FIP 79 - Unlock+Move FRAX-FXS LP to gauges

Governance Proposals FIPs
1

Authors
Sam Kazemian
Dennis @Denett

Summary
Unlock the FRAX-FXS Uni v2 LP pool to deprecate its FXS rewards and deploy a FRAX-FXS Fraxswap gauge.

Background and Motivation
The FRAX-FXS Uni v2 LP token is the oldest FRAX farm started at genesis on December 20, 2020. Other than the 12,500 FXS emitted per day across all gauges, ~8400 FXS is emitted through this single FRAX-FXS LP pair which accounts for nearly 40% of all FXS emissions.

By deprecating this pair and moving FRAX-FXS LPs to Fraxswap under the gauge system, FXS immediately becomes 40% more scarce as the amount emitted per day drops from 12,500+8400=20,900 to just 12,500 across the entire protocol. This is an important step in making the protocol more profitable, capital efficient, and overall consolidating all FXS emissions into the elegant gauge system.

The only potential reason to vote against this proposal is the danger of ~66% of the FRAX-FXS LP locked liquidity being set free. This means about 20m FRAX and 3.6m FXS would be unlocked and able to be sold immediately on deprecation of this pair. It’s important to consider the absolute worst case scenario that 100% of all unlocked liquidity is sold to exit the protocol. When we considered this, we concluded that 20m FRAX sold into Curve/Uniswap is immaterial and completely manageable with no danger to the peg. Selling 3.6m FXS could materially impact FXS price since most of the liquidity would be gone. However, this is mitigated by the protocol deploying FRAX-FXS POL into Fraxswap which it currently already has to the tune of $13m liquidity. The protocol could increase its POL in Fraxswap up to $50m to make the liquidity depth comparable to the FRAX-FXS Uniswap v2 pool. Additionally, the high yield opportunities in veFXS, cvxFXS, as well as the FRAX-FXS gauge that will come with this proposal will immediately give unlocked LPs a lucrative place to continue to earn yield and continue to support the protocol. We believe a sizable portion of early supporters and LPs will move over to the other lucrative staking opportunities for FRAX and FXS rather than exit. Nevertheless, even under the worst mathematical scenario that 100% of unlocked LPs sell both FRAX and FXS, we’ve shown the material impact is nothing to the peg and minimal to FXS price (as long as the protocol increases its FRAX-FXS POL on Fraxswap). In fact, we anticipate this could have a profoundly positive impact+sentiment on FXS price in the short to medium term as a large source of FXS emission is permanently cut from the market.

Overall, we analyzed that this is an incredibly lucrative opportunity for the protocol to cut down 40% of its inflation, make FXS more scarce, add a new gauge, and make use of its ability to deploy FRAX-FXS POL to create a lot of value.

PROPOSAL

For: Unlock FRAX-FXS Uni v2 LP & discontinue its FXS rewards. Deploy FRAX-FXS Fraxswap LP gauge.

Against: Do nothing

AMENDMENT 6/12/22
FRAX-FXS Gauge for this proposal should have a 1 year lock with 3x boost instead of the 3 year lock for 3x boost. This is because we’ve analyzed that we can get a higher amount of liquidity in each gauge and maximize the locking mechanism if we lower the max lock time to 1 year. Thus, gauge proposals will be for deployment of 1 year lock style unless otherwise specified.

3 Likes
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Probably a good chance to move it to the gauge system given the parallel proposal for the FXS buyback

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Locked FRAX-FXS Uni LP currently provides voting power on snapshot votes. Will this feature move over the new FRAX-FXS Fraxswap LP? Or will voting power after unlocking only come from veFXS?

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Great question. I believe we should deprecate that voting power and only have it for veFXS and spot FXS holders for simplicity. Interested to see what @Denett thinks as well.

The FRAX-FXS LP stakers already do not vote on gauges anyway so it is only a snapshot voting power they possess. But if most of the community thinks it is correct to keep the voting power on the FRAX-FXS gauge pair we could look into implementing that in the future.

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Is it reflexive or slightly weakening the FXS/FRAX pool by putting it into the gauge?

Currently there are no bribes or outside rewards which would influence voters to vote towards FXS/FRAX. It would be singular in this regard. Unless a new protocol comes along and specifically starts to target the FXS/FRAX LP in gauge voting, I just don’t see how it could remain competitive enough to attract the voting necessary to maintain the liquidity it has.

Having the FXS/FRAX pool stand outside the gauge means that it’s not bound by the same forces the other pools are, all of which have monetary incentives in place to bribe gauge voters.

1 Like
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If this proposal passes i predict a large % of the current pool will re-deploy there assets in to other parts of the ecosystem rather then to the new pool.

The new pool is likely to get some gauge votes from the OG members but there is going to be no incentives to vote coming from bribes and the APR is likely to be to a lot lower then its current level.

As an investor in this pool i dont object to the pool being moved.

The current pool is no longer offering good value to the protocol and the protocol does not need a pool of this size to carry out its daily operations, so stopping the rewards would benefit the protocol overall.

I dont agree with this maths, yes the rate of emissions would slow down by around 30% when compared to the current rate of FXS emissions (including rewards and advisor emissions) , but the total amount of coins does not change. To make FXS 40% more scarce we would need to remove 40% of the total supply.

I dont really see much value in spending the time to give this pool voting power at this stage. The protocol has moved on and now has a dedicated pool thats main reward is its voting power. But this will give people 1 less reason to stake in the new pool.

The timing of this proposal does seem odd tho, why would you want to remove a big chunk of the liquidity just before starting a buyback ?

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I completely agree with this proposal and I believe the almost halving (40%) of FXS emissions will significantly impact the FXS price upwards in anticipation of the scheduled halving in December.

