[FIP - 239] FRAX <> Convergence - Seed investment proposal

Dear Frax community,

We would like to propose a seed investment to the DAO, as our intent as a protocol is to be deeply involved within the Curve/Frax ecosystem.

I. Introduction to the Convergence protocol

Useful links:

Before jumping into the proposal (or the docs), we kindly suggest reading this article that breaks down the entire protocol: Convergers, to the void!. Gm anon, | by Wireshark | cvgFinance | May, 2023 | Medium

Convergence is an agnostic “Convex-like” layer, that aims to be deployed on top of various protocols, starting with Tokemak. In addition to the well-known “Convex-like” behavior of aggregation/optimization of underlying protocols, Convergence also gathers mechanisms inspired from Curve, and Olympus. Gauges and veTokenomics will be used to drive emissions, and a Bonding Program has been established. Using bonds to build Protocol Owned Liquidity (POL) and a diversified treasury will allow Convergence to ensure self-sustainalibity, but also to reward token holders with an intrinsic incentive mechanism that does not rely on underlying protocols’ aggregation.

Overall, Convergence will:

  • Aggregates protocols and operate metagovernance (governance of underlying protocols) like Convex;
  • Operates its own governance and direct emissions like Curve;
  • Issues discounted CVG through bonds like Olympus;
  • Deploys the treasury and rewards CVG lockers.

Below is a brief breakdown of the 3 primary pillars of Convergence.

Starting with Tokemak (https://twitter.com/TokenReactor)Documentation: Convergence for Tokemak - Convergence

Each staking contract will be paired to a gauge and will be able to receive CVG emissions. Staking positions are tokenized. The governance power held by Convergence over Tokemak is delegated to CVG lockers (via mgCVG). Metagovernance will be operated on Snapshot.

For TOKE stakers: deposit and convert TOKE to cvgTOKE. Underlying TOKE are split between regular TOKE staking and TOKE locking (accTOKE). TOKE and wETH rewards are distributed to cvgTOKE stakers (with CVG on top according to the cvgTOKE gauge weight). Convergence will deploy and manage a cvgTOKE/TOKE stable pool on Curve. Various peg-defense mechanisms are planned.

For Liquidity Providers: staking of tAssets (Tokemak’s LP). All tAssets are then socialized in a Black Hole that claims all TOKE rewards in one go once a week. Tokemak’s native TOKE distribution is then overwritten, and TOKE rewards are distributed back to tAssets stakers according to each tAsset relative gauge weight. CVG will be added on top of TOKE rewards, according to gauge weights.

Bonds & Treasury:
Documentation (bonds): Bonds - Convergence
Documentation (treasury): https://docs.cvg.finance/bonds-and-treasury/treasury

We use a 100% homemade bond technology. It relies on a custom and generic on-chain Oracle paired to Chainlink price feeds, that doesn’t allow negative ROI by design. Bonds will be used to acquire stablecoins (FRAX and crvUSD) and Curve ecosystem assets (CRV, CVX, FXS, FPIS, CNC, SDT, TOKE etc). The treasury will then be deployed in the Curve ecosystem on various protocols, and rewards will be harvested at least every 2 weeks. Every 3 months, 80% of these rewards will be distributed to CVG lockers as a real yield, paid in CRV, CVX, CNC, FXS and SDT (FPIS can be added to the cohort). A zap function will be available. Bonding positions, like staking positions, are tokenized.

Locking mechanism (Govearn):
Documentation: CVG Locking - Convergence

CVG lockers govern the protocol, direct emissions, operate metagovernance, and earn 80% of the yield generated by the working treasury. CVG can be locked up for a maximum of 96 weeks (almost 2 years). Locking positions are tokenized as an NFT (ERC-721).

When CVG is locked, three locking primitives can be created:

When a user creates a locked position, he can choose to lock CVG for veCVG and/or ysCVG. The percentage of CVG that will be allocated to compute both amounts can be customized for every position (50/50, 80/20, 0/100, 100/0…). Locking to veCVG will generate mgCVG. Locking to ysCVG only won’t generate any mgCVG. In other terms, users who lock CVG will have to arbitrate between governance and profit sharing, governance being represented by veCVG/mgCVG, and profit sharing by ysCVG. Delegation has been established for each primitive.

