Proposal to bootstrap FRAX supply and sell AMOs liquidity bonds for shares of a new FRAX/FXS/ETH pool


  • Increase FXS Curve incentives and bribes to boostrap FRAX circulating supply.
  • Sell Curve and Uniswap V3 bonds for FRAX-FXS-ETH LPs in order to; (i) boostrap FRAX circulating supply, (ii) create deep liquidity of these positions to support FRAX V1 functioning, (iii) create the deepest ETH-algorithmic stablecoin pool to begin to establish FRAX as the main crypto native algorithmic stablecoin.
  • Create a FRAX lending pool for (stable) yield generating tokens.

FRAX has shown to be a complete success by being the first fractional algorithmic stablecoin that has managed to tightly maintain the peg, even through May’s 50% crypto crash. The introduction of FRAX V2 AMOs has helped to bootstrap FRAX circulating supply to over 300M and further stabilizing the price.
I think that the tracks that lead FRAX to become the decentralized central bank are firm and one of the next steps to instaurate the FRAX standard is to create a FRAX-ETH liquidity pool with a value locked similar to a DAI pool (the biggest decentralized USD-pegged coin). To achieve this, I propose the following steps:

  1. Boostrap the FRAX circulating supply
    • MIM from is a recently launched protocol that allows to mint a stablecoin against interest-bearing tokens. They managed to grow a Curve pool of over 930M USD through big bribe incentives to allocate CRV rewards to the MIM pool, additional SPELL LPs rewards, and the ability to mint MIM against stable yield generating assets (yvcrvIB, yvUSDC, yvUSDT). I propose that FRAX copies these strategies in order to grow the FRAX Curve pool to a similar size to the MIM pool. Though the ability to mint/borrow from yield generating assets requires more consideration since currently there isn’t any mechanism to lend FRAX at a stable rate.
  2. Sell bonds of the protocol-owned Curve FRAX liquidity shares
    • The Curve FRAX pool contains 376M USD and the protocol owns 57% of it through its AMOs. If we assume that the first proposal manages to make the FRAX pool as big as the MIM pool and the percentage owned by the protocol remains constant, that would be over 450M USD in shares. I propose to sell a considerable amount of these shares through bonds in exchange of shares of a new Balancer pool, consisting of 50% FRAX, (CR/2) % FXS and (1 - CR ) /2% ETH. CR is a variable collateral ratio.
    • The biggest ETH/USD pool in Balancer is a 60% ETH/40% DAI pool with 107M TVL at the time of writing. The goal is to make the FRAX/FXS/ETH pool of a similar size.
    • The reasons to use a Balancer pool of the 3 assets instead of alternatives such as Uniswap V3 pools that have better capital efficiency are:
      - Easier to use than a Uniswap V3 pool.
      - Make the second ETH/decentralized stablecoin pool, after DAI, with a substantial TVL.
      - This pool would emulate the Mint and Redeem operations that allows to exchange 1 FRAX for FXS and a collateral, but instead of a centralized stablecoin being the collateral, it would be ETH.
      - By making a FXS/ETH we tie FXS price to one of the world’s most useful economic assets, ETH.
      - Because this pool would rely on FRAX being on peg, it is of a high importance the first part of this proposal of having a deep Curve pool or Uniswap V3 pools (since they are more capital efficient), and also, the sold bonds would have to be of a relatively long term in order to maintain the Curve liquidity, but also not so long in order to be attractive to investors, for this reason I would say a very rough (and unfounded) 60 day bonds with no partial unlocking.
      - The discount should be determined by the market. As reference, current bonds on stablecoins make a return of between 4-9 APR%, for a 60 day period that would be a 0.3-0.75% discount, although has a much lower volume, around ~10M USD total, than the proposed 100M USD to be sold.

