Author
Samuel McCulloch
Summary
Gearbox Protocol V2 has launched a few days ago, already attracting significant TVL [with GEAR incentives as one of the supply distribution stages]. Frax should add Gearbox passive pool side to its AMO whitelist to deploy treasury assets for the LM event and continued yield generation.
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GEAR that is earned as reward for passive LP mining should not be sold. Earned GEAR will be used for boosting/voting - when/if Gearbox DAO decides to implement tokenomics.
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Initial max FRAX cap deployment should be $2M. Not all must be deployed immediately. Once the cap is hit, a new vote should be taken to determine if the cap should be raised.
PS: it’s important to note that the active [leverage aka Credit Accounts] side of Gearbox Protocol already has Frax3CRV and FraxUSDC integrated across Curve-yearn-Convex, meaning Gearbox DAO is already a friend of Frax DAO and supporting us from the start.
What is Gearbox?
Gearbox is a generalized leverage protocol. It has two sides to it: passive liquidity providers who earn low-risk APY by providing single-asset liquidity [that is the target of this [proposal]; and active farmers, firms, or even other protocols who borrow those assets to trade or farm with even x10 leverage. Essentially, those farmers-borrowers are the protocol utilization that bring organic APYs to lenders next to GEAR emissions.
Gearbox Protocol allows anyone to take DeFi-native leverage and then use it across various (DeFi & more) protocols in a composable way. You take leverage with Gearbox and then use it on other protocols you already love: Uniswap, Curve, Convex, Lido, etc. For example, you can leverage trade on Uniswap, leverage farm on Yearn, make delta-neutral strategies, get Leverage-as-a-Service for your product, etc.
Some fresh helpful info:
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Their V2 product/protocol update with code open [medium article]
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Their Leverage Ninja guide, aka how composable leverage works [medium article]
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General user docs [gitbook link]
Security and risks
Gearbox is founded by @0xmikko_eth [with @ivangbi as the shitposter] and has undergone several audits. Now, their protocol has no EAO admin signatures and is managed by a DAO-enacted multisig with known founders in there 6/10. More information on Audits, including their recent top-tier audits with ChainSecurity, Sigma Prime, and Consensys Diligence - can be found here: Audits & Bug Bounty .
As for the security of passive LP side, which is the topic of this proposal, it depends on several factors:
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As with any lending protocol, third-party liquidations must work. They are open to anyone, here is more information in their docs with the link to the V2 liquidator bot anyone can copy and run.
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Related to the point above, LTVs of assets and assets themselves need to be safe & sound. Gearbox DAO has recently voted for the new batch of V2 assets, and also has an engamenent with Risk DAO. Their LTVs for long-tail assets seem extremely safe, and the composition of farms [Curve-Convex-yearn-Lido] include only the safest of the protocols. See those details here. So the common saying “you are only as safe as your weakest link” seems to be addressed here.
Step-by-Step
Just one step really:
In case this proposal goes through → I have touched base with some Gearbox contributors, and confirmed that they have a plan to open a separate FRAX pool [next to the current 5 passive pools] - with some GEAR emissions into it. We would then simply need to supply FRAX into that pool then.
Interesting considerations for the future
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Since Gearbox Protocol is doing so much with composability, it’s possible that in the future some assets or contracts could not be desired by Frax DAO. In that case, we could ask for a separate Pool/Credit Manager setup whereas we would ask what risk we are comfortable with. Modular!
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Gearbox Protocol could become our avenue of integrations with other protocols, while isolating our risks and not having to build direct integrations. As such, we could increase the AMO cap as that FRAX liquidity would (a) bring revenues from leverage borrowers to Frax DAO (b) support FRAX liquidity across DeFi protocols as our APYs remain consistent and strong.
Voting
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FOR: Authorize up to $2M FRAX for the Gearbox AMO to deposit treasury funds into. GEAR rewards will not be sold and will be kept for further protocol-to-protocol usage.
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Against: Do nothing.