[FIP - 428] Frax North Star Proposal - V2

Governance Proposals
17

Frax North Star Proposal - V2.1

Authors

Frax Core Team

Summary 2.1

This proposal seeks to implement the upgrading of FXS, the Frax North Star Hardfork, the Tail Emission Plan, and the Flox Capacitor Boost. The proposal includes:

  • Renaming of the original FRAX token to: Legacy Frax Dollar.
  • Renaming of FXS to FRAX: will unify branding efforts and reduce confusion.
  • Renaming of veFXS to veFRAX: in line with the other renamings.
  • North Star Hardfork: FRAX (prev. FXS) will become the gas token on Fraxtal, replacing frxETH. It will also facilitate setting up ETH2-like validators in a future update later. This will provide even more utility for the FRAX (prev. FXS) token.
  • Tail Emission Plan: Introduces 8% yearly FRAX (prev. FXS) emissions, dropping 1% a year to a floor of 3% in 5 years. These will be directed to FXTL point conversions, community discretionary, DAO discretionary, and team retention.
  • Flox Capacitor (floxCAP) Boost: A new boosting system designed so users can boost their FXTL conversion rate by locking FRAX (prev. FXS) into a special FRAX staking contract with a fixed 90 day cooldown for withdrawal. veFRAX balances will also qualify for the floxCAP boost.
  • FXTL Conversion: Every week, ~2% of a user’s FXTL will be converted to FRAX. Conversion rate depends on the user’s floxCAP. Total sum of all FRAX released for conversions subject to tail emission plan.

Background and Motivation

Frax Finance has consistently been at the forefront of decentralized finance, pioneering innovative solutions for stablecoin issuance, yield mechanisms, and governance. As the ecosystem evolves and expands, it is crucial to adapt and enhance its economic and governance structures to align with long-term growth and decentralization. Many top tier projects are upgrading token structures and utility to better prepare their ecosystem and community for success such as Sonic (prev. FTM), Fluid (prev. Instadapp), and more.

Proposal Details

  1. Renaming of tokens & multi-chain strategy

    While we realize these rebrandings might initially cause minor confusion, in the interest of branding and frxUSD expansion efforts, we propose that:

    1. “Legacy” FRAX (the original stablecoin) will be renamed to Legacy Frax Dollar
    2. The current FRAX logo will replace the FXS logo:

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    (the FXS logo will not be used anywhere going forward)

    1. FXS will be renamed to FRAX. FRAX will continue to govern emissions, revenue-sharing, gauge emissions, and protocol incentives, reinforcing Frax’s decentralized economic model.
    2. veFXS will be renamed to veFRAX
    3. Full Usability of Legacy Tokens: The FXS token (now renamed to FRAX) will remain fully usable across the Frax ecosystem and supported protocols and chains, ensuring continuity for all existing integrations and holders. FXS can upgrade 1 to 1 to FRAX on Fraxtal chain at any time.
    4. Multi-Chain Strategy Based on OFT Standard: FRAX will continue its multi-chain expansion and will be aligned with the LayerZero OFT standard. This currently includes Arbitrum, Avalanche, Base, Blast, BSC, Fraxtal, Ink, Metis, Mode, Optimism, Polygon, Polygon-zkEVM, Sei, Sonic, and X-Layer. Future chains include Move, Solana, and TON.

  2. North Star Hardfork

    1. FRAX (prev. FXS) will become the gas token for Fraxtal, replacing frxETH.

    2. The current FRAX (prev. FXS) contract will change to a WETH-like gas wrapper contract called wFRAX.

    3. Any holders of FXS ERC20s will receive 1:1 wFRAX ERC20 tokens. They can choose to unwrap it for FRAX gas or keep it as an ERC20. Thus, users who hold FXS on Fraxtal will not need to do any action to upgrade their token, the token upgrade will be done for them in the North Star Hardfork.

    4. wfrxETH will become frxETH and will be changed to a normal ERC20. wfrxETH holders will receive 1:1 of frxETH ERC20 tokens.

