[FIP - 416] Authorizing FRAX Curve AMO for a new pair on Fraxtal (FRAX/dUSD)

Governance Proposals AMOs
1

I. Summary

This proposal seeks liquidity support from Frax’s Curve AMO for a Fraxtal pool between FRAX and dUSD (FRAX/dUSD). dUSD is dTRINITY’s protocol-native stablecoin, fully-backed by an onchain reserve of other whitelisted stablecoins and yieldcoins (e.g., FRAX, DAI, sFRAX, sDAI). Users can mint 1 dUSD permissionlessly by locking $1 of reserve asset in its smart contract.

In preparation for dTRINITY’s December mainnet launch on Fraxtal, we propose authorizing the Frax AMO to allocate $2,000,000 in initial liquidity support for the FRAX/dUSD pool, with half in FRAX and half in dUSD. This will help bootstrap early liquidity for dUSD on Fraxtal, enabling lenders and borrowers from dTRINITY to swap dUSD efficiently with FRAX and other FRAX-paired assets on Curve.

Additionally, dTRINITY will authorize $2,000,000 in initial liquidity from its own AMO to support and scale the pool as needed.

II. Background & Motivation

dTRINITY is the first subsidized lending protocol in DeFi to offer stablecoin loans with interest rebates. dUSD borrowers, specifically, can earn rebates based on their outstanding debt, funded by dUSD’s exogenous reserve earnings (e.g., from sFRAX). dUSD rebates are designed to reduce interest expenses and stimulate borrowing demand, boosting utilization as well as the average yield for lenders. Lenders and Curve LPs also earn liquidity rewards from dTRINITY in the form of dT points, plus FXTL points from Fraxtal, for supplying dUSD. The points will be converted to future utility/governance tokens upon their TGEs.

dTRINITY’s early growth strategy is focused on attracting and subsidizing loopers of top yieldcoins, such as sUSDe from Ethena. Loopers can supply sUSDe as collateral to borrow dUSD at up to 80% LTV and earn ongoing interest rebates. With cheaper access to leverage, they can swap dUSD for more sUSDe on Curve to repeat the loop and amplify potential yield generation.

The process above relies on the FRAX/dUSD pool as the intermediary route to the FRAX/sUSDe pool (dUSD <> FRAX <> sUSDe). Through these pools, loopers will benefit from price stability, low slippage, and less gas fees on Fraxtal.

Ultimately, dTRINITY aims to position Fraxtal as the leading L2 for stablecoin loopers, lenders, and LPs. As dTRINITY grows over time, the Frax ecosystem will also benefit from:

  • Lower stablecoin borrowing costs and better looping yields
  • Sustainable lending and LP yields (including liquidity rewards)
  • More TVL on Fraxtal:
    • Borrowers importing collateral assets like sUSDe from other chains to loop
    • Lenders and LPs importing reserves from other chains to mint dUSD
  • More sFRAX TVL from dUSD’s reserve growth
  • More FRAX TVL from the Curve pool’s growth
  • More fee revenue for Frax from the Curve AMO

Other Important Information

III. AMO Process

  1. Frax authorizes and deploys its FRAX/dUSD Curve AMO
  2. Frax mints dUSD by locking FRAX or sFRAX with dTRINITY
  3. Frax allocates dUSD + FRAX to the Curve AMO
  4. Frax receives Curve LP tokens to stake in Convex
  5. dTRINITY authorizes and deploys its Curve AMO (to be allocated as needed)

