FIP-8 DE-CEN-TRA-LIZE - DAI collateral


tl;dr:

  • Add DAI to collateral together with USDC.
  • Recently there’ve been a ton of changes. This proposal would not ‘change’ the core ideas/incentives that the protocol started with. It’s additive.

Impetus (this part is the same in FIP-8 & FIP-9):

I posted a pair of FIPs that are meant to formalize the position of the FRAX community and FRAX protocol regarding the dreaded “decentralization” word.

There are a lot of people who look at FRAX and get stuck at:

  • 1st. centralized. The dreaded word in crypto. (FIP-8 “solves” this)

  • and 2nd. a “wrapped stablecoin” (FIP-9 “solves” this)


Motivation (this part is the same in FIP-8 & FIP-9):

I don’t know if you guys noticed, but L1 ideology and L2 ideology (BSC, MATICPOLYGON, AVAX, Arbitrum? Optimism? zkSync? StarkWare? etc. etc.) is very different. FRAX has already established itself as L1 native so I’m assuming it has to play by the values found on L1 ETH.

One of the core tenets of ETH is decentralization. One would say it’s enshrined in the ‘constitution triangle trilemma thingy’. I am in no way saying FRAX is not adopting this mantra, however, I AM saying it is definitely not SEEN as adopting it by its partners. They think we are not doing enough. And so do potential investors. The people we are trying to convince and attract. They are leaving their FIAT truck at the door because they see “USDC”.

What does a decentralized stablecoin mean? Well simple … It means it is not backed by some central authority. So on this spectrum we’d have completely centralized stables like USDT & USDC, medium centralized like DAI & FRAX and totally decentralized like LUSD, FEI (for now…? [1]) & UST. If you measure it like this, you can put actual numbers on the level of decentralization.

Circumstantial evidence of this ‘FRAX is centralized meme’:

  • Bankless guys keep getting FRAX recommended to them by other “competing” projects [2][3][4], YET they never seem to warm up to FRAX. Why? I would argue it’s the gut reaction of seeing 100% USDC backing. It doesn’t matter that it’s just %CR backed, they see just USDC.

  • Vitalik’s post on UNI gov token. He clearly is eyeing the DeFi space and has mentioned other algo stables right on the very first row, yet he left FRAX out [5]. Do you think he doesn’t know of FRAX? Or that he doesn’t like USDC. He never said, but let’s prepare for the worst.

  • Our recent Curve friends’ lowkey dis, due to the fact we are ‘too centralized’ [6].

  • Crypto-twitter is full of people dissing FRAX because they never bother to look past the USDC part. A prominent example would be Anthony Assano [7].

  • Bobby is one of our allies [8][9] however I’ve been in a Clubhouse call where he espoused the FRAX protocol, yet none of the guys there were convinced. This is a public image thing.

My conclusion is that we have to bend the knee if we still want to keep our legs intact in the long run. Remember, we are all in this together against banks that are open between 09:00am and 09:01am only on the first Thursday after the Munger blood transfusion.

TRIBEL = Bad.
TOGETHER = Apes.
=>
APES STRONG TOGETHER.


Proposal / Mechanics:

  1. How to fix the 1st issue? “Easy”. Use DAI instead of USDC. The “D” in “DAI” clearly stands for “decentralized” according to some “crypto natives” so that should already fix half the public image. DAI is 38% backed by USDC. Ironically, considering today’s numbers, as Sam noted [10], if all of FRAX’s collateral were DAI instead of USDC, then FRAX would only be 32% backed by USDC. FRAX would be more decentralized than DAI. Wait what!? That’s right, the “crypto natives”’ brains would pop.

Some people also started mentioning balance sheets on our TG chat. Well the most important balance sheet is our stable collateral and moving away from USDC would be a strong signal to the broad crypto community.

  1. Split the 33% USDC/FRAX incentives into FRAX/Stables incentives where USDC pool & DAI pool (&other stables?) get proportional rewards. This would NOT dilute original investors who locked 3Y. It would fraction stable liquidity though… If it’s too controversial we could refrain to just using DAI as collateral, although it would slow “decentralization”.
  • Some fork of FRAX already did this (I think XUS? There are quite a number lol). It should…n’t be a lot of work? The devs know much better.

  • Giving the 3y lock folks a way to unlock->relock is much easier, as IL is not a concern here. Maybe they want to switch from USDC to DAI? Maybe they could even push a button so that their position is simply changed from USDC to DAI while remaining locked.

  • If there’s any rewards for this FIP I propose they be awarded to Sam et al since, reading the tg chat, it seemed like they already started working on this, it just hasn’t been posted officially? Don’t want to steal credit.


Outcome: (this part is the same in FIP-8 & FIP-9):

Public image fixed, new apes join, FRAX is the new ‘global financial system’, everyone is rich, Munger-banks lose, Africa is saved.


Risks:

Exposure to other stables. If FRAX were to ever increase no. of stables used, this would obviously increase the risk of one collapsing. It’s the same risk as mSTABLE or Curve or many other DeFi protocols face. One could argue it’s not more risky though, since today we already risk the whole protocol on USDC.


Disclaimers: (this part is the same in FIP-8 & FIP-9):

I know Sam is irked by the fact this is even an issue, considering the protocol’s decentralizing itself by the minute anyway. However not everybody can see the potential long term. People want their candy right NOW.

I want to note that while there may be some sarcastic tones in this post, it is not intended to dismiss decentralization. It’s something I think everybody who is part of the crypto community yearns (p.unintended). I don’t want to pretend I know Sam’s thoughts, but it seems like it’s definitely on his mind and that he is on the same page with all of us. We all think Ether is awesome, Ethereum is awesome, and our homebase! The jokes are more directed to people who think this is such an easy problem to fix and that FRAX is a FARX for not doing its part. They think we will FEIL as a centralized project. But I am an Etherean as well, yet I see the potential of this protocol. Please reply so all of us can Gauge where the rest of the community resides on the Curve ;)!


References: (superset of FIP-9)

  1. FIP-6 PCV Initial Stable Coin Investment - Proposals - Tribe

  2. Bankless1 - https://youtu.be/Rwsj6m0YOvQ?t=709

  3. Bankless2 - https://youtu.be/Rwsj6m0YOvQ?t=3357

  4. Bankless3 - https://youtu.be/j06VUnt8Z94?t=3485

  5. Vitalik - UNI should become an oracle token - Proposal Discussion - Uniswap Governance

  6. Curve Proposal - sCIP#39 - Add a DAI/USDP/LUSD the d3Pool - Proposals - Curve.fi Governance

  7. Crypto Twitter - https://twitter.com/sassal0x/status/1370012719298998277

  8. Bobby Ong Coingecko Q report https://www.coingecko.com/buzz/q1-2021-quarterly-cryptocurrency-report

  9. Bobby Algo FRAX Twitter :thread: - https://twitter.com/bobbyong/status/1345575096702779395

  10. Sam Decentralization Twitter🧵 - https://twitter.com/samkazemian/status/1397783073777799168


tl;dr:

  • Add DAI to collateral together with USDC.
  • This proposal would not ‘change’ the core ideas the protocol started with. It’s additive.

so generally speaking …

change the app so FRAX can be redeemed for USDC or DAI
change the app so DAI can be used for minting FRAX
change the FRAX-USDC uniswap pool to a FRAX-USDC-DAI pool (and move rewards to this pool)

I am for this one and you curated a lot of good points to show that it is needed. Especially since we are an L1 algo stablecoin.

Adding DAI as collateral is overdue. DAI + USDC as collateral for FRAX sounds like a good compromise.