FRAX <> Bluejay Finance - Liquidity Provision Proposal

TLDR;

  • Bluejay Finance is a capital-efficient stablecoin protocol for issuing non-USD stablecoins in Asia. Every stablecoin issued is backed by protocol-owned liquidity.
  • Bluejay Finance utilises DeFi 2.0 concepts such as bonding, and protocol owned liquidity. Bluejay Finance has a dual token mechanism similar to MakerDAO (BLU and bluSGD). BLU acts as value-accrued governance token and bluSGD is the stablecoin. Bluejay’s treasury will be backed on day 1 with USD stablecoins, but we will diversify our treasury to include more non-USD stablecoins to reduce the beta co-efficient. However, Bluejay’s treasury will back multiple non-USD stablecoins.
  • Bluejay’s stablecoins will be over-collateralized in the early days. Once the protocol has reached certain scale stability, Bluejay will explore a fractional reserve model for better capital efficiency.
  • Bluejay proposes for a US$5mil equivalent loan from Frax.
  • 80% / US$4mil equivalent will be used to mint and provide liquidity to bluSGD/DAI pair on Uniswap. Starting out with DAI right now before we introduce multi-collateral bonds in our roadmap
  • Remaining 20% will be kept in reserve for insurance against volatility. It may also be used to mint additional stablecoin pairs (e.g. bluPHP - Philippines Pesos).
  • In return, FRAX will receive 75% of the LP revenue.
  • Initial partnership is for 3 months. If there’s strong demand (average $500k in daily trading volume) in the last two weeks before the end of the initial partnership period, the two communities shall come together to deepen the relationship over the long-term (e.g. Frax bonds and bluSGD/Frax LP bonds on Bluejay, Frax/bluSGD pools on Uniswap or Curve - Discussion/suggestion from Frax community welcomed!).
  • Over the long-term, we want to provide a few main benefits to Frax and Frax users - a) on/off-ramps for different markets in Asia like Singapore, b) additional use cases for Frax to be used as bridge between USD and other currencies, c) experiment with projects to deepen partnership through Frax Bonds, bluSGD/FraxBP, etc.

What is Bluejay?

The introduction of USD stablecoins has allowed individuals and businesses to not only pay and receive payments but also to gain access to a wide variety of financial services like money exchanges, savings, investments, asset management, etc. This has helped reduce inequality by democratising access to financial services, even for the underbanked population Nigerians using stablecoins to hedge against inflation.

However, most stablecoin solutions are centred around USD and not designed for other currencies. This means that users do not have a choice of having exposure to currencies other than USD in the DeFi space.

By having stablecoins of different currencies around the world on the blockchain, we lower the barrier for businesses and individuals in these countries to transact with minimised currency exchange risk. This helps to widen the product offerings of existing DeFi companies that provide crypto invoicing, streaming payments, etc.

Bluejay Finance allows stablecoins to be provided, with deep liquidity backing directly from a DAO through protocol-owned liquidity.

Some key elements of our designs are:

  • Bonding mechanism to fund stablecoin minting
  • Protocol-owned liquidity to back stablecoins
  • Stabiliser bonds for bringing stablecoins to peg

The DAO will be using a bonding mechanism, popularised by OlympusDAO, to allow users to own a stake of the DAO and bring additional funds into the DAO’s treasury. Users will be able to exchange collaterals (other decentralised stablecoins) or liquidity provider tokens for the stablecoins for its native governance token.

The DAO’s treasury will comprise mostly liquidity provider tokens, which represent an equal proportion of stablecoin and collaterals staked on a decentralised exchange. This eliminates the need for excessive collaterals to be kept to back the stablecoins as they are backed by liquidity directly. The design also creates predictable liquidity for the stablecoins supplied as there is no reliance on external liquidity providers.

In addition to those bonds, the DAO also issues different stabilising bonds, depending on whether the stablecoin is overpriced or underpriced in relation to real-world pricing. These bonds allow users to buy the governance token at a discount relative to the deviation between the prices and its proceeds will be used to swap assets on the liquidity pool to bring the on-chain price to peg.

Collateralization

In the early days of the protocol, the protocol will be over-collateralized. That means that the value of the DAI held in the treasury will be more than or equal to the aggregate value of all the stablecoin in external circulation.

