FIP 95 - FRAXBP Revenue and Incentives Strategy

Governance Proposals
1

Authors

C2tP (Convex Finance)

Sam (Frax Finance)

Dennis (Frax Finance)

Proposal

Background & Motivation

Now that the FraxBP is live and the Frax Finance whitelist proposal will end soon (https://dao.curve.fi/vote/ownership/196). We would like to define how the FraxBP Protocol Owned Liquidity farming revenue will be handled as well as incentives for Frax and FraxBP related AMM pools.

Original Curve governance proposal can be found here: Deploy a "FRAXBP" Pool & whitelist Frax for veCRV Staking - Proposals - Curve.fi Governance

Section 1: FraxBP Revenue

As stated by Sam of Frax in the Curve governance forums, Frax will move to be even more symbiotic with the Curve ecosystem. Up until now, CRV farmed was sold to FXS. This FXS was used for further incentives and/or platform revenue. Frax will now shift into a new strategic position with farmed rewards to eliminate this sell pressure while still allowing itself a means to utilize the token’s value.

As Frax farms CRV and CVX emissions from FraxBP, Frax will:

  • Lock all CVX as vlCVX
  • Lock at least 5% of CRV as veCRV
  • Use remaining CRV to acquire(direct deposit or purchase at team discretion) cvxCRV

The cvxCRV can be used as voting incentives. The cvxCRV not used for incentives will be staked for revenue.

The veCRV rule is only a minimum.

The ratio of how much is locked, staked, or used as incentives is determined by the Frax team while looking at current market conditions.

This setup gives the Frax team a large leeway in how it can fund the FraxBP and hold on to what it can given the ever changing market conditions. Making sure the FraxBP is well funded is a higher priority than increasing treasury assets. The held treasury asset balances and types can be reassessed again at a later point once the ecosystem around FraxBP has grown and stabilized.

Section 2: Voting Incentives and Gauge Weight

Frax will continue providing voting incentives for Frax pools on the Votium platform. As described in the original Curve proposal, Frax will also strive to be an active partner for pools that decide to pair with the FraxBP by contributing to voting incentives for FraxBP metapools. In addition to this, with the enactment of the Curve whitelist proposal, any veCrv Frax locks can be used for promoting Frax pools or metapools on the Curve gauge system.

Voting Incentives:

Along with FXS allocation from treasury, Frax may also use a portion of cvxCRV farmed from the FraxBP for incentives on the Votium platform up to a maximum value of $10,000,000, as has been previously decided in a past governance proposal.

Frax will continue to provide voting incentives for Frax pools. However, with the advent of the base pool, Frax can now also provide incentives to FraxBP metapools.

For Ethereum Mainnet:

Metapools may receive a share of incentives based on organic TVL of the FraxBP in each pool. A maximum of 20% of yield from the FraxBP protocol owned liquidity may be applied to each metapool and 50% of such yield applied to all metapools in total.

(Note: Organic TVL, TVL not affected by incentives or gauge weight from Frax, is determined by the Frax Team.)

For non-Ethereum chain pools:

The FraxBP for each chain may receive increased incentives based on the total TVL of FraxBP in all metapools on a given chain.

Non-Ethereum chain metapools are structured differently on Curve’s crosschain implementations and thus already automatically earn the base yield of the base pool gauge weight proportionally. This is something Ethereum mainnet metapools do not do because of gas costs. Thus we will attempt to mimic such a concept on mainnet by adding voting incentives to mainnet metapools. However, keeping Protocol Owned Liquidity at a healthy level is also important thus, at max, half of the incentives from FraxBP revenue may be applied to metapools.

Frax veCRV Gauge Weight:

The Frax team will have discretion on how to effectively use veCRV gauge weight to promote Frax pools or metapools.

Voting

For: Enact FraxBP farming and Frax pool voting incentive strategies described above.

Against: Do nothing.

3 Likes
2

I would not agree to these numbers as it gives FRAX no room to divert some of its AMO profits to the veFXS holders.

3 Likes
3

Thanks for voicing your concern.

