FIP 22 - Olympus Bond Program with FXS

Author
Sam Kazemian, Frax core devs, & input/feedback from Ohmies in the community (jawz, Wartull, Zeus, and other big Ohmies)

Summary

Liquidity for FXS is key for the Frax Ecosystem. However, this liquidity can come at a steep price due to the emissions needed to sustain that liquidity. We only have 1 truly FXS liquidity pair which is the FRAX-FXS incentivized pair. Recently we have been accruing ETH on the balance sheet for FXS-ETH LP per governance vote. This governance vote is to further our collaboration with the Olympus community to become founding users of their Olympus Bond System for balance sheet accrual of FXS-ETH SLP bonds.

The Solution

We are proposing an FXS bond program in partnership with Olympus. We will offer 90K FXS each month available for purchase via bonds. These bonds will be targeting an FXS/ETH pair on Sushiswap. This LP will be locked into the balance sheet of the protocol counted as assets similar to our other assets like CVX, ETH, etc. This can will help us build a permanent liquidity for FXS (first as SLP on Sushiswap but redeployable with governance to other places/L2s etc if necessary).

With the accumulated LP tokens from the sales of FXS bonds, Frax will also have the ability to farm additional tokens with a potential Onsen allocation as well as earn fees on top of the acquired LP. For example, Olympus earned around 2.5m in fees in their first 4 months.

Implementation: In essence, Olympus is offering it’s bonding program to Frax through its Bond product pilot for protocols that have a direct relationship with the DAO. This would include having the UI built for this program, helping us set everything up, and continuing to maintain the parameters for the program. In exchange for their support and expertise, Olympus would take a 3.3% fee on all FXS bonds sold. Olympus will use the FXS they earned from their fees as extra backing for OHM, which would help to reduce the circulating supply even further since it will be locked in their treasury. They have also expressed interest in locking this FXS as veFXS directly if they are whitelisted so the FXS fees could go directly to furthering Olympus DAO’s extra alignment with Frax.

Olympus bonds offer the FXS at a discount to the user for providing SLP tokens. This discount will be closely monitored and can be considered as a success factor where this would preferably be less than 10% on average (Olympus bonds have an average of 6-7% discount).

These FXS bonds will have a two week linear vesting period (14 days). This is to ensure that discount buyers can’t immediately flip their positions because they typically will be buying at a discount. The FXS bonds will continually vest, so you will be able to make partial claims before the vesting period is over if you want to sell, farm, or LP with the FXS.

Conclusion:
We propose to be founding partners in this program to further our collaboration with Olympus and accrue balance sheet assets for Frax in the form of further FXS-ETH liquidity. This also opens up the opportunity to bootstrap other pools if/when needed through this program and further align the communities of both Frax and Olympus.

EDIT: I think after a lot of discussion, we want to propose the final pair of this program being FRAX-ETH SLP bonds rather than FXS-ETH SLP bonds. Please see discussion post.

4 Likes

as an ohmie and a fraximalist i fully support this

I look forward to buying some fxs-ohm bonds <3

This is an interesting proposal, but I don’t see the benefit of this versus just putting the FXS straight into the LP position.

How does the frax protocol benefit by giving people a discount on FXS?

collecting ETH was meant to have a re-vote by now.

i dont see why anyone would vote no, but we did vote for it to only be a 60 day trial and a re-vote should happen.

Don’t be such a beaurocratic stickler. This is what killed MakerDAO, too many cooks in the kitchen. Let the big dogs do what they do best and just vote yes or no like a good shareholder.

I’m having some trouble imagining exactly how this works; maybe walking through the first 2+ months of expected flows would be really helpful?

What I think I understand: treasury sells 90k fxs / mo at a ~10% discount (locked/vested to prevent quick flips) in return for fxs-eth slps. The slps then sit on our balance sheet.

I’m sure I’m missing something but I’m imagining the alternative is just… buy the slps directly? What does outsourcing the process to a third party for a ~10% fee get us?

1 Like

i did vote, and im asking to get what we voted for. if not whats point of the last vote if we are not going to stick to the proposal anyway .

Can you put the snapshot up for re-vote? It’s not permissioned and anyone’s allowed to put it up. As you said, it was meant for a re-vote so you (or anyone) can create the proposal and reference the FIP.

