Official Proposal: Sifchain <> FRAX Partnership

Governance Proposals Liquidity Providing
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Summary:

This proposal seeks to establish a partnership between Sifchain and Frax. If it passes, $2,000,000 FRAX will be used to provision liquidity on Sifchain. Deep Liquidity on Sifchain will establish a gateway into the Cosmos ecosystem for FRAX, make FRAX transferable over IBC, and eventually enable FRAX to be used as collateral in margin trading positions against any token bridged to by Sifchain’s omni-EVM bridge.

Context:

After discussing a potential partnership with Frax on the community forums for more than 5 days, and receiving support from active Frax community members (Sifchain <> Frax collaboration for deep liquidity in Cosmos), the Sifchain community has decided to bring this proposal to a formal vote. Please read the linked thread for more resources including bridge audits, tokenomics clarifications, and other concerns.

About Sifchain

Sifchain is a Cosmos SDK built DEX. Our primary value proposition is that we enable capital efficient cross-chain trading through two features: omni-EVM and deep margin. Other interesting aspects of Sifchain include our use of slip-based swap fees, eventual order-book implementation, and having ROWAN as a base pair for all pools.

Omni-EVM: Sifchain aims to be the first Omni-Chain DEX, connecting to 20–25 blockchains for cross-chain integration. The targeted blockchains represent the overwhelming majority of all cryptocurrency trading volume - thus actively traded assets from all chains will be accessed through the Sifchain DEX. Omni-EVM will enable any ERC20 token, any Cosmos Token, and any token that exists on ANY EVM compatible blockchain to be imported and traded in Sifchain.

Deep Margin: Hopefully coming as soon as Q2, Sifchain will deploy its novel architecture for margin trading - allowing traders to use leverage on their trades by borrowing from the liquidity pool. The interest rate is set based on market demand and liquidity supply. Liquidity providers are able to add liquidity into Sifchain’s pools symmetrically or asymmetrically, while MEV front-running in order placements is prevented through a commitment-reveal scheme.

Deep Margin + Omni-EVM: Any ERC20 token or Cosmos Network token will be able to be used as collateral in any margin trading position. Likewise, any such token can be longed or shorted. This unlocks nearly unlimited margin trading pairs and enables users to utilize this feature on tokens that have previously never been possible.

Technical Details

Following the standards outlined in [Bridge Mechanism - Frax Finance ¤], FRAX on Sifchain will not be the canonical representation of FRAX, and as such it will be called sifFRAX when traveling over IBC (Cosmos’s Inter-blockchain Communication Protocol).

Proposal Results

For: establish a partnership with Sifchain and provision $2,000,000 (2 Million Dollars) of FRAX liquidity on Sifchain.
Against: do nothing

Execution

Our market maker will work with the relevant members of the FRAX team to provision the initial liquidity for the pool. If a canonical version of FRAX is deployed at any time, Sifchain will work with the FRAX team to ensure that token fungibility between bridged assets and canonical assets is achieved to the satisfaction of both parties.

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There has been a bit of conversation about this in the telegram, but I thought I’d bring it over here because all of the questions are relevant and haven’t yet been addressed. Thanks to @sparkes25 for the good questions. (Source: Telegram: Contact @fraxfinance)

Q: if the vote passes, and the $2m FRAX is agreed. what will you do with the $2m ? where will it be providing liquidity too ?

A: It will be for the ROWAN:FRAX pool on Sifchain, establishing our deepest stablecoin liquidity on the DEX. Eventually, the FRAX community could also make a proposal to take that chunk of liquidity elsewhere to other DEXes in Cosmos after a satisfactory liquidity depth has been reached.

Also, I was under the impression that the FRAX community would still own that liquidity and would thus generate rewards.

We also have 100% APR for all pools on Sifchain at the moment, although we will be tapering this off and lowering inflation in the near future as we launch more features. We would also welcome cross-community events to encourage ROWAN holders to make the ROWAN:FRAX pool a bonus pool, increasing the rewards for liquidity providers and hopefully making the pool deeper.

Q: so for staking in that pool the FRAX protocol will earn ROWAN token?

A: Precisely – and y’all are free to do as you like with it :slightly_smiling_face: that could include purchasing Cosmos tokens like ATOM to your foreign investments index.

Q: whats the expected trading fees gonna be like for margin trading ? including on-chain transaction fees?

A: Cosmos transaction fees are super low – almost non-existent.

As for fees, you can actually borrow against liquidity that you provide to the liquidity pools. “Interest rates for each pool are set dynamically based on its ratio of available assets to borrowed assets.” – Sifchain Weekly Update: 11 Oct -24 Dec | by Sif | Sifchain Finance | Dec, 2021 | Medium

Q: "wont [gains] be capped by the liquidity ? eg, if someone put up $20m collateral and wanted to do a $500m trade, that $500m has to come from somewhere?

A:

TLDR
Gains are uncapped, borrowing amounts are capped and determined by the amount of liquidity in the pool.

Details:

By uncapped gains we mean that users who open a successful position will receive all of their gains from closing the trade. This is different to some other protocols where if you close a successful trade up 1000% you may only receive 900% of your gains.

There are 2 important things to consider regarding margin trading:

borrowing is limited by the amount of liquidity in the pool and there is a buffer. So imagine there is a pool with $100M liquidity, you can only borrow 50% of that for a trade. But when you do that, you will drive interests rate way, way up. This has two effects: more liquidity will be drawn into the pool because higher interest rate= higher rewards and unprofitable trades will most likely be closed against the increase in interest rates.

b) swap: we have oracle weighted pricing so you can execute a swap against an oracle price (an oracle weighted version of the price that takes into account pool depth). However, if you do a really huge trade you’ll still induce slippage.

Security of the Bridge: All recent audits can be found here.

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We are thrilled to see this proposal pass, thank you to everyone that voted and spread awareness.

We know that the Frax team is incredibly busy with the launch ETH Denver and the launch of FPI, but when that is all wrapped up please let me know so we can go about provisioning this liquidity, discussing canonical FRAX vs. sifFRAX (bridged FRAX), and perhaps hosting some cross-chain marketing related activities.

We’d also like to point out that we have a monthly pools of the people vote using staked ROWAN and pooled ROWAN, in which the winning pools earn 300% APR. I’ll provide more info on this in the near future as we get closer to the vote. I’m sure the ROWAN community would be excited to hear more about FRAX from some community members over here or the team as we approach the stablecoin vote.

Looking forward to what the future brings in this collaboration, and thanks again to the FRAX community.