Launch a $FRAX/$FXS Angel Vault
Summary - Hi Frax Community! We have been invited by the core team to share this proposal to launch a $FRAX/$FXS Angel Vault for the Frax community. This would allow the $FRAX stablecoin to build a treasury of protocol owned buy-side liquidity and protect the $FXS price during a market crash.
Abstract - Liquidity is the money made available for trading. Most approaches to market making and liquidity involve putting up $FXS tokens and a base asset (usually ETH) for sale. This works great when $ETH is going up in value versus the dollar but leaves the $FXS price exposed to drops in the value of $ETH versus the dollar. With a $FRAX-$FXS Angel Vault, only single-sided $FRAX is added to the proposed Vault. This protects $FXS price against market corrections.
Motivation - $FXS price would be better protected against bear markets without hurting the upside during a bull market.
Specification - ICHI Angel Vaults combine the rewarding and simple experience of Uniswap V2 with the concentrated liquidity of Uniswap V3. Angel Liquidity Vaults are a Uniswap v3 liquidity management protocol that allows LPs to deposit single-sided assets into a Uni v3 pool. Created for projects to build a treasury of project owned liquidity and everyday DeFi users to earn fees without needing to manage their pool positions.
Click here to read more about Angel Vaults: Angel Liquidity Vaults: Get Comfy this Crypto Winter | by Daniel Tal | ICHI | Medium
Liquidity may be added to the Angel Vault in the following ways:
- Direct deposits by the Frax community treasury,
- Incentivizing deposits by LPs with $FXS, and/or
- Purchasing LP with programs such as Olympus Pro Bonds.
The liquidity should total a minimum of $2M $FRAX to enable profitable rebalancing of the Angel Vault. 10% of $FXS market cap should be targeted in order to create a “Strong” Vault.
Benefits - ICHI’s Angel Vaults are the easiest and most cost effective way for projects to increase their liquidity floor, enabling:
- LPs to earn more trading fees with less,
- Liquidity rewards to increase the amount of buy side liquidity without also incentivizing sell pressure,
- The inflationary cost of rewards to be offset by the deflationary minting of the project’s branded dollar, and
- Protocols to build assets under management (AUM) backing their branded dollar and supplying protocol owned liquidity.
Drawbacks - If $FXS price declines in value, $FRAX will be sold for $FXS. LPs will only be holding worthless $FXS tokens if $FXS price goes to $0.
We plan to submit a snapshot to vote on this, but we want to hear from the community first. What are your thoughts on partnering with and creating an Angel Vault to protect $FXS price from a bear market and get comfy this crypto winter?
Awesome idea - this looks like something that would really help protect FXS price and benefit the overall Frax community. Has any project launched something like this? What were the results?
Yes, you’re spot on @dhtal ! That’s the goal here - we want to help protect the price of FXS and help the community feel confident in staying long in $FRAX.
Yes, ICHI’s Angel Vault has launched with $ICHI, $FUSE, and $WING. We also just launched with Shapeshift ($FOX) this morning Looking at the ICHI price against ETH since the end of November (when we launched the angel vault) you can clearly see that we are staying strong against large market dips. $FUSE also had a massive uptick in token price since launching in the first week of January. We recommend putting away 10% of a project’s market cap into the Angel Vault for best results and FUSE did a lot less than that.
Feel free to dig deeper into $WING and keep an eye on $FOX.
ok, so let me get this right …
you want us to give you 10% of the market cap of FXS so you can use it in a uniswap v3 pool and you are gonna manage that pool?
so 10% of FXS ($127m) + $127m FRAX = $254m total in value.
and i dont get this bit.
you want us to reward the pool with FXS?
so if we put up the liquidity and the rewards … what do you do?
Hey @sparkes25 great questions!
The Frax community should provide rewards in $FXS for staking angel vault LP (just like the rewards provided to any liquidity provider that stakes their LP tokens when providing liquidity on Uni/Sushi/Bancor/etc.) - that farming contract is actually fully owned by the Frax community so you can continue/stop rewards whenever you choose and those tokens are always at the disposal of the Frax community. Ideally, for a vault to help $FXS fight a serious bear market we would hope that liquidity gets to around 10% of market cap - again this is not deposited by Frax, but by LPs who are incentivized by rewards (in $FXS).
