Fip 24 - RAI AMO

Author: Stefan Ionescu

Summary:

Deploy an AMO lending RAI on Aave v2 or Idle in order to get stkAAVE or a combo of IDLE & stkAAVE rewards as revenue for Frax.

Background & Motivation:

The Frax and Reflexer teams have been in touch for a long time discussing the potential to collaborate. In the past couple of months, RAI has been added to several new markets such as Aave v2 and Idle Finance where depositors can earn token rewards. Specifically, Aave enabled stkAAVE liquidity mining for RAI and Idle recently added IDLE token rewards for RAI depositors.

The difference between Aave and Idle is that Idle lends funds in both Aave v2 and Rari Capital Fuse Pool 9. Thus, Idle introduces more risk while also adding their own rewards on top of the ones from Aave.

This proposal would like to put forward the idea of a RAI AMO which can be used to lend RAI directly on Aave or on Idle and harvest the token rewards offered by these platforms. The main objective is to give Frax a new revenue source while ading a new decentralized stablecoin in the AMO stack.

Would love to get the community’s input on whether this AMO should deposit directly on Aave or use Idle as well as whether you feel this would be a good idea! Lastly, I’d like to mention that Reflexer can help code the RAI AMO to facilitate the integration.

For: Create and deploy a RAI AMO harvesting rewards from lending markets

Against: Do nothing

3 Likes

Hey Stefan!

I am definitely very interested in doing this. I think a few questions some of us would have is what do you think the best way of attaining RAI itself for this strategy would be? Would it be to simply swap out collateral for RAI?

Or would it be more about minting FRAX to purchase RAI? I also saw that you guys had a proposal up for a RAI Curve metapool. I would love to learn more about that since that can be integrated in part of our AMO strategy.

3 Likes

I think swapping collateral for RAI is the easiest way but you need to tell me if it’s the safest one for FRAX. RAI/USDC liquidity is decent on Uniswap v3 and RAI/DAI → DAI/USDC is excellent.

Minting FRAX is more complicated and you still need to do FRAX/USDC → USDC/RAI.

On the Curve side I agree it would be great to get revenue for FRAX from there but keep in mind it will take a while. The RAI Metapool is a custom implementation which will need an audit and testing for a couple of weeks.

3 Likes

love it… let me tag Idle Salome from Idle Finance on this one

Hi Frax DAO!

My name is Salomé, I am a Swiss digital nomad and a member of Idle.finance DAO’s Treasury League. This proposal by @stefan just got caught up in the radar of our community and I decided to jump on board to provide some info and help here.

Lets build money Legos! :jigsaw: :partying_face:

What is Idle Finance DAO:

Idle launched its DAO on December 2020 after the $IDLE release. The Idle community is committed to integrate and build DAO2DAO alliances with the best decentralized communities in the pursuit of strengthening the entire DeFi ecosystem.

On the protocol side, Idle is a DeFi yield aggregator optimizer that interfaces with several of the largest lending platforms (Compound, DyDx, Aave, Fuse), currently on Ethereum and very soon on Polygon. RAI capital within an Idle strategy can be allocated in chunks across several protocols simultaneously to maximize the average returns for depositors.

The tenets of Idle Finance are 4-fold:

  1. Competitive optimization technology (Dynamic Allocation Mechanism),
  2. High security standards (5 audits, $500k bug bounty program and safety criteria requirements for new implementations),
  3. Long track record (battle-tested since mid-2019).
  4. Yield infrastructure for B2Bs (focus on integrations with other DeFi protocols to develop the most secure infrastructure to connect with DeFi yields)

Motivation:

Instead of using a fixed allocation between Aave and Rari Fuse, enabling RAI AMO lending on Idle Finance would give the Frax community the best of both just by letting the Idle protocol continuously monitor these two protocols, and algorithmically allocate funds accordingly. Idle Finance would distribute stkAAVE and $IDLE, of course :wink:

Pros:

  • Idle has recently started a [B2B partner program] to share up to 50% of the generated fees with integrators (e.g. up to $2m annual revenues for $500m routed to Idle). This is an opportunity to benefit from Idle integration and earn protocol fees for RAI deposits that originate from Frax.
    We also have made a profitability calculator that Frax can use to better understand the yields it will get with integration on Idle Finance.

