[FIP - 285] sFRAX Governance Proposal

Governance Proposals Miscellaneous
1

Authors

Frax Core Team

Summary

This proposal introduces Staked FRAX (sFRAX) into the Frax ecosystem, allowing users to deposit FRAX stablecoins into a smart contract (Standard ERC-4626) and earn interest (denominated in FRAX stablecoins) on their holdings. Similar to the Dai Savings Rate (DSR) concept, sFRAX focuses on addressing the near-zero duration yield curve of FRAX, providing users with an opportunity to earn passive FRAX stablecoins while contributing to the growth of FRAX supply. sFRAX is not a guarantee of any yield or right to any redemption of on-chain or off-chain assets other than the FRAX stablecoins deposited and earned.

Background and Motivation

The concept of sFRAX aims to bridge the gap in the yield curve of FRAX by offering a low-duration savings option for users in a compliant ERC4626 token standard to integrate into protocols, bridges, cross-chain applications, and other useful places that can hold sFRAX and earn more FRAX stablecoins passively at the “Frax Staking Rate.” This will let users earn interest on FRAX stablecoin holdings without the risk associated with longer-duration onchain strategies. By introducing sFRAX, we envision an enhanced stablecoin ecosystem that encourages users to participate in earning rewards while stabilizing the protocol’s supply dynamics. This move also aligns to promote greater liquidity in the protocol.

Details of sFRAX

The sFRAX contract will allow users to deposit their FRAX stablecoins to earn APR on their deposited FRAX holdings through earning newly minted FRAX stablecoins. Upon depositing FRAX, users will receive sFRAX tokens reflecting their proportional pool share (this is similar to the sfrxETH token). These tokens can be freely traded or transferred, allowing users to manage their yield-bearing assets effectively and for projects to build on top of sFRAX knowing that it is always akin to a yield-bearing FRAX stablecoin token.

Frax Protocol will deposit the generated yields into the sFRAX Vault on a weekly basis. This consistent weekly deposit mechanism ensures that users’ sFRAX holdings continue to accrue APR over time. The source of yield for sFRAX is not static or guaranteed to be from a single strategy. The protocol will allocate part of the revenues it earns from balance sheet deployment in AMOs and RWA strategies to supplying sFRAX yield to set the “Frax Staking Rate.” It will attempt to softly target (but not guarantee) the Federal Reserve Interest on Reserve Deposit Rate (IORB) at all times. If the protocol cannot return as much yield as the IORB, it will always attempt to keep the FRAX stablecoin fully collateralized 100% CR first, then return excess balance sheet revenues to sFRAX at the soft-target of the IORB (other than the current launch period where sFRAX has the current APR).

Voting

  • For: Deploy sFRAX contract and start Staked FRAX Program

  • Against: Do nothing.

6 Likes
2

Love the proposal.
I think its a much needed product and have been looking forward to it.

Question on benefits to FXS holders:
Would some part of the fee from {RWAyield - sFrax yield} go towards burning FXS or providing veFXS holders yield?

2 Likes
3

Interesting idea it seems like a savings rate is becoming inevitable for all stablecoins. I do feel the frax UI and how to earn yield with frax is already quite complicated. Does this make it even more complicated?

Worried about downside for FXS holders. Decreased revenues especially for holders who have already locked is not a great experience.

Overall I think this is the right direction though!

4

When can this be moved to voting?

5

This proposal is up for voting here: Snapshot

6

Thank you for your message and your keen interest in our sFRAX proposal. We appreciate your support and the enthusiasm it has generated.

The sFRAX program does not introduce a direct fee structure. Instead, it optimizes yield after accounting for all costs, ensuring efficiency in Frax Finance’s monetary policies. By design, it doesn’t directly create yields for veFXS holders but plays a crucial role in enhancing the overall stability and attractiveness of the Frax ecosystem.

7

Hey @shaman, Thank you for your feedback. Regarding the user interface for sFRAX, we will provide a dedicated and standalone page for sFRAX, which would be similar to sfrxETH. But please let us know if you have any ideas to make it even more user-friendly, and we will consider that.

Also, we appreciate your concern regarding the potential impact on FXS holders. It’s essential to understand that introducing sFRAX aims to make Frax more stable and competitive in the long term, benefiting everyone. FXS holders’ interests are still a priority, and this strategy is part of a bigger plan for the ecosystem’s growth, indirectly helping FXS holders.