    5. Because of gas handling / payable-ness in smart contracts, EOAs & Safes will be treated differently than LP/DeFi contracts as follows:

      1. EOAs / Safes: Will receive 1:1 FRAX to frxETH, essentially a free bonus amount of FRAX gas. Because of the high price of frxETH relative to FXS, the total bonus amount airdropped will be negligible. They will also receive 1:1 frxETH ERC20s.
      2. LP / DeFi / Bridge / Other contracts: The market value of the frxETH gas held will be converted to an equal market value of FRAX (prev. FXS) gas tokens. Note that this is a “forced” exchange of frxETH for FXS. Deployers / managers of these contracts MUST ensure that any oracles or other mechanisms of the contract do not become disrupted as a result of this change. External teams are encouraged to reach out to the Frax team before the hardfork to resolve any potential issues beforehand.

    6. Additional misc system contract changes will be made to facilitate an ETH2-like validator system in the future, where instead of ETH, FRAX (prev. FXS) would be staked.

    7. An example table of the proposed conversions is provided below:
      EOA/Safe:

      Before After
      1.25 frxETH (gas) :fuel_pump: 1.25 FRAX (gas) :fuel_pump:
      2 wfrxETH (ERC20) :black_circle: 3.25 frxETH (ERC20) :black_circle:
      50 FXS (ERC20) :black_circle: 50 wFRAX (ERC20) :black_circle:
      123 CRV (ERC20) :black_circle: 123 CRV (ERC20) :black_circle:

      Non-safe contracts :

      Before After
      1.25 frxETH (gas) :fuel_pump: ~1250 FRAX (gas) :fuel_pump:
      2 wfrxETH (ERC20) :black_circle: 2 frxETH (ERC20) :black_circle:
      50 FXS (ERC20) :black_circle: 50 wFRAX (ERC20) :black_circle:
      123 CRV (ERC20) :black_circle: 123 CRV (ERC20) :black_circle:

  3. Upgrade of veFXS to veFRAX & sfrxUSD Rewards

    1. veFXS will be renamed to veFRAX, maintaining the same governance power and functionality based on lock times, including farming boosts. Other than the name, the veFXS contract will not change, nor will any positions be unlocked.

    2. Rewards Distribution:

      1. veFRAX stakers will receive sfrxUSD as rev share going forward rather than the prior wFXB design proposed in prior governance votes. This greatly increases sfrxUSD usage and makes veFRAX yield in highly liquid, high yield sfrxUSD and synergistic with the new flagship frxUSD vision.
      2. All rewards will be distributed proportionally based on the lock time and amount of FRAX staked, preserving the current incentive structure.

    3. Airdrops & Ecosystem Rewards: veFRAX stakers will be eligible for airdrops and additional incentives from Frax Finance’s strategic partners and investing protocols. This includes rewards from Frax-integrated DeFi protocols, Fraxtal-native projects, and external collaborations that align with Frax’s long-term objectives. These rewards will complement the sfrxUSD rev share system and further enhance the governance token’s utility.

    4. Flox Capacitor: Flox Capacitor boost will come from the user’s veFRAX balance and floxCap staking balance.

    5. FXS Gauges: FXS gauges will continue on the allocated halvening cycles as before, but a gradual phase-out in favor of the FXTL system is intended.

  4. frxUSD Income
    The backing of frxUSD will come from high-quality direct-held (non-rehypothecated) T-Bills / RWAs including RWA tokens (BUIDL, SuperState, brokerage-held T-Bills etc), repos, and other short-term cash-like structures. The protocol itself can thereby earn income from these sources. Holding frxUSD alone will not automatically entitle a holder to any yield from these sources, but it is envisioned that select strategic partners and institutions may be able to earn marketing incentives for doing so. For example, if the Acme Project DAO on Chain XYZ wants to seed a large $25M TVL frxUSD/ACME pair, and they reach out to the Frax protocol, they may be able to, subject to the discretion of the DAO / Community, receive marketing incentives for the frxUSD portion of said LP pair. The same applies, for example, to any chain that wants to enshrine frxUSD as a key stablecoin in their economy.

    If anonymous / other frxUSD users want yield, they can choose to stake their frxUSD in sfrxUSD or other DeFi opportunities.

  5. sfrxUSD Yield and Fees

    The base sfrxUSD yield varies depending on the profitability of the BTC and/or ETH carry-trade, miscellaneous DeFi algorithmic market operations (AMOs) such as farming and lending, and the Interest on Reserve Balances/T-Bill (IORB) rate.