First off I’ll say, while revenue is good, rewards from POL isn’t exactly huge on profits. If there are profits, there’s a tough choice between taking the short profits or putting more into the pool. In contrast things like lending should be pure profit. I think Sam was saying the fuse pool, before it blew up unfortunately, was taking in 50k usd per day for vefxs. Bullish for Fraxlend!

Because the balance is a bit delicate, conversation with the Frax guys led us to the conclusion that this proposal should first focus on defining the basic farming and incentives strategy and be a bit on the minimalist side. Then maybe another FIP could define how profits are taken to vefxs based on certain conditions etc.

That being said, the current setup can take profits with

  • Staked cvxCrv revenue
  • veCrv revenue
  • vlCVX revenue
  • Votium rewards (ex. cvxCrv that comes back to Frax)

Also the current setup calls for staking left over cvxCrv (which increases revenue) but this can also be defined in a follow-up FIP on what conditions and at what rate this could be okay to take profits on. The top priority is making sure FraxBP is paid for and in good shape. Then you have decisions of lock to vecrv, stake more cvxCrv for more revenue, take profits for veFXS.

Because defining rules on this balance is delicate to say the least and since FraxBP and metapools aren’t up and running yet, it would be best to define the profit taking at a later date.

1 Like
4

im assuming the treasury FXS will only be used for bribes once the cvxCRV has been exhausted.

please confirm this will be done via the cheapest route and not with 3% tax that was mentioned in the last proposal to buy cvxCRV.

Can you also confirm that FRAX profits from the current FRAX-3CRV pool will not be part of this proposal.

Personally i think its foolish to say that all profits must be deployed with no room for adjustment.

1 Like
5

Been thinking about the overall implications of this strategy.

In order to maintain a health balance of veFXS boosts - it seems to me as if $FXS(governance) will have to maintain its price under a certain threshold.

Enlighten me if i’m wrong

6

Has Frax considered using Pitch as a 1inch type router for CVX/CRV incentive routing? We’ve built some infrastructure so that vote-incentives are optimally directed between vlCVX and veCRV voters, and we’ve also built a capital efficiency scale to ensure that the incentives aren’t wastefully spent.

Detailed examples from above can be found in the “capital efficiency and price discovery” section of this article: Introducing Pitch — Pitch

7

imo this needs to be changed to …

  • Lock up to all CVX as vlCVX
  • Lock at least 5% (up to 50% ) of CRV as veCRV
  • Convert at least 5% (up to 50%) of the CRV to cvxCRV via the cheapest route

cvxCRV will only be used for incentives.
cvxCRV will be used used for incentives until its exhausted, once its exhausted FXS can be used for incentives if needed.

8

Hey guys,

Great proposal!

Quick question: Isn’t the 95% dedicated to cvxcrv for bribes a bit oversized?
I think in the past Frax was not spending 95% of its farmed revenues in bribes.

In the past, Frax has spent over $80m in bribes, corresponding to approx 28m CRV if we take the average CRV price over the period ($2.9). If it had locked those CRV instead of selling them for bribes, Frax would have today roughly 6% of the veCRV supply, and would be able to pay much less in bribes, while generating much more revenues.

Frax couldn’t do that in the past because they didn’t pass the vote for getting a whitelist to be able to lock their farmed CRV.

Now that Frax is whitelisted, it makes sense to invest in the long term sustainability of the protocol, rather than keeping this high rate of expenditures.

With that being said, I believe this 95% dedicated for bribing share to be sub-optimal for Frax regardless of the goal Frax is trying to achieve.
As I see it, either you use the cvxCRV for bribing, or you stake them to increase your vlCVX underlying voting power and generate revenues. In the first case, I think it is a great idea, but maybe not for 95% of the farmed revenues. For the latter, I believe the increase of voting power you achieve is rather innefficient. Indeed, as Frax owns 6% of vlCVX, the increase in voting power will be 0.06 veCRV per converted CRV. It would be more efficient in the long term to lock the CRV directly and get the full voting power (which will allow for reduced bribes in the long run).

