I don’t think market conditions should dictate any drastic change due to FUD, since FRAX’s peg is not endangered at all and considering POL the protocol is overly solvent.
If the CR would be moved to 100% and collateral were to become 100% USDC,
that would effectively completely overturn FRAX’s economic model, redemption mechanism, treasury holding and so on… transforming us into an handicapped version of MakerDAO, only being able to replicate their PSM module, which is just a USDC wrapper, a safety module really and doesn’t consititute their core business that makes them profitable through interest rates.
The only differnce between this and Maker’s PSM would be that they’d offer longer durations (then 3 days) and 0 interest fees, completely outcompeting us and making our service useless at best.
Besides, I don’t see a lot of reasons to be pursuing the wUSDC route, if not for instituing a safety mechanism that would be based on a “first come first served” redemption model, which isn’t very fair IMO.
FRAX’s redemption model looks much more fair to me, letting everyone redeem % of collateral proportional to the treasury holdings.
If you want to target a 100% CR with USDC as collateral but still produce liabilities in the form of FXS to back outstanding FRAX while the collateral (supposedly) sits inside an AMO, that would make us undercollateralized and the 100% CR target couldn’t be met.
Seniorage:
100$ of BTC (bcs who likes centralized collateral? xD)
15$ of FXS
Fraxlend:
15$ in Oversupply from the money market ( Collateral Requirements to open a CDP = 115$ for 100$ of FRAX)
as you can see Seniorage produced 115$ of FRAX, 100$ from BTC and 15$ from FXS, so 15$ is still something like 17% Undercollateralized
aka Collateral Ratio is 83%.
Which is perfectly fine because anyways you are solvent!
But btw I agree with you, being overly solvent is better, if you read through my proposal I’d suggest adding to all of the aforementioned an additional “collateral reserve” which is really just more POL in AMOs that compounds our earnings AND our security gaurantees at the same time!
FRAX already has some (or a lot xD) of that inside AMOs, I just described an additional way to earn more of it through an IR strategy involving FXS!
I agree, FRAX proved its peg mechanism works perfectly in a black swan event of massive magnitude. It lost half its marketcap and still kept peg. I dont know if there is a limit to how much the CR can be but maybe there should be one set to a max of 75%, but if anything the LUNA debacle highlighted how amazing the FRAX model is. Before a full algo model can every be conceived, its logical that a fractional model has to be mastered first.