FIP-7 Borrow against FXS on Inverse Finance's Anchor to boost veCRV

Governance Proposals FIPs
1

Author: Community member Mark11

Summary:

Propose FIP-7 for the minimum 5 day discussion prior to being submitted for snapshot to vote. FIP-7 would authorize, if passed, the core team to deposit 150,000 FXS to Inverse Finance’s Anchor protocol borrow a suitable amount of DOLA, trade for CRV, lock for veCRV and boost the FRAX gauge on the Curve protocol. Note that this would require a FRAX team wallet to manage the staking process.

Background & Motivation::

FRAX was recently added to CRV and whitelisted to receive CRV rewards – increasing the amount of locked CRV voting for FRAX in the CRV gauge votes is a priority. We also do not wish to dilute tokenholders by selling off FXS to achieve this end. FRAX does have a large treasury of FXS which it can use as equity to borrow against.

Inverse Finance is an up and coming DEFI protocol which has launched a money market called Anchor which includes a low rate synthetic stable coin called DOLA - the current TVL for Anchor is about $40 million.

Abstract:

I propose that we authorize the core team to deposit 150,000 FXS to Inverse Finance’s Anchor protocol, borrow a suitable amount of DOLA, trade for CRV, lock for veCRV and boost the FRAX gauge on the Curve protocol. The current interest rate for borrowing DOLA is about 3% p.a.

An example of how this could be executed is:

  1. Inverse adds FXS to anchor as a collateral only with a collateral ratio of 180% (can’t be borrowed to prevent it being used to short FXS)
  2. Frax core team deposits 150,000 FXS (currently worth about $350,000) and borrows $100,000 in DOLA
  3. Frax core team swap DOLA for CRV, lock as veCRV for four years and vote for the FRAX gauge
  4. The loan remains indefinitely on Inverse Finance’s books earing Inverse about about 5% interest a year for them in DOLA borrowing

A parallel proposal to add FXS to Anchor protocol will be raised in Inverse DAO.

Risks:

There is a liquidation risk should there be large volatility with FXS - to mitigate this the borrowed amount should remain conservative.

There is a protocol risk of Anchor being hacked etc - however Anchor has $40 million TVL and has been operational since the beginning of March 2021 with no issues.

For: Authorize the core team to deposit 150,000 FXS to Inverse Finance’s Anchor protocol borrow a suitable amount of DOLA, trade for CRV, lock for veCRV and boost the FRAX gauge on the Curve protocol.

Against: Do not authorize FXS borrowing on Anchor at this time.

2 Likes
2

I like the idea of using borrowed money to buy CRV and vote for the our FRAX-3CRV gauge. Investing in veCRV is likely a good investment on itself, currently giving a 40% APY ( Curve.fi ). The vote for our gauge will also result in a high return for the protocol. I consider all CRV rewards for our pool as income for the protocol, because currently the CurveAMO is the biggest investor in the pool and we would otherwise have used FXS rewards to increase liquidity anyway.
Currently there is 160M veCRV voting and if I interpret the release schedule correct, 750k CRV is distributed daily via the gauges (https://dao.curve.fi/releaseschedule), pro rata the voting of the veCRV. This means that at the current rate, voting with 1 veCRV would give us 0.033 CRV extra per week, resulting in a 170% APY for the protocol. If we add the 40% this is a total of 210% APY.
There is of course the risk that the CRV price would tank, but given their high income stream, it is very likely to be a good investment.

We can borrow the money to buy the CRV externally via Inverse Finance as you proposed or via CREAM (depositing FRAX), but we are also our own bank, so the easiest, simplest and safest way to do it, is by minting FRAX or using the USDC collateral. This would technically lower the CR, but would not increase the protocol risk much, because the protocol would still own the veCRV, it is just not counted toward the CR.

To actually give the FRAX pool a competitive APY, I think we need to at least double the current votes we have. At current prices that means an investment in the order of $1M.

That would be a big investment, but I think it is worth it, to get us back in the Curve game and attract new FRAX liquidity.

2 Likes
3

I totally agree with this. If we were just whitelisted I would vote for the $1m FRAX to CRV buy

4

Mirror proposal is now on Inverse Finance Snapshot Snapshot

5

I am for this as well. Great idea!