# \[Proposal\] "Discount Window" AMO: Solvency-Based Yield (No Delta Risk)

**URL:** <https://gov.frax.finance/t/proposal-discount-window-amo-solvency-based-yield-no-delta-risk/3828>\
**Category:** Governance Proposals\
**Created:** [January 27, 2026, 5:03pm UTC](https://gov.frax.finance/t/proposal-discount-window-amo-solvency-based-yield-no-delta-risk/3828 "2026-01-27T17:03:18Z")\
**Posts on this page:** 1\
**Page:** 1

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**Author:** ![StableStrategy](https://yyz1.discourse-cdn.com/flex031/user_avatar/gov.frax.finance/stablestrategy/32/1825_2.png) [@StableStrategy](https://gov.frax.finance/u/StableStrategy)\
**Post date:** [January 27, 2026, 5:03pm UTC](https://gov.frax.finance/t/proposal-discount-window-amo-solvency-based-yield-no-delta-risk/3828/1 "2026-01-27T17:03:18Z")

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​ **Summary**

I am proposing a new AMO (Sovereign Market Operations) controller called the **“Discount Window.”**

​This mechanism allows Frax to offer competitive, high-yield opportunities comparable to Ethena (USDe) but without the “Delta-Hedging” risks. By utilizing a solvency-based arbitrage loop, we can distribute Treasury yield to users while strictly maintaining 100% collateral backing.

​ **The Problem**

Frax is currently fighting a “Yield War.”

- ​**Rebase Tokens (sFRAX):** Are difficult to use in DeFi (Uniswap/Lending) because the balance changes.

- ​**Competitors (Ethena):** Offer high yield but take on massive risk by shorting perp markets. If funding rates go negative, they bleed.

​ **The Product Vision: Democratizing Arbitrage**

Currently, when frxUSD trades above $1.00, invisible MEV bots instantly arbitrage the difference. They extract value from our ecosystem, keep 100% of the profit, and Frax gets nothing.

​ **This proposal changes that dynamic.**

We are proposing a user-facing **“Sovereign Arb Dashboard”** that allows regular users to participate in this loop.

- ​ **The “Button”:** A user deposits USDC (RWA) into the Discount Window. The protocol mints frxUSD and captures the market premium.

- ​ **The Yield:** The profit is split between the **User** (Immediate Yield) and the **Protocol** (Revenue).

- ​ **The “Toll Booth”:** Even if bots try to spam this window to beat human users, they will be forced to route through our contract and pay a fee. We effectively turn “parasitic bot extraction” into “Protocol Revenue.”

​ **The Economics**

- ​ **The Capture:** The protocol captures this spread (or a portion of it) as **“Protocol Arbitrage Revenue.”**

- ​ **The Payout:** This revenue is distributed to **veFXS holders** or a new “Savings Vault,” creating a real, solvent yield source that scales with volatility.

​ **Proof of Concept**

I have published the full economic logic, solvency checks, and user flow in the following whitepaper:

[https://paragraph.com/@0x663f0340314165d92881dd977d1671e4495a2734/mechanisms-for-solvency-in-peg-bound-assets-draft-v1?referrer=0x663F0340314165D92881dD977D1671E4495A2734](https://paragraph.com/@0x663f0340314165d92881dd977d1671e4495a2734/mechanisms-for-solvency-in-peg-bound-assets-draft-v1?referrer=0x663F0340314165D92881dD977D1671E4495A2734)

​ **The Ask**

I am a DeFi strategist and architect, not a Solidity developer. I am submitting this blueprint to the Core Team for technical review.

​If the Core Team validates this model and the community votes to implement it as an AMO, I request a standard **Governance Bounty of 50,000 FXS** for the intellectual property and economic design, to be paid upon successful launch.

​ **Conclusion**

This AMO gives Frax the “Kill Shot” against Ethena: equivalent yield, but safer architecture. I leave the technical implementation in the hands of the Core Devs.