FIP 30 - Create a gauge for ETH/Frax Put Selling Option Strategy on Stake DAO

Hey everyone,

After the strong success of the Stake DAO FRAX Strategy Gauge, which now holds close to FRAX 25m, we would like to suggest adding a gauge related to their latest ETH / FRAX put selling option strategy, made in collaboration with Opyn.


Add a brand new Stake DAO ETH/FRAX put selling option strategy Gauge

Background & Motivation

Our Stake DAO partnership has been mutually beneficial since the beginning and allowed both parties to increase TVL and Frax’s market cap. Stake DAO has voted for the Frax gauge with 100% of their vote on Curve since the beginning of the partnership in June, while we allocated nearly $80m of our AMOs to Stake DAO.

They have recently released an ETH/FRAX Put Selling Strategy which generates outsized yields by selling ETH put options, collateralized by LP tokens of Stake DAO’s Passive FRAX strategy (sdFRAX3CRV not staked in the current gauge), and reinvest the yield it earns back into the strategy, allowing for a compounding effect over time. Therefore, this strategy provides liquidity on Curve’s Frax pool, which is valuable to FRAX as it contributes in stabilizing the peg. You can read more about the ETH/FRAX Put Selling Strategy in this medium article.

Even before any incentives this strategy is expected to generate 80% APY (first week achieved APY: 108%). Similar strategy on based on yvUSDC has more than $50m of liquidity for a much lower APY. If this strategy was incentivized with FXS and SDT, we believe it would bring significant liquidity to Frax to the Curve pool. With no gauge, this strategy will be less profitable than the Passive Frax strategy which makes no sense in terms of risk / return.

Introducing a gauge for Stake DAO’s ETH/FRAX Put Selling Strategy would be profitable for the DAO as :

  • It will create an unexplored use case for FRAX users by providing them access to the derivative market while solving the gas costs issues of trading options
  • It incentivizes more FRAX liquidity on Curve since the strategy accepts FRAX3CRV LP as a deposit for the strategy
  • It will increase the attractivity of Frax since it is a strategy that does not exist for any other stable coin
  • It offers users a new risk profile: no impermanent loss risk but volatility risk on Ethereum. If the strategy is successful, a similar strategy with BTC will probably be envisaged
  • Stake DAO can further incentivize this gauge with SDT rewards, to add an additional layer of rewards for users
  • It will allow us to further tie our relationship with Stake DAO

To add further SD and Frax are collaborating on Fuse pool 27 - using it as a shared pool for Frax and SD assets to enable lending markets.

In the future rewards could be disbursed here or integrate lending into strategies to attain leverage