FIP 48 - Dynamic Buyback/Recollateralize Functions

Governance Proposals FIPs
1

Summary

Make the buyback & recollateralize functions dynamically toggle when peg is below/above 1.0033 & .9966

Background & Motivation:

The FRAX peg has been practically unshakable and I’d like to suggest some improvements for both performance of both protocol functionality as well as FXS value accrual. Right now, per FIP 6 rules, the CR is changed periodically if the peg has not changed. This has been the case for many many months. I can’t recall when the peg has shifted even by a single 1/3rd of a cent. This proposal is to modify the Frax buyback/recollateralize function rules so that they are only activated when the peg deviates by 1/3rd of a cent between 1.0033 and .9966. This is for a few reasons: the protocol is extremely stable at CRs in this range and the CR adjustments occur much less frequently per FIP 6 rules. Secondly, large recollateralize functions mint a very large amount of FXS into circulation dramatically increasing the emission rate of FXS when it does not directly aid in any stability performing function. For example, just this week, over 50,000 FXS has been minted from recollateralize functions which almost has tripled the emission rate of FXS this week. That is a 300% inflation rate increase. If it was aiding in the stability of the protocol due to even slight peg deviation, that would be extremely valuable but as can be seen from the oracle price, the FRAX peg is at 1.000.

Regardless, there might come a day(s) when the peg price is deviating by more than 33% of 1 cent. This range is minimal but if this deviation occurs, this is exactly when the protocol will turn on buyback/recollateralize dependent on the CR and the direction of the peg to perform its core stabilizing function and bring the CR to target to restore confidence in the peg. I think this is a completely conservative and non-controversial improvement to the protocol which helps FXS value accrual by not causing excessive mints of FXS while also making sure it is possible to recollateralize if needed.

For: Make Buyback/Recollateralize dynamic to peg price

Against: Do nothing

5 Likes
2

I’m in full support of this. I’m excited for us to keep improving the core protocol.

3

can we confirm the maths on this.

im not sure how 50k extra FXS minted in a week triples the emissions

gauge emissions are 87k and the FXS/FRAX pool is 50k. so if we only count them two and forget the rest of the other emissions the 50k extra FXS is only a 36% increase in emissions, not a 300% increase.

once you include the other emissions its prob around 33% increase.

im not saying the proposal is a bad idea, i just want to check the numbers just incase its a typo and its meant to be 150,000 extra FXS minted.

4

i support this proposal. and about the math, regardless of how accurate the % increase in emissions, it is unnecessary and detrimental minting of FXS, since the peg is not at risk

5

does it have to be 1/3rd of a cent in each direction?

if the issue is the FXS minting and the minting only happens when recollateralizing, could we adjust the range on that side but keep the tighter range on the other ?

6

This is a great point! Adjusting just one side could help ensure peg stability without inflating FXS unnecessarily. Personally, 1/3 of a penny is such a tight range of peg. No other stablecoin maintains such a strong peg, yet maintain widespread adoption. At what point does loss of peg become really important? 1 cent is probably too much movement.

Having this dialed in is really important as CR goes down since the amount of FXS minted could grow to the point where it becomes problematic (low CR & low FXS price == massive FXS mints possible)