IV. Potential Risks & Mitigations

  • Liquidity & Depeg Risks: dUSD is not redeemable directly and can only be exchanged for available liquidity in the FRAX/dUSD Curve pool. This could lead to liquidity constraints when there is more dUSD selling pressure, causing it to depeg. If dUSD trades at a large discount <$1, Frax’s Curve AMO could experience unrealized losses. Potential risk mitigations, in turn, may include:
    • Arbitrage Opportunities: Frax and/or other market participants (e.g., dUSD borrowers, LPs) can add FRAX to the pool or buy dUSD when it trades at a discount to restore price stability and capture arbitrage opportunities.
    • Stability Market Operations (SMO): dTRINITY can activate dUSD buybacks through its Curve SMO to stabilize the peg with full reserve backings.
    • Curve LP Incentives: In addition to dT points and FXTL points, dTRINITY and Frax can explore partnerships (e.g., Curve) to incentivize LPs with CRV and other rewards for supplying liquidity.
  • Smart Contract Risks: Vulnerabilities in dTRINITY’s smart contracts, including dUSD contracts, could lead to potential exploits and losses of Frax’s dUSD holdings. Risks include bugs in the code, governance manipulation, or attacks on integrations with external protocols (e.g., Curve). Potential risk mitigations, in turn, include:
    • Smart Contract Audits: dTRINITY has engaged and completed audits with leading firms like Halborn, Cyberscope, and Verichains to secure its contracts.
    • Bug Bounty Programs: dTRINITY will host bug bounties to reward white-hats with dUSD + dT points to identify and address potential vulnerabilities.
  • Risk Disclaimer: None of this information should be considered financial advice. Past performance is not indicative of future results. Digital assets and DeFi protocols carry significant risks, including the potential for complete loss of funds. View our full risk disclaimer here.

V. Voting

  1. For: Approve the onboarding and activation of the FRAX/dUSD Curve AMO, with a maximum authorized allocation of $2,000,000 initially.
  2. Against: Do nothing.
5 Likes
2

can we have some more detail on how and when this extra liquidity will be released. for example, will this only be deployed once FRAX have deployed the full $2m.

4

Correct. It will be added gradually over time as demand for dUSD grows, i.e., when the pool starts having more FRAX vs. dUSD.

5

will this result in FRAX becoming one of the biggest TRIN token holders after TGE, and give them a good chunk of voting power.

i wonder how FRAX team feels about holding TRIN, or if they would need to sell some of it to fund other parts of their ecosystem. like sharing profits with veFXS holders or supporting CR

6

We haven’t made a final decision but the current team consensus is AMO liquidity (from either side) will not be eligible for points.

7

overall i like the idea.
generally im not to keen on projects asking FRAX to provide the liquidity for their project, but i feel this would benefit both projects equally and the general Fraxtal ecosystem.

i like the fact that dTRINITY is also willing to add an equal amount of liquidity and understand the need for this liquidity to be deployed in a controlled way by the FRAX and dTRINITY teams.

8

It’s not mentioned in the proposal above but I’d like to add that our early strategic partners (other than Frax) plan to commit $1M to acquire sFRAX, mint dUSD with it, and provide the initial dUSD lending supply on dTRINITY. They also plan to commit another $500K as LP in the FRAX/sUSDe Curve pool on Fraxtal to facilitate ongoing liquidity for loopers.

Combined, dTRINITY and its partners are importing $1.5M in new TVL to Fraxtal + issuing $3M dUSD—$2M for dTRINITY’s AMO and $1M for Frax’s AMO—increasing Fraxtal’s total TVL by $4.5M upon launch.

1 Like
9

I’m generally for this proposal but I’m not a fan of making AMOs explicitly ineligible for points, it seems fair for Frax to receive the same number of points as any other LP provider (if that’s 0, I have no problem).

1 Like
10

If this were on Ethereum I would agree that AMOs should be eligible for points, but on Fraxtal currently protocol owned liquidity is a significant share of total liquidity.

What we wanted to avoid is having end-users getting an insignificant share of total points, which defeats the goal of building a community and decentralizing our governance in the long-run.

This point program aims to attract new users and new TVL to Fraxtal, which is already a net win for Frax. We can think of excluding the Frax AMO from points as a way of paying for user acquisition.

1 Like
11

I think we can explore allocating points to Frax’s AMO only and work together with Frax to re-distribute points to users/LPs in a way that aligns with both projects’ long-term stability and growth strategies.

1 Like
12

Thanks Kory - think this is a sensible compromie. As such I would be supportive of this proposal.

13

This proposal is up for voting here: https://snapshot.box/#/s:frax.eth/proposal/0xe5cec17118983ef80f83d21765637a90f3140ed98bbab2d047feafa19b062d4f