Frax community has accomplished a lot in the last year. The protocol is profitable, with no liquidity constraints due to clever mechanism design and integration with the Curve/Convex ecosystem. However, as far as the stablecoin itself goes, there’s no strong demand for the end-users to own it. From the perspective of a stablecoin holder, Frax looks a lot like a wrapper around USDC with no additional benefits.
I believe that the Frax community can change that by sharing some percent of the protocol revenue with the stablecoin holders. For example, 25% of the protocol revenue could flow back to stablecoin holders as an interest payment. To be competitive, ideally, the end-user doesn’t need to do anything; simply owning FRAX in the wallet would make them eligible for this revenue. The protocol could disburse this revenue periodically (such as every two weeks) using Gelato.
$FRAX stablecoin does in fact offer benefits to holder (it is on its way to become truly chain-agnostic.)
That being said - there are several ways to generate extra incentives merely by depositing $FRAX within certain protocols.
Ideally - yes; it would be nice to have an “interest generating stable” - however, the mathematics of rewarding holders with 25% of the protocol’s revenue is (AFAIK) unheard of and - a recipe for disaster:
for context, if we spent 25% of the protocol earnings to rewards FXS holders then it would be about 0.75% apr
so some one would need about $5k locked up for a year to cover the cost of the ETH fee to claim the reward.
also the protocol growth would slow down a lot due to paying out more profits rather then compounding them.
Thank for you doing the math. While 0.75% is not enticing, as Frax protocol generates more revenue, that number could go up quite a bit, and holding FRAX will start to look more interesting than holding USDC at 5%+.
UST’s 20% APY came from ponzinomics. If it was a variable APY that came from protocol earnings, that would be sustainable, and completely different.
this is incorrect.
1st, if 25% of protocol earnings are directed to FRAX holders then that removes a lot of funds that are currently used to expand the size of the protocol earnings. eg increasing our voting power on curve. so we would grow at much slower rate.
2nd, as we grow and increase our earnings we also increase the market cap of FRAX, so the increase of profits would need to be split between more FRAX tokens, so the APR % will remain around the same or reduce as the protocol runs out of safe places with high returns to place the collateral and starts providing assets to safe investments with lower APR returns.