2 halvings in one year. FXS holders can absorb the 20m of unlocks.

1 Like
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ppl already $FXS selling.
FRAX-FXS LP locking in UNI V2 is different to it in Fraxswap under gauge system. I can see some big impact to whole frax protocol, are you sure it is the best time to do this at under current market uncertainty time? (personally I don’t think the market is bottom yet). Also Fraxswap needs more battle testing.
What about start to move some other LPs from UNI 2/3 to FraxSwap and wait until the market to settle down?
Another thing is many early supports to support Frax last year when all frax’ clones were bank-run, by locking FFRAX-FXS to bet Frax will be fine and they could have huge rewards. But to return emission back to the protocol without any compensation, if there were another storm came out in future, who would bet with frax again ?

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Why assume OG members will give some gauge votes to this new pool? More likely they could leave frax

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i dont think thats more likely.

the biggest investors in that pool are team members and FRAX advisors, and i dont see them leaving any time soon.

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I agree with moving the UniV2 FXS-Frax liquidity over to Fraxswap from UNI, this seems like a no-brainer to me.

I am still hesitant about rewarding this pool with emissions-based rewards from the gauge rather than protocol profit-based rewards that currently only go to veFXS holders.

This was tangentially discussed in this thread: Switching from veFXS to ve(FXS-FRAX LP) but in summary, FXS-Frax liquidity is some of the most valuable LP for the protocol to have locked since it dampens the FXS volatility and locks more Frax away from circulation, both of which are valuable for the protocol Frax.

If we’re already unlocking the FXS-Frax liquidity (which is introducing a lot of risk, even if it is quantifiable in some respects), I’d rather see it get added to the veFXS pool and be rewarded from protocol profit rather than emissions. For more on how this could work check out the other thread.

Since this LP is so important to Frax, we really need to work to ensure it doesn’t get siphoned away, and this proposal as-is would probably see a drastic drop in the amount of locked FXS-Frax liquidity. Yes, lots of this LP is coming from some of the earliest, most fraximalist investers (like me!) but ultimately what they will see is an up to 40% APY drop to something much less. The biggest gauge option right now receives about 25% of the FXS rewards, so ~3000 FXS daily, even if the whales of FXS-Frax LP go all in on it’s gauge it’s unlikely to capture anything close to the 67% of the gauge that would match the previous APY and LPs will be less likely to lock into something new with a lower rate and no other change.

Contrast this to adding this FXS-Frax LP to the veFXS pool where it would receive less APY but have voting rights, and profit-based instead of emissions-based yield that will remain somewhat consistent instead of halving multiple times over the potential new 4yr lock and personally, I’d be more willing to stomach the change instead of leaving when it unlocks.

Maybe there’s a better way to incentivize FXS-Frax LP than this but I just want to stress that it’s very important and valuable to the protocol in ways that some of our other locked liquidity cough veFXS cough is not. It’s important that whatever we do it is incentivized to stay.

I want to preemptively say I’m not just cheerleading FXS-Frax because I’m a bagholder but because I think it has a uniquely strong value proposition that is explained more in depth in the other thread Switching from veFXS to ve(FXS-FRAX LP)

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12

No, you should not stir the old whales.
Long locking Frax-FXS LPs are very crucial stabilizers for the whole system. They are also the most hardcore supportors of Frax from the beginning. They deserve some little fishes(FXS).
Furthermore, moving LP could easily trigger unexpected death-spiral. We should not change the rules and equilibrium point frequently.

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I doubt there will be any death-spiral as Frax protocol is based on AMOs today. But ppl might be question could Frax protocol keep its promise.
Also because of halfing at Nov, just 5 months time, FXS scarce will be 20% if not 40% without doing anything.

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A stable deep Frax-FXS pool is very important for FXS price.

If Frax-FXS lp get removed for seconds, bad attackers will easily hurt FXS price that will hurt the confidence of Frax protocol, the APY of all pools will drop, paperhands will leave and avalanche will kick off.

Please think carefully before that.

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The FRAX - FXS pool is rarely used by the protocol since the buyback / recollateralize functions where adjusted so the AMO’s take up the slack.

The OG pool members are the most hardcore supporters of the protocol and we are the ones who are supporting this proposal. The same way the OG investors ended the first ETH pool and the first USDC pool and many other pools over the last 18 months . again ending pools that no longer offer value to the protocol.

OG investors also voted to reduce emissions a few times in the past and can see the advantage to lower emissions. in the past lowering emissions leads to increased FXS price and if an OG investor expects FXS to go up he is likely to use the FRAX (that just unlocked) to buy more FXS, not sell it

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I Approve of this proposal
as an original OG (presale+early locker)

at the protocol level, it indeed doesn’t make much sense that this pool takes up most of the rewards
while most of the trading happens at other pairs (fxs/weth) and on cex (binance/ftx)

I also see zero possibility for any kind of death spiral or malfunctions
I don’t know why anyone would be scared of that
it’s not like all the market LIQ is in this pool, there’s like 20m across other pools
and then there’s the cex’s markets

also fxs crashing doesnt impact the stability of frax
it makes it that if someone were to redeem frax at that exact time, they get more fxs
but as the Oracle would not update this in this real time speed
it would be hard to do that plus of course we would have people defending the price (even the protocol itself with the buyback funds)

in any case
frax should unlock this pool
enable the fraxswap pool right away
put it on gauge right away
and put out a bribe right away for first 2 weeks to get some apy going

2 Likes
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and then let the free market do it’s thing

Maybe even make an proposal every now and then for
if frax should put up a new bribe

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im just excited to eventually move everythings to gauges!

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i think this is no longer an option because of FIP 58, Snapshot that passed a few months ago.

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oh true

forgot about that

even beter then !