This is a legitimate point, but I think that a bond system does add value to at least try when comes to getting balance sheet expansion. We could technically mint FRAX against the FXS-ETH LP since the ETH side of the LP is collateral which increases the CR. As long as the protocol is making more yield on the FRAX minted+LP fees+ETH appreciation than the bond discount, then it is profitable for the protocol to do this.

For example:
Protocol sells $10,000 worth of FXS-ETH SLP bonds with 10% discount. That means it receives $9,000 of FXS-ETH SLP. $4,500 of that is in ETH which is collateral that raises the CR. If we assume that the CR is 80%, we can mint 4500/.80=5625 FRAX against that collateral. If the protocol can make more than $1000 on yield/value on the minted FRAX+SLP then it will have been profitable for the protocol.

3 Likes

Balance sheet expansion makes sense - bonds at a lower discount 6 or 7% would be a clear win for us. In any event being part of the first cohort in Olympus Pro is very important from a community and growth perspective - if we aren’t happy with how it is proceeding we can revisit later.

1 Like

We’d likely get significantly more buying done by retail instead of having to do it all with protocol funds. FXS might take a tiny hit (if at all) but we’d also end up with PERMANENT protocol owned FXS-ETH liquidity bought by retail investors.

1 Like

in Mark11’s EIP- 9, we voted for people to get paid for putting up EIP proposals.

Mark11 proposed the idea of the ETH buy backs and the 60 days trial and due to EIP -9 being voted in he was paid for this EIP-14 proposal (which was also voted in).

so why is it that when i mention something that still needs to be done im told to go and do it myself? why not get the person whos been paid to do it , to do it ?

also why are we setting a precedent of not doing what was voted for and attacking the people that point it out ? i kinda makes voting a bit pointless if it ends up being “vote or what we want and we will do it, vote for things we dont want and we will tell you to do it”

I think what @samkazemian is saying is that this is a decentralized protocol and if you see something that needs to be done you should jump in and do it - rather than always expecting the core team to put up proposals.

Each FIP stands on its own, in terms of the bounty for proposing a FIP - if someone was to propose another FIP to continue the trial then they would be entitled to another bounty - the easiest $500 bucks you’ve ever made. People aren’t paid to make a FIP but if they do make one and it is successful the effort is recognized with a small bounty - that is the extent of the relationship.

FWIW neither I, nor Captain, ever sought or received any bounty for FIP-14 - but if you note the proposal it is authored by both myself and Captain (who was the first person to get off their butt and make a draft in the forum).

2 Likes

ok, so i posted a EIP-14 extension vote. i have made it so we are voting for an unlimied time frame so no re-vote is needed.

i may have messed the time up a bit as its not live for a few hours, and i cant be bothered to look up the time frames so i just set it for 1 week .

i have a new thing to moan about now so that should put the 60 day voting thing to rest.

and now i will keep moaning until you get your share of the 100 FXS

After thinking a lot about this, I think it’s a great idea to try the first bond program as FRAX-ETH LP rather than FXS-ETH LP. I explained this in the Telegram channel more clearly:

So we sell FXS at a discount but accrue FRAX-ETH instead of FXS-ETH. I think I’d propose the final bond program being that instead of what it is currently because at least if it is FRAX-ETH then the bonds at least create some kind of contractionary supply reduction of FRAX which can be used as a stability mechanism when necessary.

That should address a lot of people’s comments in the gov forum post about the discount rate on the FXS. At least if it was FRAX-ETH, then the discounted FXS is being used to stabilize FRAX price (since people have to buy FRAX and return it to the protocol as a FRAX-ETH LP) for the discount FXS price.

I think this is the final pair we should go for. Note that I am not against trying the other pair but as others have said, it makes less sense to sell FXS at a discount for FXS-ETH LP when we could just sell FXS itself.

3 Likes

After talking it over a lot with the Olympus Pro guys and getting more feedback from our fraximalists, I think the it’s definitely the best move to put the snapshot vote for FRAX-ETH LP bonds instead of the original proposal FXS-ETH bonds. If there’s any feedback on this change, feel free to post.

1 Like