Debt DAO <> FRAX Proposal

Create a Debt DAO AMO to mint $2.5m FRAX in order to fund Redacted’s credit facility.

Coming on the heels of the 4pool announcement, this opportunity would further cement the partnership between Frax and Redacted. We view this opportunity as supplemental to the Frax ecosystem & a case study for the future FraxLend product.

To our knowledge, this represents the first ever debt financing round for a DAO.


Debt DAO is building a marketplace for sophisticated debt products created specifically for DAOs. We are launching debt products based on trustless revenue-based financing via our Spigot smart contract. The Spigot allows borrowers to collateralize loans with future revenues. Lenders have confidence that their loan is backed by verifiable on-chain revenues. Borrowers gain access to the most flexible, low-rate debt with no upfront collateral.

As we bootstrap the marketplace, we are securing LP capital from strategic groups. We view Frax as highly strategic to our offering. In our existing setup, we are using a multi-sig to facilitate the flow of funds between lender & borrower. After our seed round closes this month, our smart contracts will be audited before deployment.


Debt DAO is asking Frax to contribute $2.5m to Redacted’s $5m loan. This will be structured as a credit facility. Redacted is keen to partner with 2 DAOs with the allocations split as follows:

  • $2.5m FRAX from Frax
  • $2.5m UST from Terra
    • Terra’s commitment has already been received in the Debt DAO multi-sig.

The TL;DR version for the terms of credit is:

  • 6 month term for up to $2.5m in FRAX
  • 9% APR on drawn balance; 2% on committed but undrawn balance
  • No upfront collateral
  • Repayments to be made out of vlCVX bribe income and Convex farming rewards from Redacted’s treasury

Detailed terms of the facility can be found here: Credit Facility Details

Credit Highlights

  • Through a partnership with Credmark, we have combined on-chain transaction data with block-rewinding to get the historical state of the chain. This process validated Redacted’s vlCVX bribe income and Convex farming rewards.
  • Attractive loan to DeFi’s premier meta-governance DAO, secured against cash flow from leading DeFi yield sources which have become essential infrastructure for all protocols (Curve and Convex). The numbers below assume a $5m loan.
  • Modest opening gearing (~9% debt to total treasury assets) and leverage (~0.3x debt to last-3-month run-rate income)
  • Strong protocol cash flow de-risks lender in meaningfully shorter period than tenor of loan
    • vlCVX bribe income and Convex farming rewards generated by Redacted’s treasury are sufficient to repay the loan in 3-4 months (vs 6 month tenor)
    • Cash flow from treasury is sufficient to pay off the loan even at a ~16% APY on vlCVX bribe income (vs significantly higher historical APY)


  • As part of the loan, a FRAX/BTRFLY pool on Uni v3 will be created.
  • Assuming the full facility is drawn, there would be $5.0m of Uni v3 LP. This will increase liquidity on different platforms and allow smaller buyers to trade with lower gas fees.
  • The notional amount drawn from the FRAX loan by Redacted must be matched with a 1:1 deposit of assets into FRAX/BTRFLY Uni v3 LP. Both Redacted and Frax will deposit assets to the Uni v3 LP.
  • As an example, a drawdown of 500k $FRAX would require Redacted to deposit $500k BTRFLY and Frax to deposit $500k FRAX into Uni v3 LP.
  • Once the loan is over, Frax and Redacted would commit to keeping the pool deployed & each owning half of the pool.
  • Redacted will use Aloe Capital to manage the Uni v3 position. Aloe Blend manages liquidity on Uni v3 with the rolling hills strategy. Assets that would otherwise be idle are deployed to yield earning strategies to increase LP returns.
    • Aloe Capital would use a rolling hills implementation to manage the v3 position so it provides at least the same amount of liquidity as a Uni v2 position at $5m of depth.
    • You can use this simulation to show how a BTRFLY/FRAX Blend Pool would have performed over the past few months:
    • For more info on Aloe, please see here as well as their audit report.
  • Redacted intends to create a gauge on veFXS to use their veFXS emissions to direct rewards to their pool which would drive even more rewards to Redacted.

Next Steps

We would love to hear from the FRAX community regarding any questions or concerns & look to finalize this through a FRAX snapshot vote. We are very excited by the potential of a promising partnership between innovators in DeFi.


For: Create a Debt DAO AMO to mint $2.5m FRAX in order to fund Redacted’s credit facility

Against: Do nothing

1 Like

Am I correct that this proposal has two parts:

  1. A $2.5M uncollateralized loan for 6 months.
  2. A $2.5M perpetual commitment from Frax to provide BTRFLY-FRAX liquidity.

So the total ask is $5M, where half will be paid back after 6 month.

Hey, that is correct. The idea behind the commitment from Frax to provide BTRFLY-FRAX liquidity is to increase the number of trading pairs denominated in FRAX stablecoin. Volume on Uniswap is currently in the BTRFLY-ETH pair & BTRFLY-OHM on Sushiswap.

Open to hear your thoughts and feedback on this point.

BTRFLY is heavily inflationary with its staking APY of 1800%. That means that providing liquidity for the FRAX-BTRFLY pair is likely to cause a lot of IL.
xBTRFLY on the other hand is not inflationary, so it would be better if Frax would provide the liquidity for the FRAX-xBTRFLY pair. Is xBTRFLY a rebasing token? In that case it needs to be wrapped to safely use it in AMM’s.

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providing liquidity with a token that has massive inflation seems like burning money, unless the tokens in the LP are still earning the inflation rewards.

@cwalk @Denett @sparkes25 - I think a similar mint and sync function as proposed here might be a good solution - it essentially allows retention of rebases by the LP. I mentioned elsewhere my opinion that I think it is overall better for DAO’s to own their own liquidity - and Frax can assist by providing it upfront and the DAO can use the TWAMM to repay Frax over a longer period time. This is a nice package none the less imo.

Bullish Debt DAO also very keen to work with them and Redacted wherever we can - BD is very hard and I expect a lot of work has already gone into this package from the various teams - we appreciate it!

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Same here! It would be really cool if we get this together.

Not sure if this technical solution works for the proposed Uni v3 strategy.

FraxSwap on the other hand has implemented the sync() function so that would work just fine.

Redacted could then also use the TWAMM to do more efficient bonding. Instead of offering Olympus style bonds with a steep discount, Redacted could sell BTRFLY via the TWAMM at the market price for FRAX. If they prefer to hold other assets, they can then use the TWAMM to buy these other assets with the FRAX from the first TWAMM.