FIP - Unlock ETH<>FRAX Pool and integrate it into the gauge system

This proposal seeks to unlock the FRAX<>ETH liquidity providers and create a gauge for FRAX<>ETH. This would allow veFXS stakers to vote on how high the emissions for this pool should be.

The pool is quite costly from a protocol perspective and provides little benefit aside from locking up FRAX. According to Uniswap analytics, this pool typically only sees between $1-2M of volume each day. We could support the demand with a much smaller pool.

Because of the large FRAX<>Stablecoin pools, this liquidity isn’t especially useful. If this proposal were implemented and the new pool was only minimally incentivized, users could simply multihop from FRAX → USDC/DAI → ETH for large transactions.

Benefits:

  • Increase the number of rewards available to the gauge system
  • Allow the community to decide how this pool should be incentivized
  • Allow the community to support emissions for new integrations and pairs (example: Sushi gauge)

Drawbacks:

  • A considerable portion of locked LP value could leave the ecosystem
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just to be clear …

you talking about moving the current rewards for the ETH-FRAX pool on uni V2 in to the gauge, then adding the pair to the gauge and giving LP holders the option to unlock there LP’s to give them an option to leave if they are not happy?

or are you talking about moving the rewards to the gauge and unlocking LP’s so they can move to V3 of uniswap ?

I’m talking about the first option. We could do a uniV3 pool in Visor but I’m not confident the tech is ready yet. I propose sticking to univ2 to minimize potential IL and make the process easy for users.

I agree with the proposal and the fact that the pool ETH/FRAX is not very useful. Given the existing massive liquidity on the pair ETH/USDC on Uniswap, Frax Finance just needs to incentivize the pool FRAX/USDC for the route FRAX/USDC/ETH.

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Hey Justin -

Thanks for writing up the proposal. I’ve been thinking about something along similar lines for a while. I support the general sentiment of unlocking the Frax-ETH pool and integrating it into the gauge system.

I’ve also been thinking about FXS emissions and creating a larger FXS treasury for the DAO to manage (or at least buying us more time with the current liquidity incentives). To that end, I think it would be in the long term best interest of the protocol to reduce the FXS emissions from this pool when we combine it with the existing gauges. I’d propose that we target 25,000 FXS per day for both these pools combined (reduced from the current total of 32,876 FXS emitted per day for these two pools). This is roughly a 24% reduction for these pools and 16% for all three core FXS pools.

Looking at the protocol overall, my belief is that ultimately we are paying for locked liquidity and we will likely always want to pay for some amount of locked liquidity. We can debate how much and for how long - I personally think 30-90 days of locked liquidity is probably sufficient, perhaps up to 12 months on the long end - but we can deal with that later. Either way, we will need to find a way to pay for this locked liquidity - hopefully protocol revenue will be sufficient when the time comes, otherwise we can emit more FXS or find another solution. Every FXS we save now is one that we can use later to pay for locked liquidity or investments in the protocol. This also buys us more time to develop the protocol and revenue sources so that we can sustainably pay for locked liquidity when the initial liquidity incentives run out.

Ideally we’d also set the future Frax-ETH gauge to a univ3 pool but we can wait on that - the challenge at the moment is finding the right range that makes sense with people locking liquidity for the long term. This is very likely where we are headed. Perhaps we could approve a v3 Frax-ETH gauge in this vote but implement it later.

Curious to hear what everyone thinks.

TLDR: Two ideas for this proposal:
1. Reduce FXS emissions on the cominbed gauges to 25,000 FXS per day
2. Approve a Frax-ETH Univ3 gauge

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Ya if we do go through with unlocking the system, I think the lowering of emissions into the full gauge system is a good idea. I’d support the 25k FXS/day to full gauges.

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as the doc’s state the emissions will be reduced after 1 year and investors that locked in to the these pools before today locked up funds with that in mind, maybe its best to delay any reduction until the end of the year.

if there is a reduction then maybe it could be staggered to avoid a big drop off, and maybe this could be something we do going forward.

maybe we could do it so the gauge pays out a “standard” reward of 100,000 each week, and every time a pool (that already has rewards) is moved in to the gauge that pools rewards are added as a “boosted” rewards for the gauge, but the boosted amount is is reduced a bit each week until it goes back to 100,000 .

so lets say we move FRAX-ETH pool in to the gauge, the following week the pool rewards will be 100,000 (standard) + 230,132 (boosted) FXS and then we reduce the boosted amount by 5 or 10k a week until it drops back to 100,000k again. or a number we vote to set it at.

I fear that would be extremely difficult to code when it comes to any extra boosts. It is one thing to design it but another thing to implement a safe smart contract that is resistant to exploits.

lets say we add the ETH-FRAX pool and increase the gauge payouts to 114,992 + 175,000 (extra 25k a day) as proposed above, then at some point this will need to go down as we lower emissions.

i was just trying to think of ways the emissions cut could be a planned event and have no cliff edge.

a weekly change as the voting happens just seemed like the best time to do it, but i guess it could be monthly or every 3 months.

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Yeah, as mentioned before, when this pool is wound down, maybe half of the emissions could be retired (for later use) and the other half used with the current gauge

what do you mean “used for later” ? you understand the idea was to pump out 50% of the emissions in the first year and then reduce the emissions for the following 2-3 years?

the current level of emissions is not sustainable, so its a case of cutting the emissions so they are paid out over a longer time frame (3-4 years) rather then the emissions running out in 18-24 months time.

That’s not actually true AFAIK. According to the docs, the most FXS that could be emitted in year one was 36M FXS, but with the removal of the CR boost, the annual emissions are 18M for years 1, 2, and 3.

See here: Liquidity Programs & Staking - Frax ¤ Finance

there are 65m FXS allocated for emissions, 36m is over 50% of 65m.

it would have been 18m emissions for the first year if there was only the 3 core pools and not the 15-20 pools we are or have been rewarding.

i correct myself, there are 60m FXS allocated for emissions for LP holders, the other 5m are for
“5% – Project Treasury / Grants / Partnerships / Security-Bug-Bounties – via Team and Community discretion”