Author
Sam Kazemian
(with input from Travis Moore and Jason Huan)
*various consultations with community members including Hameed
Summary
Make all protocol functions trustless outside of the peg bounds. The protocol should require no trust assumptions by any delegates or whitelisted keys outside of the peg bounds. Within the peg bounds, delegated/whitelisted accounts can conduct monetary policy expeditiously so long as the FRAX price peg is within bounds. Additionally, we’d propose adding timelocks to certain functions such as adding/removing AMOs even if the price is within the peg bounds.
Background and Motivation
Currently, the FRAX protocol has certain whitelisted functions and delegated privileges to the core team such as pausing certain functions or moving FRAX/collateral between AMOs. However, it’s the medium term goal of the team to make FRAX entirely a self-sufficient and resilient protocol without any trust assumptions in terms of the peg mechanics. FRAX’s vision is to have the least trust assumptions and complete censorship-resistance compared to all other stablecoin projects.
Abstract
We propose to create a framework for full decentralization and trustless operation of all protocol functions while keeping the benefits of expeditious monetary policy. The FRAX protocol decollateralizes when the peg is above $1.01 and recollateralizes when the peg is below $.99 (known as the peg bounds).
We propose that within the peg’s bounds, delegated addresses should be afforded privileges to conduct monetary policy such as rebalancing AMOs, updating the CR by 1 tick (currently set to .25%), and other monetary policy. These delegates are called “Comptrollers of the Currency” and added/removed by timelocked FIP-style governance vote. Currently, only the team has any privileges, but others can be added in the future that join the core team.
If the FRAX price is outside of the peg’s bounds, then all monetary policy functions to recollateralize the AMOs, update the CR, or return collateral to the system contract will become publicly callable by anyone (perhaps requiring a minimum veFXS balance). Anyone will be able to update the CR, decollat/recollat AMOs, and bring the system back to optimum health and restore the peg in a permissionless manner in line with protocol specs The Comptrollers lose their ability to enact monetary policy over the public since if the price is outside the peg bounds, anyone can recollateralize/decollateralize AMOs + call updateCR().
This road to decentralization accomplishes two clear goals:
-There is a need for core devs to enact monetary policy quickly, make human judgments, and react expeditiously to critical market conditions. Clearly the team has shown over the past 5 months that not only do we act in good faith, but have made important market decisions to keep the peg always on target. FRAX has not broken the peg since launch. It is the only algo stablecoin to keep its price stable. FRAX has also not been outside of the peg bounds, even briefly, for almost 2 months as measured by the FRAX-USDC TWAP+Curve TWAP. The AMOs have exponentially made the protocol more resilient and increased the monetary policy options that can be employed.
-However, true cryptosystems require zero trust and require resiliency. If all or parts of the core team were incapacitated or conducted poor/malicious monetary policy, the protocol should not be effected in any way. We believe this FIP-6 system keeps the best security guarantees while allowing Comptrollers the speed and resiliency to enact quick monetary policy. This system does NOT change the trustless nature of the protocol since no account is privileged in any way when the peg is outside the bounds. In fact, this increases decentralization while formalizing the narrow bounds in which any kind of privileged address is able to act. This structure is modeled after Ethereum L2 strategies except in terms of monetary policy. Namely, within a certain peg bounds, less decentralized and faster monetary policy discretion is allowed. As soon as the peg is outside of bounds, then the protocol “exits” into the fully permessionless public domain to restore the peg. In a certain sense, this is FRAX’s scaling solution to decentralize while keeping its flexibility.