Official Proposal: Tightening the Partnership between Frax <>Sifchain

General Discussion
1

Summary:

This proposal aims to strengthen the previously established partnership between Sifchain and FRAX as well as offer the FRAX community a good investment opportunity. If it passes, the FXS equivalent of $2,000,000, and $6,000,000 of Frax liquidity will be used to provide liquidity on Sifchain, bringing the total amount of liquidity provisions from the Frax treasury to $10,000,000 (2 Million dollars of FXS | 8 Million dollars of Frax).

Deep Liquidity on Sifchain will establish a gateway into the Cosmos ecosystem for FXS, make FXS transferable over IBC, and eventually enable FXS to be used as collateral in margin trading positions against any token bridged to by Sifchain’s omni-EVM bridge. The additional liquidity provisions from Frax will generate sizable rewards for the Frax treasury, and garner more voting power on the Sifchain network.

Introduction

My name is Tungkhan from SifDAO, the DAO that operates Sifchain. Two months ago SifDAO made a proposal to Frax to bring FRAX liquidity to Sifchain. The proposal passed with great community enthusiasm and SifDAO matched the liquidity provided by Frax, bringing the TVL of the pool to $5,000,000.

As of the date of this writing (April 27th), the $2,000,000 provided by FRAX 2 months ago has generated ~$675,000 worth of ROWAN (Sifchain’s token) rewards, or an ROI of ~34%. We are looking to further build upon our partnership with the Frax community by bringing FXS to the DEX as well.

About Sifchain:

Sifchain is a Cosmos SDK built DEX. Our primary value proposition is that we will 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, governance driven monetary policy, 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 Q3, 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 ¤ 2], FXS on Sifchain will not be the canonical representation of FXS, and as such it will be called sifFXS when traveling over IBC (Cosmos’s Inter-blockchain Communication Protocol).

An Investment Opportunity – Historical Metrics:

The partnership between FRAX and Sifchain resulted in the first liquidity provision from the Frax treasury of $2 million FRAX into the FRAX:ROWAN pool on March 2nd, 2022.

On-chain data showed that, on 27th April (at 12h30 GMT time), FRAX was providing $2.37 million of liquidity to the FRAX:ROWAN pool and staking $307k with Sifchain’s validator nodes. The total USD value of FRAX’s wallet was $2.675 million, making a profit of $675k over nearly 2 months or a ROI of ~34%.

This ROI is among the highest rates across DEXes throughout all cryptocurrencies. Many believe that these high ROIs are unsustainable, and we concur, which is why inflation is being reduced weekly in accordance with Sifchain’s long-term economic plans. Despite high APRs & inflation, by looking at ROWAN’s price over the past 3 months we find that it has performed remarkably well. It has not only been stable but even was one of the highest gainers on April 26rd. Its price rose by ~40% in two weeks when the rest of the market was going down.

Potential Landscape ahead:

On April 19th, 2022, we deployed the PMTP (Protocol Monetary Trade Policy) mechanism which aims to control ROWAN’s purchasing power, making it a valuable asset to hold, earn and stake. This breakthrough invention in DeFi will mark the beginnings of a new era because it gives SifDAO fine-tuned control over ROWAN’s monetary policy. Alongside the launch of PMTP we are dramatically reducing inflation, and have just deployed a new liquidity mining module which complements PMTP by allowing a flexible emissions schedule. Furthermore, the new liquidity mining module auto-compounds rewards back into the pool, creating continuously deeper pools and maximizing the Frax community’s returns with little effort.

We expect the release of Peggy 2, an omni-evm bridge by the end of Q2, and margin trading sometime in Q3. All of these novel features are expected to make ROWAN value held by FRAX communities a lot higher than it is currently. We are excited to inform you that today our TVL reached its ATH of $148 million, a ~200% gain from the last 2 months.

With all these facts in hand, we make a proposal for more FXS:ROWAN liquidity on Sifchain and believe this timely investment will further strengthen the partnership between FRAX-Sifchain, while bringing many benefits to the frax community.

Proposal Result:

For: Use $2,000,000 (2 million dollars) of FXS liquidity & $6,000,000 (6 million dollars) of FRAX from the treasury to provide liquidity on Sifchain

Against: Do nothing

Appendix:

Frax wallet data: Frax calculation metrics - Google Sheets

2

Hey, you didn’t mention what would the 6m Frax be for, and if FXS is provided imo it should be paired with Frax, as it is usually done

3

Hey Seba – thanks for the comment. The 6M frax would also be used to provide liquidity, as per “if it passes, the FXS equivalent of $2,000,000, and $6,000,000 of Frax liquidity will be used to provide liquidity on Sifchain, bringing the total amount of liquidity provisions from the Frax treasury to $10,000,000 (2 Million dollars of FXS | 8 Million dollars of Frax).”

