Downsize AUSD Position

Governance Proposals
1

Authors:
Michael Henry

Overview
Frax is holding a significant amount of AUSD on it’s balance sheet that is owning a very insignificant amount of interest. Frax should diversify away from holdings like AUSD that are both lliquid and low-interest generation.

Position Overview:

As of this post, the two existing positions are:

  • AUSD directly held: $13,671,498. Earning 0% APR.
  • AUSD staked in Convex FRAX/AUSD: $938,087. Paired with $3,049,200 FRAX. Currently earning 1.53% APR.

Combined that makes the amount of money allocated towards AUSD $17,658,785. With $14,609,585 of that being held in AUSD. As of this moment, AUSD has a total market cap of only $35,293,935, meaning Frax holds 41.4% of all issued AUSD.

Relative Position Size:
FRAX has a total of $31,007,134 Owned USD, so 41.77% of all Owned USD is currently allocated to this illiquid USD asset.

Owned USD
In my opinion, there are two conditions under which Frax should own USD directly:

  1. Defend the FRAX peg: Be ready to convert the owned USD to FRAX if FRAX depegs or be deployed in stablecoin pools that maintain the peg.
  2. Earn Yield: Be deployed wherever FRAX can generate the highest yield.

AUSD does not satisfy the first condition because it’s market liquidity is nearly non-existant outside of the liquidity provided by Frax – Frax owns 86.84% of all Ethereum Curve AUSD Liquidity.

AUSD does not satisfy the second condition because it is earning under 2% APR.

Closing Thoughts
FRAX is sprinting towards 100% CR and needs to hyper-optimize how it allocates it’s funds and make sure that no money is being inefficiently supplied.

Voting:

  • For: Reduce the AUSD position to a maximum of $1m AUSD and $1. FRAX.
  • Against: Keep existing AUSD allocations
2

I just want to make clear that the AUSD we hold is earning nearly 5% through FinresPBC (Frax’s RWA entity) so the first bullet point is not accurate. AUSD is a yielding asset that comes from tbills in a bankruptcy remote structure with Van Eck as the treasury bill custodian.

Additionally, Agora cofounder @drakeevansv1 was lead architect and developer of Fraxlend with us so the project is extremely Frax-aligned and has plans to launch native Fraxtal AUSD that is mintable/redeemable for fiat in the next few weeks.

All this is important info missing here that I think might have just been misunderstood. There’s a lot of value the Frax+Fraxtal ecosystem is getting from partnering with Agora in a positive sum manner, especially given the strong Frax-alignment of Agora/Van Eck that can’t be only quantified by yield numbers (although as said above, we are receiving the yield no question).

3

Thanks for taking the time to respond Sam and clarifying the yield earned by AUSD and adding partnership details. Drake Evans had made it sound like we weren’t earning any interest earlier in the week: Telegram: Contact @fraxfinance

Even considering the 5% yield being generated by the AUSD, I still think we should reallocate those assets towards the Fraxlend AMO which is has proven itself capable of generating decentralized yields of 8+% while increasing the utility and amount of Frax-issued assets like sfrxEth. I also still have significant concerns around being the majority liquidity provider and owner of any non-Frax owned asset.

However, considering the alignment between the two protocols and Agora’s commitment to launching on Fraxtal, I’d like to recommend changing the For vote to: “Reduce the AUSD position to a maximum of 10% of AUSDs market cap or $5m, whichever is lower”.