Pause the de-collateralization strategy of minting FRAX into the FRAX3CRV pool in the Convex AMO. Instantiate an FXS TWAMM AMO to increase FXS buy pressure through seigniorage and burn. Deprecate buyback and re-collateralize for the v1 mechanism.
The Curve AMO injects FRAX and USDC collateral into various Curve pools – primarily the FRAX3CRV pool through Convex. Every AMO follows 4 laws: de-collateralize, market ops, re-collateralize, and FXS1559. The existing Curve AMO operation is largely done through Convex Finance. It attempts to use excess collateral to continue growing overall Curve TVL, according to the first principle of AMOs. This is the part we propose changing.
This Convex AMO is placing millions of idle collateral and newly minted FRAX (when needed, to lower the CR) into the already massively liquid Frax Curve pool. Right now, over 1,200,000,000 FRAX can be sold into the FRAX3CRV pool without moving the price down by more than $0.01. We believe Curve is now sufficiently liquid in FRAX. The FRAX supply floor is now at least 1.2 billion FRAX because of this pool, a major success. This liquidity should be maintained, and the accrued LP fees and CRV rewards can continue to operate in the market operations of the AMO to attempt to keep the pool balanced. Excess LP profit can continue going toward FXS1559 to drive value toward FXS.
With the upcoming launch of the 4pool, this governance decision also sets the stage to free up resources for a) minting FRAX into the 4pool and b) shifting existing liquidity from FRAX3CRV to the 4pool.
The FXS TWAMM AMO can utilize Fraxswap to best execute the buying operations without having to buy at spot price and be constantly frontrun by arbitrageurs. Ideally, this AMO can run indefinitely, but initially, it could be set to a period of 60 days to have a measurable effect on the overall system. The FXS here should be burned, which begs the question: should FXS be minted by this new AMO to be sold for collateral during a re-collateralization period? This would be a requirement to fit the properties of an AMO. This functionality would be redundant to the existing re-collateralization functionality of the v1 system, so it would make sense to deprecate the v1 functionality in favor of all buybacks and re-collateralization through the TWAMM on Fraxswap.
A rough specification for limiting the functionality of the FXS AMO to not overallocate resources toward burning FXS should be prioritized as newly minted FRAX is valuable in many other places at the moment. Also, excess market operation on FXS can have unwanted adverse effects on FXS price volatility. These parameters could look something like this:
- The FXS AMO cannot mint more than 10% of the newly issued FRAX a week.
- The FXS AMO cannot have buy orders totalling more than 20% of the outstanding volume on the TWAMM.
Keep the current TVL in the Convex AMO, but do not inject any more FRAX into the FRAX3CRV pool.
Buy FXS with seigniorage via FraxSwap: the FXS TWAMM AMO will mint FRAX during de-collateralization to slowly buy FXS. This AMO will be limited to ~10% of excess reserves as collateral.
Deprecate buybacks and re-collateralization for the v1 protocol.
Continue increasing the FRAX3CRV TVL.