    For the sake of simplicity, it is proposed that the protocol performance fee should be 10% of the excess yield/profit over the higher of the IORB or the carry trade. The protocol is thus incentivized to develop a profitable DeFi investment strategy that combines activities such as farming, lending, and holding other tokenized yield-bearing assets.sfrxUSD fees will accrue on a weekly basis.

  6. Clarification of protocol revenue destinations (Revenue Plan)

    The protocol earns revenue from various sources. These sources include:

    I. Income from the underlying collateral that backs free-floating frxUSD
    II. Admin fees from sfrxUSD
    III. POL yield from tokenized stables like Ethena’s sUSDe, Maker/Sky USDS, including farming Curve, etc pairs with them.
    IV. Fraxlend POL interest income, as well as the overall admin fee
    V. BAMM POL and admin fees
    VI. Fraxswap POL swap and admin fees
    VII. Uniswap V3 POL swap fees
    VIII. frxETH protocol fees
    IX. sfrxETH POL
    X. Misc airdrops and grants
    XI. Misc sales of volatile tokens

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    Thus, the following are the objectives:

    1. Phase 1: Strengthen reserves. Form a core protocol-owned “backbone” of yield bearing assets and strategic crypto tokens that are Frax-aligned such as ETH, BTC, CVX, etc and put them to work within sfrxETH, vlCVX etc.
    2. Phase 2: Start moving more revenue to veFRAX and less to the Strategic Reserve.
    3. Phase 3: Most rewards go to veFRAX. Some revenue continues to keep the Reserve growing.

  7. Establishment of the Tail Emission Plan & Tokenomics

    1. 8% annual FRAX (prev. FXS) emissions. These will drop 1% a year over 5 years to a final floor rate of 3%.

    2. [Year 1] token amount are proposed as follows:

      1. 32.5% (2.6M): Frax DAO Includes grants, marketing, partnerships, audits, TWAMM treasury reserves / rainy day, treasury POL, sponsorships, bug bounties.
      2. 10-15.6% (800K - 1.25M): Team incentives+expansion. Base 10%, extra 5.6% if frxUSD TVL is ≥ $750M for at least one continuous 30 day period within the next 12 months.
      3. 23.1%-17.5% (1.85M-1.4M): Community: partnerships, liquidity incentives, BD, gauges, boosts for internal Frax projects. Requires community voting. Base 23.1%, minus 5.6% to team if they meet milestones.
      4. 34.4% (2.75M): FXTL conversions: FXTL enshrined as new gauge-like system with allocation methods TBD. Holders can redeem FXTL points for veFRAX 2M-4Y lock. Longer locks = better conversion rate. Conversion formula TBD. Likely not linear, in order to favor longer locking with delegation feature.

    3. Details & Comparison:

      Timeline % New New Emissions Total Supply
      2024 - 2025 0 0 100,000,000
      2025 - 2026 8.00% 8,000,000 108,000,000
      2026 - 2027 7.00% 7,560,000 115,560,000
      2027 - 2028 6.00% 6,933,600 122,493,600
      2028 - 2029 5.00% 6,124,680 128,618,280
      2029 - 2030 4.00% 5,144,731 133,763,011
      2030 - 2031 3.00% 4,012,890 137,775,902
      2031+ 3.00% 4,133,277… 141,909,178…

    To fairly benchmark Frax’s Tail Emission Plan, we use Total Circulating Supply Inflation as the key comparative metric, as it reflects the actual increase in liquid supply and provides a standardized way to assess inflation impact across protocols. Given that Frax is in its fourth year, we compare it to other projects at the same stage.

Token Annual Token Unlocking Annual Token Emission Annual Token Circulating Supply Inflation Note
CRV 9.24% 7.54% 16.78% CRV inflation at 4th year (2023 -2024)
ETH - 6.04% 6.04% Ethereum inflation at 4th year (2018 - 2019)
NEAR 14.97% 5.0% 19.97% Near inflation at 4th year (2023 - 2024)
SOL - 4.91% 4.91% Solana’s annual inflation rate at 4th year
ENA 15.2% - 15.2% ENA inflation rate at 4th year (2027 - 2028)
S 2.2% 7.5% 9.7% S inflation rate at first year (2025 - 2026)
ARB 15.7% Up to 2% 15.7% ~ 17.7% ARB inflation rate at 4th year (2026-2027)
OP 44% ~ 2% 44% ~ 46% OP inflation rate at 4th year (2025-2026)
FRAX (FXS) - 8% 8% FRAX inflation rate at First Year (2025 - 2026) which is 4th year of Frax Finance.

