Frax x Perpetual Protocol


Perpetual Protocol is a decentralised perpetual futures exchange that recently deployed Curie, their V2 on Optimism. V1 of Perpetual Protocol saw over 40bn in volume traded on a non incentivised basis.

Perpetual Protocol currently is the largest project on Optimism.


FRAX as Collateral

One feature that we are working on that we are very excited about is multi collateral. Effectively this will allow people to utilise other types of collateral in Perp and trade or market make on it. We propose that on launch of this feature to add in Frax as a collateral type that can be used to market make on Perp

Whilst it’s very hard to give timelines for when it will be delivered we are targeting either Q1 or Q2 of 2022 to deliver - a lot of unpredictability of timing comes from audits and edge cases that we may find. However it’s currently a top priority for the foundation team.

FRAX loan

The Foundation team currently market makes on Perpetual Protocol and are looking for stable assets to deploy and utilise for market making purposes. The motivation is because like most other foundations and DAOs, they hold a lot of the native token but far less in stables.

We would propose an initial loan of 10m in FRAX to the foundation team to be utilised as collateral for market making. The Foundation team will guarantee the principle will be repaid after the duration of 6 months.

One issue currently is that the system only allows for USDC as collateral to be utilised and this will remain the case until multi collateral is launched (which we hope in the next couple of months). Rather than waiting for this feature to be launched we propose to start building out a relationship with the Frax community and so would propose the following: the initial 10M FRAX will be converted to USDC and utilised for market making purposes. On the launch of multi collateral, the foundation team will firstly add in FRAX into the white list of assets and then convert all of the USDC back into FRAX and deploy it into Perpetual Protocol

Why Partnership?

Assuming the partnership works well we can see this taking off: as the protocol continues to grow we foresee this need for collateral to grow up to 200m by the end of the year and would love to partner with FRAX on this.

Secondly, Perpetual Protocol is currently the largest project on Optimism by nearly every measure. Combined with Optimism being still in its early stages of growth there is a lot of room to manoeuvre to make FRAX a dominant stablecoin on Optimism

Lastly, Perpetual Protocol currently has both a grants program and an ecosystem fund ( This means that by enabling FRAX as collateral on Perpetual Protocol it will also expose FRAX to other projects that are building or integrating with Perpetual protocol currently.


I support this proposal and overall vision as we discussed, especially because I’m a fan of Perpetual Protocol and would love to see FRAX as collateral. That would help adoption of FRAX in the perp space.

I think one obvious question that the community will have before being excited about this is the timeline of multicollateral perps because as the proposal says, the FRAX will be swapped (ie sold) for USDC immediately for liquidity provision, but eventually will be bought back with the USDC. It’d be good to know what that timeline is so FXS voters can make an informed decision :slight_smile:

Definitely. It’s super hard to commit to timelines (as I’m sure most of us understand around audits etc) but we’re pushing for it to be either end of Q1 or early Q2. It’s currently the top priority for us as there are a number of projects after multi collateral for various use cases as well

This is great and everything and i do use and like your project … but wheres the juice ?

Kinda like asking someone to take your wedding photos and offering them exposure as payment.

How would you like to do this? will PERP tokens be used as collateral ? or are you just asking us to hand you $10m and trust your word?

If this is the initial loan amount then does that imply you foresee needing more loans after this one?

Yep we’re exploring a fully under-collateralised currently. We’re fully doxxed team with much more at stake than the 10m FRAX that we’re asking for.

We’re happy to explore collateralised options as well though our preference is strongly with exploring under-collateralised solutions right now (given as multi collateral launches we can also use PERP as collateral theoretically).

Yes we can see demand increasing significantly over time. We are exploring scaling this through some other infrastructure like TrueFi - assuming everyone is happy with this initial experiment we can look at getting FRAX onboarded as well with them

so generally speaking, your proposing an interest free loan that starts at $10m, but could go up to $200m.

so a $200m interest free credit line that starts with $10m?

your other option is to deal with TrueFi and they charge around 8% interest.

so what attracted you to FRAX ?

Would only suggest we start with 10M and anything subsequent we’d have a new proposal for to approve/discuss

We’ve been a strong believers and supporters of Sam and team for a while now. We’ve talked about having an AMO when multi collateral goes live (deposit ETH, short ETH).

Our understanding based on prior conversations have been that the biggest focus for FRAX right now is getting more adoption and usage on various different protocols and chains. This proposal was to try and support that focus. If we would be able to onboard FRAX to Perp then we would also see a curve pool being setup, potentially being onboarded to TrueFi as well as the ability for other projects building on top of Perp to utilise FRAX.

The thinking with this proposal was to get this initial trial run and then assuming everyone is happy to then to discuss how we scale this up.

i still see no up side to this.

if we loan you $10m thats $10m thats no longer earning money for FRAX and over 6 months thats gonna cost frax $300-400k

we then take on all the risk as there is no collateral and we dont have any system in place to approve uncollaterlized borrowers.

we than have to trust that you will pay us back if you can.

the other risk is, we have no way of knowing how many loans you have been given like this from other protocols and you could simply be borrowing off us to pay back someone else.

i think the best way to start a working relationship between 2 protocols is by not trying to rip them of right at the start. you have the collateral to back the loan so i see no reason why you would be so shy to use it, you also plan to use the $10m to generate an income while FRAX’s income in reduce so i see no reason why you would not offer to cover the difference.

i also dont think its wise to setting a precedent that FRAX hands out muti million dolla loans, interest free with no collateral or background checks.

Where did you get this number from our of curiosity?

