FIP 77 - $20m FXS buyback program using TWAMM

FRAX will be fine… FXS might wobble about a bit.

sorry, I mean Frax protocol

They would use Frax over USDC because it is more decentralized and less likely to get blacklisted because of something that happened 10 transactions ago that had nothing to do with them

Can you give an example of what kind of incentives you mean that would impact those questions directly?

is this still being considered?

If this proposal passes we should at least be explicit about what we are we going to do with the current FXS1559 buybacks (will they continue?), we have spent over 20m in buybacks. Also, since the motivation is to buy because we think FXS is undervalued we should establish how much we think a proper valuation is and only buy FXS when it is under that value (imo it should be something in the range $4-7, leaning closer to $5), we can already see that the news of this proposal have pumped the price so it’d be dumb to buy from frontrunners. Finally, since the FRAX-FXS pool is concurrently beign unlocked, we should wait at least until that happens to prevent the expected sellers to use the protocol funds as exit liquidity.

Reposting from Telegram:

I think @seba_tldr is raising some quite convincing counterarguments against the buyback.

TLDR, yes we have the money, but this doesnt really help the protocol in the long term in the best possible way.

IMO, All we do are interfering in the free market to distort prices in favour of exiting whales. Giving me 2008 bailouts vibes tbh… If we dont interfere; yes FXS price will go down for a while. But it doesnt affect the peg (a factor + pol + locked frax) and it rewards LT committed veFXS holders. As it should be.

The suggestion mr rock makes seems good as well, incentivize other daos to lp their gov tokens w frax by distributing fxs to them. This seems like a good idea to foster frax adoption through the defi ecosystem. Expanding on this; why dont we couple this w low-zero interest loans to these protocols provided they max lock fxs as vefxs as collateral? That seems like a compelling value proposition for daos vs usdc or dai.

Thanks a lot for your contribution @seba_tldr. It is this type of constructive criticism that makes fxs a comfortable hold despite the vicious drawdown. The good thing is that we see more and more high quality engagement from more big brains in our growing community. Thank you!

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If markets were perfectly efficient then a token buyback shouldn’t affect FXS’ market cap – funds are redirected from future growth initiatives as a “distribution” to the rest of the tokenholders leaving the value per token being the same. Obviously that hasn’t been the case since FXS’ price has responded to the upside versus other crypto which I think is due to the team’s assessment that the market is not pricing FXS properly given its future prospects. The buyback proposal from the team is a strong signal to the market since they have full knowledge of the project roadmap.
The real value of this buyback will be to maintain this “signal” to support investors’ expectation of FXS growth prospects and therefore FXS price. Now, how does Frax broadcast this signal?

If the signal is too explicit, such as a price/quantity target (buy below $4 and/or X FXS per day), it would just serve to attract predatory capital that attempts to profit off the known parameters of the buyback. However, if the signaling is unbounded, the protocol could lose an opportunity to set stronger market expectation. Here are some thoughts that we could include into the buyback proposal.

• Price target should be in ETH or BTC terms in order to distinguish between FXS’ price action being due to broader crypto factor or specific to FXS.

• Combine explicit targets and team discretion (on pace and quantity) with a program duration to revisit the buyback program. For example, minimum of FXS purchased per week through TWAMM, with team discretion/rules to toggle to higher amount. After X weeks/months/years, the program ends with the remaining FRAX going back to the protocol for use in growth initiatives. I think it’s important that the team has some discretion so that all parameters having to do with quantity and pace are not set in stone to introduce risk to frontrunning the program (with price cap being explicit)

• As @seba said, Frax is an early stage start-up with little capacity to return capital to its tokenholders vs. funding future initiatives. While we’re building these initiatives, the buyback program may be appropriate to buoy expectations – then when the program expires, any remaining funds can be put to use to further those ends (expanding team, lending, etc.)