FIP-9 DE-CEN-TRA-LIZE - BorrowLend AMO


tl;dr:

  • Launch a MakerDAO/Liquity-like AMO.

  • This proposal jives a bit with the FXS-utility-token model. Because of this it’s controversial. Please read my proposals below and if this gains traction please chime in with some changes.


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 thing’. 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 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. Instantiate a MakerDAO/Liquity-like AMO which takes in ETH (decentralized! :grin:) and spits out “decentralized FRAX”.

  2. What about FXS??? → Problem! → Solution? → Simple, just accept FXS as well as ETH as collateral.

This seems like an abominable ouroboros mechanism. We’re emitting FRAX by using FXS as collateral? What? Well, first of all, FXS is its own beast. Right now a lot of FXS value is “wasted” idling because the FXS market cap is much larger than (1-CR)*FRAX_mkt_cap. If there’s no lending partners willing to emit FRAX/STABLES with FXS, why shouldn’t the protocol itself do this?

  • As a financially-sound mechanism maybe the AMO would only ever accept FXS as collateral as long as:

FXS_mkt_cap - (1-CR)*FRAX_mkt_cap < FXS_collateral_used_by_AMO

This way we also sort of solve the problem that this AMO would be short circuiting the FXS-Utility mechanism.

  1. So this AMO would take vanilla overcollateralized ETH and mint FRAX. Or take in overcollateralized FXS and mint FRAX. Or ANY % combination of ETH/FXS.

  2. My opinion is that no sort of Maker “stability fee” should be charged. FRAX protocol is robust without it. And it would be competitive by not charging such fees.

This way we’d be like a MakerDAO++. While a user PAYS Maker to borrow DAI (stability fee), a FRAX_BORROWLEND_AMO user wouldn’t incur this fee.


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:

The malfunctioning of this AMO would jeopardize the protocol depending on how much FRAX is issued by it. Aberrant liquidations caused by malfunctioning oracles which happened on Black Thursday to MAKER are one example.


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: (subset of FIP-8)

  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 Q1 2021 Quarterly Cryptocurrency Report

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


tl;dr:

  • Launch a MakerDAO/Liquity like AMO.
  • This proposal jives a bit with the FXS-utility-token model. Because of this it’s controversial. Please read below my proposals and if this gains traction please chime in with some changes.