I understand the liquidity consideration: Frax needs to have reserves as liquid as possible, to make sure the model works fine. However, there are other solutions in the market to stay liquid and gain maximum voting power over Curve. Frax could stake a fraction of their farmed CRV as sdCRV, and thanks to the SDT recently locked, gain more than 1 veCRV vote per CRV staked. The liquidity of sdCRV is limited, so it would not be possible to use only sdCRV of course, but a fraction of the farmed CRV could be used that way. By the way, Sam mentioned it in the original proposal on Curve, which demonstrates the interest it could represent for Frax (see screenshot below).

image
image796Ă—356 29.1 KB

In my opinion, a more efficient proposal for frax would be to do the following split amongst farmed rewards:

  • 10% locked on Curve for veCRV
  • 10% converted to sdCRV and staked to vote with boost on Curve
  • 80% as cvxCRV to increase the power of Frax’s vlCVX and farm, which can be used for bribes and even potentially veFXS revenues.

All in all, I believe this is really a question of what works for Frax: Maximising their voting power on Curve or keep paying bribes at the detriment of the DAO revenues.

1 Like
9

it doesn’t say “dedicate 95% to cvxcrv” nor does it say the cvxCRV will increase veCRV for Convex as it can be bought.
The only thing it says is that no matter what market conditions, there must be AT LEAST 5% in vecrv.

This means if market conditions were good, it could be something crazy like 20% cvxcrv and 80% veCRV.

You could rewrite it as:

  • minimum 0% cvxCRV
  • minimum 5% veCRV

Thus veCRV has the higher required weighting. cvxCRV is just bought to help pool balance (pretty helpful partner like thing to do) then is mostly used as incentives immediately(thus peg worries shouldnt be too big since its transitory). Anything left over can be decided by the team if they want more liquid revenue(and in particular stable revenue) as staked cvxcrv, or some illiquid stable revenue and voting power in vecrv.

10

in the past we voted to direct 100% of AMO profits to veFXS rewards, but it was generally accepted that AMO earnings would be used for veFXS rewards and increasing the protocol assets / voting power. With the current proposal we are changing this to spending the AMO earnings on voting power and rewarding FRAXbp users and excluding veFXS holders from having a direct share of the profits.

personally i think this reduces the value of veFXS overall as its removing its main source of potential veFXS rewards.

I would like to see veFXS holder voters always vote for things that are in the best best interest of the FRAX protocol in governance voting and not have the the option for veFXS voters to earn more (in the short term) for the way they vote in a single proposal. The best way i see this happening is if veFXS holders are rewarded directly from protocol profits and not from bribes (for governance votes). This way veFXS rewards would be directly related to the expansion of the protocols earnings. This is why i would like to keep a direct relation between AMO profits and veFXS rewards.

Right now veFXS holders get about $120k a week and the protocol earns about $700k , so the veFXS holders get about 17% of the protocol earnings, if this proposal was changed to allocated 15% of the AMO earnings to veFXS rewards then i would have no major issues with the proposal as it keeps the direct link between protocol earnings and veFXS rewards.

1 Like
11

Thanks a lot for the clarification. It makes much more sense to me now I understand that.

Still think it would be good to also mention sdCRV in the ways that can be used by the team for holding the farmed assets, so that we don’t need to go through a second vote for this.
However, if you prefer, maybe it’s better to say we can reconvene when we have more visibility on the revenues generated by the FBP, to decide what tokens can be held as liquid reserves for the DAO. sdCRV kills two birds with one stone (liquid + governance power), so I believe it could make sense for the DAO (ackowledging of course its lower liquidity of course).

12

i think its best to look at all options that may benefit FRAX and agree other versions of wrapped CRV should be an option.

but this is an C2tp thread, so the interests of FRAX will take 2nd place to the interest of convex.

i would guess that sending some rewards to stake would not be in the best interest for convex, and to be honest i would rather the rewards went to convex products over stakes, but i would like to see the options remain open for the FRAX team.

2 Likes
13

This proposal is up for voting here: Snapshot