We understand your trepidation in pooling FXS with another asset, however, on the DEX we only have pools with ROWAN (sifchain.network). It is designed this way to benefit our deep margin trading architecture (not yet released), in which any asset can be used as collateral against any other asset.

In order to accommodate the FXS liquidity on the DEX, 3M frax would be sold to buy ROWAN and pool it with the FXS. Our goal is to have at least 5M TVL in both the FXS and Frax pools so that users on Cosmos (and other EVM chains that we bridge to) have access to deep pools on the dex, and the low fees that come with the use of the DEX. Users may also eventually want to long or short FXS / FRAX, and having deep pools is immensely beneficial to that as well.

To see more information about how margin trading will function on Sifchain, you can also see our previous proposal, here.

Thoughts?

4

Since all pools are paired with ROWAN, then 3m frax would be sold for ROWAN to pair with FXS + 1.5m to pair Frax? I think this is a little too much considering that we already provided 2m Frax. Also, by buying ROWAN we would basically be investing, so in that case a think the ROWAN price should be at a big discount as is common for seed rounds.

To be honest I think this proposal is asking for too much since it is basically an investment we already have provided 2M, and we have no information of the current usage of Sifchain. I think I’m in no position to recommend to invest or not, but I wouldn’t go beyond providing $1m in FXS, and maybe 1M in Frax to get the ROWAN to pair with, (although I have no idea where that FXS would come from, someone from the team would have to respond)

5

Thanks for the feedback. We don’t offer OTC deals for any parties. We do however have statistics about the result of the past liquidity provisions.

The wallet started with a net balance of $2,000,000. Without any additional liquidity provisions on behalf of the frax team, today, it sits at a total asset value of $3,029,549.117. It holds 9,874,723.108303 ROWAN and 1,024,627.884022 FRAX. In less than 2 months that’s an ROI of over 50%.

The pool currently generates ~$200,000 of trading volume per day. We have ~150M TVL on the platform.

When you say that “we have no information of the current usage of sifchain”, what do you mean? Does the above provide more information?

6

Hey sorry for late reply. I would like to add to abratusz feedback that Sifchain is currently operating on Peggy 1 and we are expected the release of Peggy 2 by end of Q2. Through this proposal, we are looking for a more profound relationship with Frax Finance by which our Dex could be a gateway that brings Frax token to Cosmos network and later on enable FXS to be used as collateral in margin trading positions against any token bridged to by Sifchain’s omni-EVM bridge.
So this is not only a (fruitful) investment but it is a strategic move of Frax Finance to Cosmos network.
Sif’s TVL is growing fast as we continue to hit ATH ($177m now - Sifchain: TVL and stats - DefiLlama) after PMTP debut while Rowan price is still at big discount to its ATH ($1.4 - 17 Mar 2021) so personally I think we are on the right track.
Thank you.

7

I guess the problem is that the investment can also go down for example before the recent run-up the Frax wallet would be about even from its initial capital provision.

You haven’t made a case for why further liquidity is required for FRAX - for example a good reason for additional FRAX would be if there isn’t enough liquidity to make it worth a arbitrager’s resources to keep the peg at $1.

I think @seba has it right that a smaller amount of FXS makes sense - this could be done by pairing up to $500K of treasury FXS with an amount paired with our initially farmed ROWAN and then as our farmed ROWAN grows in certain sized batches over time allowing DCA.

8

Hi @Mark11, do appreciate your point. Our proposal is based on a strong belief that Sifchain is at the beginning of its growing phase so I would say further liquidity provision in Sif will help both chains achieve their targets and expand their influences in Cosmos ecosystem. This has been proven to some extent over the last 2 months.
Thank you!

9

My concern is there may not be appetite, just at the moment, to put such a large amount of FRAX at risk of impermanent loss or exploit without a compelling reason and general prospects of growth are not compelling when we are already have significant liquidity

10

I think this is a good point. It’s probably worthwhile to break down this proposal a little bit.

This proposal had two intentions:

  1. Get FXS on the DEX (a concern which you addressed adequately)
  2. Provide an investment opportunity for Frax and as a byproduct, expand protocol owned liquidity and influence of the Frax community on the Sifchain platform

Before I begin, an assumption and some data:

  • We believe that our growth trajectory in the current market serves as a good indication of continuing growth potential
    – Not only has our price vs. $ & ETH been experiencing positive growth (up ~67% vs $ and 80% vs. ETH in two weeks) but our TVL has been growing quite a bit as well (up 47%)

The reason we are asking for the stated amount is due to the 2nd intention. Given the successful outcome of the first steps of our partnership, the upcoming omni-evm features, deep margin trading, and performance of ROWAN in a time when the markets are getting obliterated, we believe it’s a good time for the community to also define their stance on a more substantial partnership with Sifchain.

In other words, we make this proposal not only for utility provided to both chains (bringing bridges & margin to you | and liquidity to trade w/out slipage to us) but also as a meaningful investment opportunity for the Frax community which comes also with an ability to gain significant influence in an up and coming product.