[FIP-XXX] Penalty free unlock for the FRAX/crvUSD Convex FRAX vault

Governance Proposals FIPs
1

Authors:
Mockingbird

Summary

This proposal introduces a one time, penalty free unlock for the Convex FRAX vault that stakes the FRAX/crvUSD Curve liquidity pool token.

This vault offers a 3 year lock option but currently receives no incentives and has very low trading volume. For more than one year, the effective yield for lockers has been extremely low compared to other reasonable alternatives, and now it is effectively 0 percent. In its current state it does not provide meaningful value to Frax or to Curve, while users remain hard locked with a very high long term opportunity cost.

The proposal allows users to withdraw their locked positions from this vault immediately, with no additional fee, during a limited window, and then leaves the vault in its normal state or deprecated state according to what the DAO prefers.

Background & Motivation

When the FRAX/crvUSD Convex FRAX vault was launched, Frax and Curve were actively incentivizing this pool. Some users chose the maximum 3 year lock with the reasonable expectation that:

  • Frax and Curve wanted that liquidity for a meaningful period

  • while that liquidity was desired, incentives would remain at a reasonable level compared to other Convex Curve products, even if the exact amounts were discretionary

In practice the evolution has been:

  • a relatively short initial period with meaningful rewards

  • followed by a long period, more than one year, where incentives were already very low compared to other Convex Curve pools and the effective yield for lockers was very low

  • and finally a recent period where the pool has effectively received no incentives at all

  • while capital is fully locked and cannot be reallocated to new Frax products that are actually strategic today

Today, for the FRAX/crvUSD pool and its Convex FRAX vault:

  • incentives from Frax and from the Curve side have been at zero for some time

  • there are no partner incentives on the gauge

  • trading volume is low

  • the pool does not play a relevant role in the current frxUSD centered strategy

  • yet 3 year locks remain in place for users who committed to this vault

For lockers, the result is:

  • some extra returns at the beginning

  • then a very large opportunity cost for more than one year with a very low yield

  • and now a lock in a pool with 0 percent return, with no way to move that capital into products that Frax currently considers important

The goal of this proposal is not to revive or subsidize the FRAX/crvUSD pool. It is only to give long term lockers a way out, without additional penalty, in a vault that is clearly no longer strategic.

Why this is positive for Frax

From the protocol side, keeping this specific vault exactly as it is has very limited upside and clear downsides:

  • The pool generates almost no trading fees and no meaningful volume.

  • There are no incentives being paid by Frax or by partners, so Frax is not saving emissions by keeping people locked.

  • The liquidity is not helping the frxUSD roadmap or any of the current priorities.

  • At the same time, it creates long term frustration for the most committed users, who are the ones willing to accept 3 year locks.

Allowing a one time, penalty free exit in this single legacy vault has advantages for Frax:

  • It removes a product that is economically irrelevant but reputationally damaging, since it looks like a dead end for anyone who ever chose the 3 year option.

  • It frees capital that is very likely to be redeployed into the parts of the Frax ecosystem that actually matter today, such as frxUSD based pools, Fraxtal or Fraxlend.

  • It sends a clear message that when a pool reaches the state of “no incentives, no volume, no strategic role” for a long time, Frax is willing to clean it up in a controlled way rather than keep users locked there until the last day of the 3 year period.

The aim of this FIP is not to change the general logic of 3 year locks or to touch any active or strategic vault. It is only to handle a single vault where the original economic logic of the lock has already disappeared in practice.

Proposal Details

This proposal introduces a one time, penalty free unlock for the Convex FRAX vault for the FRAX/crvUSD Curve pool on Ethereum.

The behavior of this vault will be modified as follows:

  • After this FIP is executed, a special unlock window of 60 days is opened for the FRAX/crvUSD Convex FRAX vault.

  • During that 60 day window:

    • any position that is currently locked in this vault may be withdrawn immediately

    • the original unlock time for that position is ignored for the purpose of this withdrawal

    • no additional fee or penalty is applied for using this special unlock

  • After the 60 day window:

    • the vault returns to its normal behavior for any positions that remain locked

This proposal:

  • does not change lock mechanics or rewards for any other Convex FRAX or FRAXBP vault

  • does not add new incentives or emissions

  • does not modify how already unlocked positions behave, which can be withdrawn normally under the existing rules

Optionally, the DAO may also decide to:

  • freeze new deposits into this vault

  • and mark it as deprecated in the user interface

Vote Options

  • For: Implement the penalty free 60 day unlock window for the FRAX/crvUSD Convex FRAX vault as described above.

  • Against: Do nothing.