Once the protocol has reached a certain scale and stability, where it is possible to forecast the number of stablecoins in circulation, it is possible for the protocol to transit into a fractional reserve model. This means that the reserve assets held in the treasury have a lower value than the aggregate value of all the stablecoins in circulation. Moving into a fractional reserve model means that the protocol becomes more capital efficient (ie 1 USD of assets can be used to back >1 USD of stablecoins). The protocol will only look into fractional reserve model once sufficient real-world use cases are established to ensure the stability of the market.

Opportunity

Frax’s growth has been phenomenal over the past months. However, the ability to on-ramp and off-ramp Frax in Asia (e.g. Singapore) is still pretty challenging. Users often have to either rely on shadowy peer-to-peer markets or through multiple hops of various tokens. Users have to sacrifice security and convenience in most cases with higher fees incurred.

bluSGD (bluPHP, and others later) can help Frax to solve this problem by being an on-ramp and off-ramp bridge for its users in Singapore and beyond to get access to financial services. There is an aligned vision and complimentary incentives for both projects to benefit from.

Although Bluejay is in its early stages, it is in the process of securing partnerships with various DeFi protocols with real-world use cases, as well as, other on-ramp/off-ramp infrastructure players to make sure that people from Asia can get access to DeFI more easily and cheaply. By working with Bluejay, Frax benefits from being able to grow its presence in Asia and from growing additional use cases to be used as a bridge between Frax and other currencies.

Proposal

Bluejay proposes an initial loan of 5mil Frax. 80% of that will be used to mint and provide liquidity. This will create a bluSGD liquidity pool on Uniswap at US$4mil equivalent TVL. The remaining 20% will be held in reserve for additional insurance against volatility. In return for this loan, FRAX will receive a 75% share of LP revenue.

One issue currently is that the system only allows for DAI bonds. This will remain the case until multi-stable bonds are launched in the future. As opposed to waiting for this feature to be launched, we propose to start building out the relationship between the two communities. As such, we propose to convert the 5mil FRAX loan into DAI which will be used to mint and provide liquidity for bluSGD/DAI pool on Uniswap.

The initial partnership will last for 3 months. At the end of 3 months, we will assess the performance of the pool. Should the performance be above $500k in daily trading volume, we propose the two communities come together to discuss deepening the relationship for the longer term which includes experimenting withFrax Bluejay bonds and bluSGD/Frax LP bonds as well as exploring to set up bluSGD/FraxBP pools on Curve. We are very excited about FraxBP pools to help Frax tap into the Asia market.

If the pool has strong trading volume after 3 months, the partnership will be extended by another 3 months while the two communities come together to discuss how to leverage each other to create a stronger value proposition for the users.

Next Steps

Bluejay community appreciates Frax community’s consideration of this proposal. We are very excited to bring new use cases and markets to Frax and happy to answer any questions about the protocol or this proposal.

For more information on Bluejay Finance, please visit www.bluejay.finance.

Founders of Bluejay

  • Sherry Jiang (CEO) - twitter: SherryYanJiang (Previously worked at Google and Amazon)
  • Raymond Yeh (CTO) - twitter: geek_sg (Previously leading engineering at Singapore GovTech on OpenCerts & TradeTrust)
  • Jeff (COO) - twitter: yemyat91 (Founded 2 companies in emerging SEA market)
2 Likes

Thats how far i got before i suddenly lost interest.

I see no reason for us to provide the funds to build a stable coin pool that does not include FRAX.

1 Like

Hi @sparkes25, thanks for raising your concern on our proposal. While we are not able to include Frax bonds or Frax pools at launch, we remain committed to our multi-collateral / multi-stable approach.

We have recently completed audit for our codebase with current bonds and we want to launch asap to gain traction. Once the protocol stabilises, we remain committed to explore FRAX bonds and FRAX pools together. This way we can manage risk better for both FRAX and Bluejay.

We have noted that MakerDAO is on similar trajectory with Real World Assets (RWAs) and think that Bluejay’s collaboration with FRAX will be mutually beneficial and help onboard the next billion users who are not currently in the DeFi space. We would like to kickstart this relationship as early as our launch to build goodwill, in return, we like to offer the FRAX community the majority of the revenue (75%) generated from this collaboration.

1 Like

you are able to , you have chosen not to.