Some ideas

  • We could sell Convex shares, and the rewards earned through the locked period are earned by FRAX.
  • The Balancer pool composition does not necessarily have to be of the FRAX collateral ratio.
  • I think selling bonds of the protocol owned Uniswap V3 shares could also be possible, I just left them out for simplicity.
  • Similarly I think that selling bonds for highly efficient Uniswap V3 pools of FRAX/FXS, FRAX/ETH, FXS/ETH is also very attractive. We could use the auto-compounding Gelato G-UNI tokens, beginning with a wide and conservative range, such as a price of ETH between 1500-5500 USD and FXS between 1.5-15 USD, and later automatize for more concentrated liquidity through Gelato automation.
  • As is the case for OHM, its OHM/DAI pool is generating millions each week, I think that we could achieve something similar with a deep FRAX/ETH pool.


  • This would potentially create a deficit in the total collateral owned by the protocol, the solutions would be to ignore this and mantain the current collateral ratio, or decrease the collateral ratio to increase the percentage of minted FXS in case of redeems.
  • Regarding the proposal of allowing to borrow FRAX against yield generating assets, this could potentially cause a big increase of the FRAX circulating supply, and a decrease in its price. Although with MIM we saw that this wasn’t a problem and with sufficient CRV rewards and bribes the pool is well balanced.
  • News of this could cause maket manipulators to accumulate FXS in order to increase the price, sell to the protocol at a higher price, and dump later.

This is a rough proposal and I intend it to be that way, I think the most important think would be to obtain the feedback of the FRAX community and the official team. There are still a lot of factors and risks to take into account, the current migration to L2s and sidechains may have an impact. But I think being the first deep ETH pool of the new USD pegged stablecoins created in the last year would send a strong message to the community and disseminate the word of FRAX. I also think that this could potentially lead the way to reduce the reliance on USDC and increase our decentralization. Finally, having a lot of protocol-owned FRAX/FXS/ETH liquidity can potentially support the FRAX V1 mechanisms, which may or may not be required once FRAX circulating supply reaches the 10-digit mark.

Couldn’t we just continue the Olympus Pro ( program?

This is different. The with Olympus pro we sell FXS at a discount. I’m talking about selling the dollars FRAX has a collateral.

if we sell the dollars we have as collateral then what collateral will we have backing FRAX ?

currently we have around 0.4 centralized usd stables per frax. If we sell convex bonds, that may decrease to somewhere around ~0.3 i’d say. The protocol has proved to be very capable of mantaining the peg at these low collateralization ratios. Besides, with long lock times we make sure we prevent liquidity leaks on our curve pool (keep the peg tight) and during this time we could enter a ‘saving’ mode to replenish the decrease in usd stables.

the only lock time i can see you mention is 60 days. as the average lock time for the protocol is around 1.2 years right now, how will reducing this to 60 days help secure locked liquidity ?

i mean the time until the bonds are redeemable, not reducing any of the current locks. The 60 days I mention are obviously up for discussion, but it has to be attractive enough for investors. Currently the longest bonds on are up to 90 days with a decent lock amount of over 10M.

im clearly missing something here because i dont see how this results in the protocol gaining assets.

It’s changing the stablecoins for a frax/fxs/eth lp

do you mean stable coins that are held in the protocol to LP’s that can be redeemed (after a few months) .

or do you mean stable coins that can be redeemed to lp’s that can be redeemed.


i’m gonna try to give an example:

  • We have ~210M shares of the FRAX3CRV pool, 54M on StakeDAO and ~156M on Convex.
  • Let’s say we sell 20M of the Convex shares at a 5% discount, locked for 90 days.
  • Assuming 1 LP share ~1 usd, this would get us ~19M usd in shares of the Balancer FRAX/FXS/ETH pool, now.
  • During the lock up time, we hold the sold positions, this means that the CRV and CVX generated from those shares go to FRAX.
  • After the lock up time, the person that bought the shares is able (if she wants to) to remove the liquidity of the pool and redeem for FRAX/USDC/DAI/USDT.

so what does the protocol hold at the end of that example and what would the +/- be in $ terms ?