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