Disclaimer: The data presented in this table is based on the best available research and industry sources. However, due to changes in tokenomics, governance decisions, and market conditions, some figures may be subject to revision and should not be considered definitive.

  1. FXTL points conversion

    1. Every week, there will be (1 / 52.1429 = ~1.918%) * (3M FRAX allocated for FXTL conversion from tail emission plan) = 57534.2 FRAX available for conversion.

    2. Every week, 1 / 52.1429 = ~1.918% of a user’s FXTL point balance will be deducted / burned and automatically converted to claimable FRAX.

    3. The conversion rate depends on each user, depending on their floxCAP balance and veFRAX balance+lock duration (delegation possible). If other users also have a high floxCAP balance, they will all have lesser conversion rates due to competition (e.g. normalization). This is similar to how the current gauge farms work. Specific formula TBD.

    4. The total sum of FRAX converted per week will not exceed 57534.2 tokens. That is why the rates need to be normalized in iii.

    5. For tax / other purposes, users can claim the actual FRAX when they choose. It will not be automatically airdropped into their addresses.

    6. FXTL Points as Primary Incentives on Fraxtal: FXTL points will continue to serve as the main incentive mechanism for expanding the Fraxtal ecosystem, ensuring robust growth and alignment with protocol objectives. Because points are allocated in different amounts for different activities and will be expanded over time to include a growing ecosystem of projects and builders on the Fraxtal chain.

  2. Flox Capacitor (floxCAP) Boost Mechanism:

    1. Lock FRAX (prev.FXS) into a FRAX staking contract to multiply the amount of weekly tokens up for conversion that you would normally be entitled to without the boost. You can withdraw your FRAX from this contract any time based on a fixed cooldown period of 90 days.
    2. In order to receive the boost, you will have to maintain a certain threshold floxCAP balance relative to your entitled FRAX token conversion amount that week, otherwise you will be able to convert your points to the normal baseline amount. If you choose to not stake FRAX for the floxCAP boost, you can still earn tokens at the baseline conversion amount.
    3. The formula for calculating this threshold ratio will be determined at a later time, but is expected to depend on multiple factors, including the total FXTL emitted for all users for that week, as well as the total amount of floxCAP boost held by other users “Cappers.” An additional boost will also come from the user’s veFRAX balance which can be delegated for ease of use. This boost will have a cliff stake duration of likely around 2 years so only long veFRAX lockers are eligible.
    4. Withdrawing your floxCAP back into FRAX (prev. FXS) will be a fixed staking+cooldown system of 90 days.
    5. floxCAP is non-transferable. floxCap is a balance signifying boosting power of a user’s wallet/address.
    6. This system will reward long-term oriented users without imposing exceedingly long locking periods of veFRAX which has more powerful governance+rev share functionality and a FXTL boost. It will also reduce FRAX (prev. FXS) selling from points conversions since getting the best conversion rate requires owning+staking FRAX for at least the next 90 days.

  3. Frax Burn Engine (FBE)

    The FBE is a system on the Fraxtal blockchain that burns Frax tokens sent to it acting as an additive sink to the Frax (prev. FXS) commodity token similar to burning oil. Contracts sending Frax to the FBE as a source of Frax (prev. FXS) token burns currently are:

    FNS Registrar

    Fraxtal EIP1559 Base Fee

    More contracts will be added as infrastructure is built in the Frax ecosystem. Projects that wish to contribute to the FBE can send Frax to the FBE. To add your contract to the FBE infrastructure list submit a pull request on Frax’s Fraxtal chain repository. The FBE is the primary burn system of the Frax ecosystem and should outweigh emissions in the future as burn activity ramps up due to growth and emissions continue to decay.

Voting

  • For: Approve the Frax North Star Hardfork, Tail Emission Plan, Flox Capacitor, and FXS Upgrade

  • Against: Do nothing.

References:

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