Authors
Frax Core Team
Summary
This proposal is to onboard and activate an AMO that lends FRAX to Morpho Blue. Authorize lending AMO to deposit minted FRAX into the following Morpho Blue pairs with the mentioned max authorized allocation.
| Asset |
Collaterals |
Max Authorized Allocation |
Lending Market |
Risk Manager |
| FRAX |
sUSDe, USDe |
200,000,000 FRAX |
Morpho Blue / MetaMorpho |
Re7 and TBD |
Background and Motivation
Morpho Blue is a decentralized protocol that facilitates overcollateralized lending and borrowing crypto assets (ERC20 Tokens) on the Ethereum Virtual Machine. The protocol, designed as an immutable smart contract, serves as a trustless base layer for lenders, borrowers, and applications, with risk management layers provided by MetaMorpho.
Re7 Labs, specializing in DeFi R&D and liquid crypto investment strategies, and other firms (to be determined) are collaborating with Morpho Blue to provide risk management services through the MetaMorpho vault system, enhancing risk management and lending vault capabilities.
Algorithmic Market Operations (AMOs) make FRAX one of the most potent stablecoin protocols, creating maximum flexibility and opportunity without altering the base stability mechanism that made FRAX a leader in the stablecoin space. So far, we have deployed multiple AMOs, including lending AMOs on the Fraxlend, Aave, and Gearbox protocols.
Proposal Details
This proposal involves minting FRAX and depositing it into designated MetaMorpho Vaults that exclusively use sUSDe and USDe as collateral assets. The maximum authorized allocation for this action is set at 200 million FRAX. Frax AMO will initiate this process by allocating FRAX into the Re7 Vault within MetaMorpho, starting the integration of FRAX into Morpho Blue’s lending markets. This strategic allocation aims to enhance liquidity and utility for FRAX within the Morpho Blue ecosystem while leveraging Re7 Labs and other future risk management firms’ capabilities within the MetaMorpho vault system.
This integration will expose FRAX to the high demand for borrowing against sUSDe and USDe within Morpho Blue’s lending markets, thereby increasing Frax’s market share and further solidifying its position as a leading stablecoin protocol.
Voting
2 Likes
Seems like an interesting proposal, that can be beneficial for both parties. Does the core team have any due diligence done into Re7 and the Morpho protocol? Can we get a statement on their perceived risk level?
Hi FRAX community! Re7 Labs team here with some background on us and the Re7FRAX vault. We can post further analysis and field questions from the community as needed.
Re7 has been providing liquidity in DeFi since 2019 having deployed over $100m of assets. We bring practical experience to risk management from years of managing stablecoin and ETH yield strategies as well as further strategies like our Liquid Token fund. As DeFi-native managers, we have focused on enabling yield strategies, providing early liquidity to various DeFi protocols, and have worked with teams throughout the space on a close basis to grow DeFi liquidity while managing risk.
From our experience deploying capital we bring a unique perspective to risk management as practitioners and power users of DeFi. We have built extensive tooling to provide a deep view into risks in the market including liquidity monitoring, price alerts and a large suite of custom analytics tools. This has allowed us to stay on top of the ever-changing DeFi market, and we bring this expertise as curators of our MetaMorpho vaults.
In addition to leveraging our experience for risk management, we bring an extensive rolodex of DeFi teams and have worked with over 500 projects across DeFi for liquidity provision and advisory. This has involved deployment on over 15 chains and dealing with all kinds of conditions within DeFi.
We have been a curator for MetaMorpho vaults since the launch of Morpho Blue. This includes our initial Re7WETH vault that allocates to various ETH denominated markets and has over $20m in TVL. We also recently launched a USDT vault that allocates to sUSDe and USDe markets, so are very familiar with these assets and potential risks.
We have been strong supporters of FRAX for years as an LP and are excited about taking this partnership further. Morpho Blue and the MetaMorpho vault system provides some powerful advantages for a protocol like FRAX with an AMO allocation. We think the Re7FRAX vault, allocating to the sUSDe/FRAX and USDe/FRAX markets, will be a good risk-adjusted yield for both the AMO and FRAX holders.
I read through the blogpost, website and also checked Morpho Blue. Nowhere could I find information on what risk profiles Frax will take on by onboarding Frax as an AMO on Morpho. I understand you have high risk understanding, but how will that be shared to the Frax ecosystem? How can I as a FXS holder access that information which is relevant for our protocol? Also how can we review your ratings to make sure they are not skewed (protocol getting higher ratings than deserved, or not following your own methodology)?
This proposal is up for voting: Snapshot
Thanks for your comments. Note that the DeFi ratings and other points in the above post are just to give some background on Re7 Labs.
Regarding the Re7FRAX vault, for now it will only be lending to USDe and sUSDe markets in line with this proposal. If the community wishes to add other collateral assets at a latter date, we are happy to evaluate these.
The USDe/FRAX and sUSDe/FRAX markets on Morpho Blue and the Re7FRAX MetaMorpho vault are set up very similar to the Spark DAI vault that MakerDAO is using to get exposure to sUSDe and USDe yield.
The goal for Re7FRAX is to get an improved yield by allocating at a slightly higher blended LTV. You can see the current supply caps per market here:
The risks associated with this strategy have been discussed at length in various venues. A good summary is available here from the BA Labs team. We have independently reviewed Ethena and come to similar conclusions with regards to the risk and mitigation available by using Morpho Blue to achieve this exposure. We will of course be monitoring the markets and assets to make relevant suggestions as needed.
Let us know any other questions you may have.
1 Like
Thank you, the link you provided gave me the knowledge I sought and wanted to understand. I have one more question if its okey. Do you have any reports/works like the one you linked to showcase some of your work? Mostly because I am curious and want to learn more.
Other than that, good job and wish you luck in the voting.
1 Like
