[FIP - 122] frxETH Protocol Fee Structure

Author

Frax Core Developers

Summary

From the total PoS earnings approve 8% protocol fee for FXS holders & 2% of earnings as slashing/operating insurance fund.

Structure:
1.) Minimum of 90% of ETH earned rewarded to sfrxETH vault stakers in the form of frxETH
2.) 8% of earned ETH to Frax Protocol treasury in the form of frxETH. This ultimately will be distributed back to FXS holders.
3.) Slashing Insurance Fund: 2% goes into a fund to cover potential slashing events/unforeseen penalties to cover frxETH deposits to effectively keep frxETH overcollateralized at over 100% CR to cover any possible issues/losses.

NOTE: This structure will have to be modified once frxETH can support independently run validators in v2. There will have to be a validator-protocol split added to the structure. The current structure assumes that the Frax Protocol is the only entity running validators and thus the 8% fee covers the “validator fee” portion. This will not always be the case. For example, Lido’s independent validators take a sizable portion of fees through the PoS yield and MEV/tips.

Background and Motivation

With the release of the frxETH liquid staking system, Frax Protocol now has a standalone system for issuing a liquid staking derivative, frxETH. This token is backed 1 to 1 by either liquid ETH or staked ETH in its entirety without any algorithmic or FXS backing. It is a fully collateralized staking derivative similar to stETH.

This proposal is to approve the initial fee structure of the system for frxETH version 1. The full Frax Ether documentation can be viewed here.

The statistics and live status for validators can be viewed on Frax Facts here.

Voting

  • For: Approve proposed fee structure
  • Against: Do nothing.
4 Likes

All for it, it’s an attractive structure that has proven to work well for Lido so should do the same here.

Would frxETH grow more quickly by directing the 8% to the ETH/frxETH pool in the form of rewards or bribes (instead of directing to veFXS holders)? If so, I’d happily vote for investing the fees instead of more veFXS revenue. Could switch this to veFXS again when withdrawals are implemented with the shanghai upgrade.

This proposal is up for voting here: Snapshot