Tokenomics: Tokenomics - Convergence
Diagram of the financial flows: Financial flows basics - Convergence

II. Interactions and direct synergies with Frax

Every protocol holding TOKE will be airdroped, proportionally to its TOKE holding. Therefore, Frax will be receiving the highest allocation among DAOs holding TOKE.

DAOs allocations will be distributed at launch, in the form of full governance locked positions (100% veCVG/mgCVG), to incentivize governance participation.

Frax protocol participants will also be able to claim an individual airdrop after launch (TBD).

tFRAX and tFXS holders will be able to stake their tAsset within Convergence, to earn CVG in addition to TOKE.

And easy-to-go UX will allow direct deposits of FRAX and FXS on Convergence, instead of tFRAX and tFXS.

Emission direction:
veCVG holders will be able to direct both TOKE and CVG emissions to the tFRAX and tFXS staking contracts. The fact that Convergence overwrites native TOKE rewards will allow TOKE emission to be directed through gauge votes, which is not possible natively on Tokemak.

Bond offering:
Users will be able to buy CVG at a discount against FRAX and FXS.

Treasury rewards:
ysCVG holders will be able to receive FXS (and potentially FPIS) as rewards earned from treasury deployments.

Metagovernance and rewards:
By holding locked positions, Frax may be able to:

  • direct CVG emission to staking contracts;
  • hold governance power over multiple protocols;
  • earn CRV, CVX and CNC, extending Frax influence over the Curve ecosystem.

We are raising on-chain, and we accept DAI and FRAX only (contract: https://etherscan.io/address/0x06feb7a047e540b8d92620a2c13ec96e1ff5e19b).

In the future:
After Tokemak, we have 3 additional aggregations planned. The work for the 2nd one is already in progress, and the code should be done within a month. These 3 aggregations target protocols that are heavily involved within the Curve ecosystem. Once all 4 aggregations will be done, the DAO will vote to choose which protocol should be integrated next.

Each aggregation will have direct interactions with Frax. The 2nd aggregation will allow Frax users to stake liquid derivatives of veFXS and veFPIS, while enjoying boosted bribe yield, in addition to CVG incentives on top. It will also be possible to stake Curve LPs, such as frxETH/ETH or FRAX/USDC, to earn boosted yield, and still, CVG incentives on top.

It is also possible to imagine a direct Frax integration within Convergence, built on a different model than those made by Convex and Stake DAO. Such an aggregation would require sufficient voting power on Curve, to be properly bootstrapped.

Overall, our goal is to create a symbiotic relationship between Frax and Convergence, that would be similar to the one between Frax and Convex.

III. Security

Testing process:
Prior to audit, we conducted an extensive testing program, using our own private testnet. In a few words, we forked the mainnet and we deployed an Etherscan-like solution on top called Ethernal. Then, we established test scenarios, that we played directly on the frontend. The purpose of this testing process was mostly to ensure that the logic was right, and that the code was behaving as expected.

More infos in this article: Testing Sagittarius 0x*. Gm Convergers, | by Wireshark | cvgFinance | May, 2023 | Medium.

The code is being audited by Halborn (https://twitter.com/HalbornSecurity) since the 24th of April. According to them, the audit should be finished by the 9 of June. So far, they didn’t identify any critical issue.

Audit competition:
Once the audit with Halborn will be fully finished (a few return trips are possible to correct potential problems after reporting), we will launch an audit competition on Hats.Finance (Hats.finance - decentralized cybersecurity bug bounty protocol).

IV. Terms

Seed FDV: $19.5M

Vesting: 120 days cliff, 5% released post cliff, followed by a 15 months linear vesting, with releases every 45 days.

We are proposing a $100,000 investment, made with FRAX. It would represent 769,230 CVG (0,51% of the total supply).

Most notable investors:
Kaizen DAO (https://twitter.com/kaizen_dao), NGC Ventures (https://twitter.com/NGC_Ventures), Prismatic Capital (https://twitter.com/PrismaticCap), Blockhub DAO (https://twitter.com/BlockhubDao), deWhales Capital (https://twitter.com/DewhalesCapital), MrBlock (@mrblocktw) and a core team member of Curvance (https://twitter.com/Curvance).

Thanks for reading.

Positive-sum project. Would be good to have a stake in it imo. :+1:

This proposal is up for voting here: Snapshot