Change PID Controller Logic and Deposit to Uniswap V3 to Increase Growth Ratio

Governance Proposals Miscellaneous
1

Hey everyone,

I’m graceless from ICHI DAO, and I’m proposing a DAO-2-DAO parternship between Frax.Finance and ICHI.

Proposal

Update the Growth Ratio calculation to exclude Uniswap V3 ‘take-profit orders’ and deposit $40M in buy-limit orders to increase the Growth Ratio from 0.8% to 2.2% (based on liquidity in AMMs). ICHI Angel Vaults will manage these positions on behalf of many depositors.

TL;DR

  • Uniswap V3 take-profit orders only sell FXS. They shouldn’t be counted as liquidity available to purchase FXS in the Growth Ratio calculation.
  • The updated calculation will only count the buy-limit side of range orders on Uniswap V3.
  • $40M in buy-limit deposit will increase Growth Ratio from 0.8% to 2.2%.
  • ICHI Angel Vaults concentrate buy-limit liquidity and while placing take-profit liquidity further from the price, saving gas costs and creating a fungible LP token.
  • $ETH deposits will increase $FXS correlation to an increasing $ETH USD price.
  • $FRAX deposits will decrease $FXS correlation to a declining $ETH USD price.

Situation

The current Growth Ratio either excludes Uniswap V3 liquidity or assumes a 50-50 pool similar to what is available on Uniswap v2. It should be updated to reflect Uniswap V3 buy-limit range orders while excluding take-profit orders.

This calculation does not take into account concentrated liquidity positions which allow for single-sided deposits of FXS and paired assets between certain price ticks. In other words, the current formula factors sell-side liquidity for FXS on Univ3 as if it is equally matched with buy-side liquidity in that pool which is not the case.

Example:

Today’s Growth Ratio at current calculation is 29M/2.8B = 0.01012609695 = 1.013%.

Modified GR calculation gives a GR of 25.2M/2.8B = 0.008797894229 = 0.088%.

This is a 21% difference in Growth Ratio!

For a deeper dive into the math behind Growth Ratio changes and Angel Vault benefits, check out our calculations here: Launch a $FRAX Angel Vault - Google Docs

Problem

Today, users can add $FXS to concentrated liquidity pools without adding money to buy $FXS. This is already true today because there is $5,111,334 of $FXS for sale and $1,295,474 ETH to buy on Univ3. Add example

Opportunity

  1. The FRAX Community can change the formula to include buy-side liquidity of Uniswap v3 in order to create a better risk assessment and understand how the Collateral Ratio should be changed in relation to the Growth Ratio.
  2. Add buy-side liquidity on FXS using ICHI Angel Vaults to help fortify $FXS price and higher Growth Ratio allowing for a lower Collateral Ratio.

Benefits

  1. Better understanding of FRAX protocol health
  2. Directly increase Growth Ratio without placing sell pressure on FXS on AMMs
  3. Enable Lowering of Collateral Factor with more seigniorage to $FXS hodlers.
1 Like
2

This is definitely essential, it seems the current Frax Growth Ratio (a calculation that is fundamental to the way FRAX is regulated/kept “healthy”) is not taking into account concentrated liquidity that Uniswap v3 provides. This opens the protocol up to miscalculations in risks pertaining to liquidity that is putting buying vs. selling pressure on the FXS token. I think this is a pretty simple fix to that problem that can enable to the Frax community to make an agile shift.

In addition, an Angel Vault would enable FXS to protect its price in a downward market and decorrelate from Ethereum when its price (in comparison to USD) has a downward trajectory. Check out ICHI’s performance over the last few months in an overall bear market to understand the incredible upside here! I think this is a win-win and would love to see these two communities grow together and create a partnership.

4

This is not practical as Uniswap won’t allow AMO to be installed