  • Automatic and dynamic rebalance mechanism instead of manual rebalance.

  • stkAAVE + $IDLE distribution. Holding the $IDLE token would give Frax the opportunity to participate in Idle Governance and in (single) Idle’s staking program.

  • Co-marketing activities between Frax, RAI & Idle: From tweets or blog posts covering this partnership to community engagement events such as AMAs.

  • Fostering deeper DAO2DAO alliances.

  • Lower gas fees overhead for Frax protocol

Cons

  • Smart contract risk associated with Idle Finance codebase

The Idle Dev League is always available for any inquiries and support for new integrations in Discord (check for @Dev League tag).

Communications phase

After the integration and testing phases are completed, Idle Finance’s Treasury and Communication & Marketing Leagues would be keen to bring resources, marketing, business development expertise as well as incentivizing online community collaboration.

AMAs hosted on Idle, Frax and RAI Discord, and Tweeter Spaces would be more than welcome :studio_microphone:

3 Likes

Please additionally find the links to the following docs:

Idle’s B2B partner program

Profitability calculator IdleFinance – Profit Simulator for DAOs [Public]

1 Like

Hey Salome! This sounds very cool and interesting. I’ve heard of IDLE Finance before but haven’t checked it out extensively yet. Is this specifically meant to manage the RAI that we might be intaking should the RAI AMO strategy pass? If so, what is the exact part of the strategy that would be managed by IDLE Finance?

I would suggest if you could put this great proposal as a separate thread rather than nested within the RAI AMO proposal, then we can start a proper discussion because we are definitely intrigued.

1 Like

Hellooo!

This is exactly the question I had for someone that knows the FRAX system better. Do you currently onboard new asset for minting ? I see that on the UI, beside USDC all other assets are always grayed out.

This would be a simple and elegant way to improve FRAX decentralization ratio (https://twitter.com/samkazemian/status/1442205999998193665). If the FRAX community likes this approach, what asset should we swap from ? Maybe from the $35m yUSDC or $141m 3CRV since these assets are mostly centralized. Also, I see that they are $12m “Pool USDC”, is that unallocated USDC ? That would be a good start.

On the execution of the Swap itself, I am not exactly sure how technically it would work but the Reflexer team can provide Dev power to work on a proposal contract or something. I am thinking of a long lasting Gnosis auction to get a good price.

Last, the acquired RAI can off-course be allocated to Aave, Fuse, Idle or Uniswap (Uni V3 FRAX-RAI concentrated liquidity :thinking: ?)

Note that the FEI DAO recently did something similar. They acquired about $17m worth of RAI to diversify their PCV with decentralized stable assets.

1 Like

As a quick update: there’s now more than $23M worth of RAI in various DAOs and backing other protocols and we’re getting more requests from other projects who wanna hold it for the long run.

Frax would join a strong fam :cowboy_hat_face:

1 Like

Hi @samkazemian,

Regarding the RAI AMO strategy discussed here, I would like to highlight that Idle Leagues are available to give support to the Frax community for moving forward with this proposal, either on development or communications side.

Since RAI is already integrated within Idle strategies, the implementation process here should be fairly quick. If you have any queries, just let us know!

I think we can definitely take you up on that offer. How can we team up with our dev resources? Feel free to ping me on Telegram @samkazemian to make this RAI AMO happen.

2 Likes

Its great to see this proposal moving forward, the Idle team is available to give support to move forward with this proposal, the TG chat is set up :raised_hands:

1 Like

I’m replying in this thread as it seems there are a few RAI contributors or experts here. Is there any scope for Frax to potentially add RAI as a primary collateral asset, with the end goal of replacing USDC? It seems regulation and the potential for blacklisting that USDC enables could eventually pose a risk to FRAX or the holders of FRAX, and RAI could be well suited as a replacement to USDC.
Frax could function as a stablecoin backed by the best non-pegged but stable decentralized currency, RAI. Making Frax even more censorship resistant and decentralized.