1 Like
2

The FRAX/crvUSD is a legacy pool, and incentives moved away from it because the stablecoin strategy shifted toward frxUSD. Long-dated locks always carry the risk that the underlying market evolves, and governance cannot retroactively guarantee emissions, volume, or continued strategic relevance. The liquidity in the pool is not worthless—it still provides on-chain depth for LFRAX—but it no longer justifies redirecting resources or rebuilding incentives around an outdated pair.

A penalty-free unlock would turn a voluntary three-year lock into a soft, reversible commitment and would set a precedent that governance must unwind individual opportunity cost whenever conditions change.

3

Thank you for answering here as well, Nader.

I agree that governance cannot retroactively guarantee emissions, volume or that any given pool will remain strategically relevant for the whole duration of a long lock. That is not what I am asking for.

I locked in the FRAX/crvUSD Convex FRAX vault for 3 years about 2 years ago, when FRAX was the only Frax stablecoin and there was no public plan yet to turn it into a “legacy” asset. The formal shift of the stablecoin strategy toward frxUSD and the idea of FRAX as legacy came later, through proposals like FIP 419 and FIP 430. By that time I had already been locked for more than a year.

Today FRAX/crvUSD has low TVL, almost no volume, zero incentives and only marginal strategic value as residual LFRAX liquidity, while a direct successor pool, frxUSD/crvUSD, is now the one aligned with Frax’s stablecoin strategy. The benefit to the system of keeping the remaining lockers trapped in the old vault is tiny compared to the opportunity cost they are bearing.

This FIP is not asking for a general rule that governance must always unwind individual opportunity cost whenever conditions change. It is asking for a one time, narrow solution in a clearly legacy vault built around an asset that the protocol itself has moved away from in favour of a new version. Personally, I would even be fine with a migration that preserves the remaining lock time, so that the 3 year commitment is respected but aligned with the current frxUSD route. Allowing long term lockers to exit or migrate in this specific case would, in my view, strengthen rather than weaken trust in Frax long term commitments.

4

Following Proposals have been passed in past regarding unlocking liquidity, they might help you to draft a proposal that has more realistic expectations:

5

Thanks for the links, Nader. I have read both FIP-379 and FIP-222.

Those are examples of “structured exits”, but they do not address the core issue of this FIP: users entered 3-year locks in FRAX/crvUSD before frxUSD existed as the supported successor route, and the protocol later shifted the stablecoin strategy to frxUSD/crvUSD, leaving the legacy FRAX/crvUSD vault with zero Frax-side incentives.

This is therefore not simply “market conditions changed”, but protocol-driven deprecation of the route. Also, on the Convex side, C2tP recently commented that sunsetting these legacy FRAX vaults should happen sometime soon now that legacy FRAX and frxUSD are clearly separated, potentially via a controlled outflow.

So the concrete question is: what would Frax consider an acceptable, strategy-preserving way to sunset the FRAX/crvUSD Convex FRAX vault and allow lockers to exit, without adding an extra exit penalty on top of being kept in a deprecated route?

If Frax believes a penalty-free sunset is unacceptable here, what specific constraint makes it unacceptable, and what alternative mechanism would Frax propose for this vault?

6

Follow-up, since my last questions are still unanswered.

To be clear, I am asking for a penalty-free sunset for the legacy FRAX/crvUSD Convex FRAX vault, because FRAX was made “legacy” in favor of frxUSD much later than when users (including me) entered 3-year locks in Convex FRAX over 2 years ago, before frxUSD existed as the supported successor route.

Can you answer these two points directly:

  1. Is a penalty-free sunset (with a controlled outflow / rate limit if needed) categorically off the table for FRAX/crvUSD? Yes or no.

  2. If yes, what specific constraint makes it unacceptable (technical immutability, governance principle, precedent policy, etc.)?

I am not asking to rebuild incentives. I am asking for a concrete, strategy-preserving way to close a deprecated route without imposing an additional penalty on long-term lockers. Clarity on this is important for how users evaluate future long-term locks in the Frax ecosystem.

7

To me, a fair middle-ground would be for the Frax team to distribute yield to these legacy pools like they do the frxUSD pools – pay 90-100% of the treasury yields for the portion of LFRAX held in the pools.

8

For context: I am currently restricted from posting in the main Frax Telegram group, and I am also muted in the Frax Discord (where tickets are the only available channel). So the forum is effectively my only remaining communication channel for this issue.

Could you please confirm who owns the next step on this FIP (process owner / path forward), and what the expected timeline or decision path is for sunsetting the legacy FRAX/crvUSD Convex FRAX vault?