Had discussed this prior with the team before posting here and had their blessing and support so definitely the goal isn’t to rip anyone off. Will note that this is from the foundation rather than the DAO so there’s some small differences:

  1. We are currently optimising more for deep liquidity rather than profitability from a trading perspective so it’s not necessarily guaranteed to make income
  2. Given the foundation holds a lot less PERP than the DAO we are exploring under-collateralised option. The team is fully doxxed at this current time and reputation based credit systems have seem over 1bn originated (see TrueFi + Maple).

We’re working on something a lot bigger as an extension of this - the general gist of it is that this can become an income source that is highly scalable and could skyrocket FRAX usage to be the major stable-coin on OP. This statement might seem overly optimistic but as soon as partners and the plan is more formalised and all parties are happy we can share more details (I honestly wish I could share the details here but timing isn’t on our side).

Hopefully this provides a bit more context. One big thing for us is having this be under-collateralised - some levers potentially we can tweak is potentially paying some interest (say 5% in PERP), reducing the time (say 3 months instead of 6 to build trust up) or maybe reducing the amount (say 7m instead of 10m). Happy to explore the alternatives if the context isn’t sufficient but we see this as an initial trial that will lead to something a lot bigger for both Frax and Perp

I think this is a great proposal and opportunity for Frax, Optimism is a pioneer in optimistic rollups and Perpetual Protocol one of the biggest perpetuals DEX, Perp V2 on Optimism has over $70m in daily volume and almost $100k in daily fees. As @tongnk mentioned, Optimism still hasn’t catched much traction so it can have an enormous impact for Frax to begin positioning itself as the dominant stablecoin on the rollup, and there are several protocols building around Perp, which would also be able to include Frax in their plans.

I think the suggested amount of $10m and time of 6 months is a good starting point, @sparkes25 has a valid concern regarding the costs of an interest free loan, but I think the proposed solution of an interest paid in PERP is a good solution that would also help build the partnership. I’d only add that the token per PERP be agreed beforehand and ideally be paid at the beginning of the loan to show the compromise from both parts.

I look forward for both protocols to begin cooperating!


there are hundreds of options for staking stable coins and 6-8% a year is well within the expected interest range.

the time frame and amount dont really bother me, the idea of handing out interest free loans does. an interest rate of 5% paid in PERP seems fair.

one last question. if the $10m is lost due to an contract exploit what happens?

We’re super security focused actually so not a problem. With V1 we basically purchased coverage from Nexus, Unslashed and Cover for all users as we found individual users weren’t buying it themselves.

We’re looking at doing the same with V2 and it’s under discussions currently. Additionally we have a bug bounty program through ImmuneFi for up to 1m

I am in favour of this partnership, the Perpetual Protocol team has shown that they are great builders in the DEFI space, so they deserve our support.
The opportunity for FRAX to be one of the first new collateral types in the multi collateral version is great. To be able to use FRAX as collateral will give us many opportunities to build fruitful AMO’s.

@tongnk how does the multi collateral version work, do you have for example one ETH-USD market where you can trade using USDC/ETH/FRAX as collateral or do you need three distinct markets for that?

Nope we just need one single market! Best way to think of it is as though you are borrowing USD against FRAX and then trading against it.

Just speaking on my insights as a member of the Optimism team.

Definitely in favor of this partnership as well! The Perpetual Protocol team is a group of individuals that understand how to grow a product if given the correct resourcing and platform. Their volume with the current liquidity speaks for itself. With more liquidity we should be able to see FRAX’s footprint grow incredibly on Optimism as multicollateral rolls out.

One of our goals is to source and push forward products that can build on top of our composability. Perpetual Protocol is one of these products and like @tongnk mentioned, this would mean that FRAX would be exposed to other projects that are building on top.

Long term, this will definitely benefit the FXS community and their interests. There is a ton of opportunity in the coming months on OP for FRAX to become a more dominant stablecoin at this time. We want both of you to grow.


I’m unable to edit the original post so will post here for clarity. Thanks to comments from @sparkes25 and others, we’d propose to update the terms to be the following:

  • Loan amount: 10M
  • Interest: 5% paid in PERP, using a TWAP of 7 days. To demonstrate good will we will pay this up front to the DAO
  • Tenure: 6 months

Snapshot vote is here: Snapshot

1 Like

This sounds really similar to an idea I posted a few months ago: Make Frax the first bank of DeFi

I still think providing under-collateralized loans to protocols is an interesting idea but the challenge is evaluating the creditworthiness of the borrower and pricing the risk correctly. I still think we can consider deals like this but because we currently don’t really have ways to make these sorts of evaluations there needs to be a “margin of safety” where the risk/reward is very clearly tilted in our favor.

Tbh I would like to see something like this happen. I’ts a whole new domain to explore and could imagine scenarios that turn out very well for Frax- a lot of Frax’s current success has come from our partnerships and there’s clear benefits to becoming the place protocols come when they’re in need of capital for business operations.

That being said I don’t know if I’m in a position to judge if this is +EV or not. I’m not very familiar with Perpetual Protocol and as presented I’m not sure this meets the threshold of being something that’s obviously good for us from a risk/reward POV. I actually don’t necessarily care that much about the APR but there just needs to be some clear benefit in making the deal. That could come in the form of a higher than market APR but could take some other form, possibly something specific to the partnership.

In some ways the biggest benefit I can see is just starting to explore this whole space of under-collateralized protocol loans which as far as I know no one is really doing at this point but if this is the right deal to get started with that or not I don’t really know.