’s safety measures. Granted, FRAX has a multi-year value locking method with enough held to give observers reason to believe FXS has some non-zero value, but it appears TITAN’s death spiral would have happened just the same even if TITAN permitted value locking. The fundamental risks of attempting to back a $1-pegged stablecoin with part USDC, part highly volatile asset is nearly identical between IRON+TITAN and FRAX+FXS. That FXS’s value happens to have declined 88% in the last 3 months ($15.57 ==> $1.73), most of which occurred before TITAN’s collapse, may give some reasonable people pause before holding a substantial amount of FRAX. If you can link to a technical design document explaining why similar risks do not apply to FRAX that would go further in addressing concerns than brushing off what appear to be fundamental similarities as nonsensical.
A large amount of DAI changing hands while fundamentally remaining over collateralized for redemption Vs FRAX losing a large amount of its USDC-based collateral exacerbating its target (under) collateralization ratio are hard to see as “kind of the same” from a risk perspective.
ETH price could drop 99.99%+ to $0.20 and 1 LUSD would be redeemable for $1 (5 ETH in that case). Even in the most extreme hypotheticals of LUSD supply being stolen by a hacker, there is no existential risk as long as someone is willing to buy ETH at market price. Considering ETH’s general utility, that’s an assumption many defi users may be willing to accept. It’s hard to suggest a similar existential risk profile for FXS losing USDC collateral to Yearn downstream smart contract risk.
Despite USDC’s imperfections, it has sufficient auditing and a “throat to choke” in meat space for many people to trust much of their savings to it (even if just for temporary positions). Ideally, the defi stablecoin ecosystem matures to offer a similarly low risk profile at its core.
To your broader point that the d3Pool is a “highly experimental” pool, I didn’t realize that was the case. When I saw the naming similarity between Curve’s 3pool and the newly suggested defi ‘d3pool’ I thought the goal might be to build a low risk pool that becomes the foundation of Curve’s defi stablecoin pools in a similar capacity as the 3pool today. If my assumption there is wrong & the d3pool is meant to be highly experimental, expanding to 5+ defi stablecoins of highly different risk profiles, I see nothing fundamentally wrong with that, except perhaps the name ‘d3pool’. Nothing against experimental pools & people having freedom to risk their liquidity in whichever capacity they want. If, however, d3pool is intended to evolve in a similar long term direction as Curve’s 3pool today, I appreciate that we’re having open discussions to further understand the risks (& safety measures) of each algorithm involved.
Apologies if I come across as throwing too many hard ball questions here. As I said initially, I have nothing but respect for all projects involved and want to see all succeed long term. At the same time, it appears there are fundamental differences in the risk profiles of each defi stablecoin, and I’m fairly sure at least some of my concerns aren’t purely nonsensical. It makes sense for projects to invite their community to come voice support here, but at the same time it ultimately hurts all of us it we don’t at least inquire about risks while exploring the cutting edge of defi together. Glad the suggestion of risk hedging insurance via something like Nexus Mutual was helpful & appreciate the open discussion. If a technical design document is available elaborating on FRAX’s safety measures in detail, it would be help alleviate concerns at their root.