FIP 52 - Aave aFRAX Gauge

Author
Sam Kazemian

Summary

Add an FXS gauge for aFRAX token deposits (FRAX lendors in Aave) on Ethereum mainnet.

Background and Motivation

FRAX Lending AMOs have allowed the protocol to become a direct lender in many places but there is no place to incentivize market participants to be lenders of FRAX and increase debt denominated in FRAX even further. Aave is currently the safest blue chip lending money market that FRAX is listed on. This gauge could provide a high yield interest rate for lenders of FRAX and act similar to FRAX’s Anchor rate (although this gauge might fluctuate in APY while Terra’s Anchorprotocol.com stays constant ~20%). The yield provided for this gauge could create massive FRAX demand on lending side as well as new FRAX supply side demand even at a modest gauge weight.

Proposal

Add a gauge for FRAX lenders on ETH mainnet Aave (aFRAX tokens deposited into the gauge).

For: Deploy Aave Gauge

Against: Do nothing

7 Likes

This seems like a great idea to bring more adoption and revenue using the gauge. I am currently on board.

2 Likes

I’m totally for it: incentives that are growing markets and adding utility to FRAX are definitely welcomed. The target is to have a global :earth_africa: demand for FRAX as the new decentralized standard unit of account for dollar denominated debt. LFG.

2 Likes

Im somewhat confused by this.

Why would we choose to pay investors to provide liquidity when we can (and already are) providing it?

just seems a bit odd.

I like it, it is an efficient way to boost FRAX as the main borrowing lending stable without impacting the peg. FRAX borrowed from the lending AMO is shorting FRAX, FRAX borrowed from user deposits are neutral for the peg.

To make it more efficient I propose to only have veFXS boosting and not also have time lock boosting. Locking FRAX deposits are not used to hold the peg like AMM liquidity is, so time locking is not needed.

3 Likes

random things …

if the pool is rewarded buy the gauge, the protocol will then be earning gauge rewards for its stake in the pool. if these rewards are being earned by a lending AMO will it result in the rewards being passed on to veFXS (as they are AMO profits) ?

if so… this will give veFXS holders a reason to vote for this pool if they are not in any other pools , including large holders like CVX. or other protocols that hold veFXS positions.

this could skew the gauge massively towards this pool and would have a fly wheel effect (the more they earn the bigger they vote the following week)

also … if there is a big vote towards this pool and rewards rocket, whats to stop the lending AMO just minting loads of frax in to the pool to get the rewards?

or , will the AMO start burning FRAX if lots of FRAX deposits are made in to the pool ?

i guess , if the AMO started burning FRAX as more deposits are made by other investors, this would reduce the amount the protocol earns in rewards from this AMO and could balance out the flywheel effect somehow. ??

i am generally in favor of more single coin staking options for FRAX (and FXS), but im wary of the risks to the system we currently have.

This is an interesting point but could be sidestepped by just not having the AMO stake its aFrax.

the pool has been running for some time so a lot of the protocols FRAX has already been borrowed.
about $27m has been borrowed from the pool

also, the AMO is controlling the supply of FRAX to keep the APR% in a set range to make it competitive.

Agreed this is a good idea to add to the final vote to remove the time lock component of this gauge. It should make it more efficient.

You make a good point about this. I think we should be clear in the final snapshot vote what the specs of this gauge are and whether the Lending AMO would participate in farming its own rewards to give back to veFXS holders. Personally, I think it would create odd game theory incentives to have the Lending AMO farm its own gauge and redistribute it to veFXS stakers so I’d propose we exclude the the Lending AMO from farming itself, but would be interested to hear other people’s feedback as well.

1 Like

excluding the AMO from earning the gauge rewards would solve the issue im trying to highlight.

i still feel we should have the AMO running in the pool as it will help pool stay within a set % range for lending / borrowing while also generating a small profit for the protocol from the standard AMO profits.

but i would expect the AMO to slowly reduce its stake in the pool as outside investors start supplying more FRAX.

and over time the AMO could become a small fish in a big pool.

1 Like

The issue with that is the AMO won’t really be able to keep the interest rate a certain % as it will almost certainly be dictated by the Aave Gauge weight since people’s deposits in Aave will be the main determinant factor of how low the interest rate will go. If the gauge weight is very high then the interest rate to borrow FRAX from Aave will be close to 0%. Which is not a bad thing, it will spur a lot of FRAX borrowing and debt denominated in FRAX.

1 Like

but if people deposit more cant the AMO just withdraw some of its funds ?

clearly the AMO cant control the % APR for people staking in the pool, but it can control the FRAX supply to adjust the cost to borrowing , until the new deposits flood the pool and the AMO has removed all its funds.

also … if there is a lot of FRAX borrowing , wont that increase the amount of FRAX selling and apply more pressure to the peg?

they just voted to allow people to borrow stables at negative interest rates.

Good point. Seems like the the AMO shouldn’t take part in the rewards of this gauge, which would obviate this concern, unless I’m missing something.

1 Like