Angel Vaults create buy-side liquidity underneath the price of $FXS with $FRAX in Uni v3 to protect the $FXS price from falling. To do this, the vault needs to be managed (just like any uniswap v3 liquidity position) due the liquidity being concentrated between certain price ticks. This management is done by the ICHI governance multisig wallet and that management earns 10% of the fees made from trading fees on Univ3.
Hope that makes sense! Let me know what other questions you have - we would be happy to dive deeper
ok, a few things here to look at then.
1 , so on one hand it adds buy pressure to FXS when people deposit FXS in to the pool, but it also increases sell pressure with the rewarded FXS , unless the FXS rewards come from the FRAX gauge, so you would need to have your LP added to the FRAX gauge to avoid the need for extra FXS emissions.
2, how do you differ from gelato ? (they manage a V3 pool for us already)
3, as FRAX has been getting bigger it has been looking to reduce the amount of liquidity it pays for and has been replacing it with protocol owned liquidity. with this in mind, why would FRAX pay FXS rewards to attract investors in this pool when it could add all the liquidity itself and not have to pay for it?
4, this will create a chance to arb between the v2 and v3 pools, will you be setting up any sort of arb bot to profit from this? if so will frax or the stakers get a share of that profit ?
5, months ago we looked at moving the FXS/FRAX pool to v3 and it was rejected , Snapshot so getting investors to move over may be tricky.
6, FXS/FRAX investors get time weights voting power in the FRAX governance, will they still get this if they stake via your option ?
Good points here, let me add a few things below:
The $FXS incentives are considered a bootstrapping mechanism to get liquidity into the Angel Vault, the vault creates a buy-wall by creating a position in the FXS<>FRAX pool underneath the price of FXS. This means we are creating only buy-side liquidity for the FXS token with FRAX. This creates fortification for the price of FXS when the market goes down.
Angel Vaults are not only a univ3 liquidity management protocol, but they also use a specific strategy how they deposit liquidity into the pool. A few major differences - a) only single-sided deposits of FRAX from LPs, b) price is concentrated underneath the price of FXS - more info here: Angel Liquidity Vaults: Get Comfy this Crypto Winter | by Daniel Tal | ichi.org | Medium
Great point on POL - Until now I spoke about what the Angel Vault does when the price of FXS goes down. The interesting part is when the price of FXS increases - the vault puts a small amount of FXS liquidity above the FXS price in the pool (liquidity that it got from buying FXS with FRAX when the price of FXS decreased). What that does is create “take-profit” orders in the pool and as the price increases, the vault converts FXS into FRAX. It can then redeposit those FRAX tokens into itself now owning the LP tokens that provide that fortifying wall underneath the FXS price. Its like the Olympus Bonds program but instead of having to sell FXS at a discount for LP you are buying low and selling high (better conversion to acquire POL).
We haven’t set up any arb bots at the moment but definitely on our roadmap. Vault fees for any trades that go through the pool are split - 80% to Vault LPs, 10% to xICHI holders, 10% to vault manager.
thanks for this I will check it out
Is there a contract we can look at to see what parameters are checked for wallets to receive voting power? Ideally we would want Angel Vault LPs to get voting power (maybe even figure out a way for them to get amplified voting power if possible!)
so the fee is 20% of the profit?
who is the vault manager? and what risks does the vault manager pose?
Yep - the fee is 20% of Uniswap v3 fees that users earn for providing liquidity
For now the ICHI governance multisig has been managing the rebalancing of the vault. ICHI is currently working on creating an admin console for others to be able to ping the contract and have rebalances done automatically through strategies that the team has built.
The vault manager can rebalance the vault (add and remove the liquidity from the Univ3 pool). The funds cannot be sent/removed from the vault contract by the owner though, only by wallets holding the vault LP.
just to confirm , the volt manager is a smart contract and not a person
At the moment it is partially manual with multisig approval, but ICHI is building the automated strategy contracts so that anyone could ping the contract to rebalance based on the implemented strategy
Hey @sparkes25 - the ICHI team would love to organize a call with you and discuss all of your concerns more in depth! Please feel free to book ideally an early morning time slot here: Calendly - Grace Pfluger