Thanks. You bring up some excellent points.
- Efficiency: having a CR lower than 100% is what makes Frax more efficient than any other stablecoin, for every unit of collateral you have more units of frax which you can deploy in defi and earn more, that’s our advantage, losing that will make frax another wrapped usdc with the same inefficiencies that stablecoins have, FXS token will struggle just like MKR token is struggling.
Moving to a credit ratio, in lieu of a collateralization ratio, still allows for additional efficiency due to the fact that a 10% Credit Ratio would allow Frax to utilize that additional FRAX on top of the collateral deposited when minting.
- The peg is Safe: in the mists of what is happening now with UST, understand that UST had effectively 0% CR which has been proven it won’t work (ESD, Basis cash) and was reflexive which also has been proven not sustainable (Iron finance).
I agree that the peg is safe, which is a testament to the model. But black swans happen, attacks (clearly) happen. Why not obviate ourselves from this risk as much as possible while still retaining the same benefit, via full collateralization?
If FRAX becomes fully collateralized by on-chain highly liquid and accessible assets, as it should be, then defending the peg becomes a profit-making operation conducted by the protocol, at best, and an arb opportunity for anyone else in the other case.
FXS would still be used in the case of writing down bad loans, hacks, etc., but this would also likely protect FXS from being market dumped in times of high vol.