Proposal to Tokenize FXTL into a Separate Token Independent of FXS

Governance Proposals
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Title: Proposal to Tokenize FXTL into a Separate Token Independent of FXS

Proposal:

The objective of this proposal is to initiate a discussion regarding the possibility of tokenizing FXTL into an entirely separate token distribution, distinct from FXS. If this idea gains broad community support, it could potentially lead to significant gains for FXS, driven by improved governance and more focused utility.

If passed, this proposal would require the Frax Core Developers (“the team”) to submit a further governance proposal for an FXTL token distribution that is completely separate from FXS and not convertible or dilutive to FXS supply in any way. The team would be required to submit a governance proposal for the full supply, allocation, time to tokenization, and details of FXTL no later than 90 days after passing.

Rationale:

  1. Simplified Governance:
  • Streamlined Decision-Making: Separating FXTL from FXS could streamline governance by reducing the complexity associated with managing multiple functions under a single token. This separation would enable more straightforward, transparent, and efficient governance processes.
  • Focused Governance: With FXTL as a separate token, FXS holders can concentrate on decisions directly affecting FXS, while FXTL holders can focus on matters pertinent to FXTL. This specialization could lead to better-informed decisions and more effective governance overall.
  1. Increased Utility:
  • Targeted Enhancements: A dedicated token for FXTL would enable more targeted enhancements and utility, catering specifically to FXTL holders. This could include exclusive features, staking rewards, and incentives designed to drive engagement and value within the FXTL ecosystem.
  • Flexibility in Development: A separate FXTL token allows for more flexibility in developing and deploying features specific to FXTL without being constrained by the broader FXS framework.
  1. Market Differentiation:
  • Attracting Diverse Investors: Distinct tokens for different functionalities could attract more investors and users, thereby increasing the overall market performance of both FXTL and FXS. Investors specifically interested in the utility and potential of FXTL can invest in it directly without being influenced by FXS market dynamics.
  • Enhanced Clarity: Clear differentiation between FXS and FXTL can enhance market clarity, helping potential investors and users understand the unique value propositions of each token.
  1. Economic Synergy:
  • Optimized Token Economics: By tokenizing FXTL separately, the economic models of both tokens can be optimized to better serve their respective communities. This could lead to more robust and sustainable growth for both tokens.
  • Risk Mitigation: Segregating FXTL from FXS reduces the risk of one token’s issues adversely affecting the other, thus providing a more stable and resilient economic environment for both tokens.

FRAXTAL and the Importance of an Independent L2 Token:

  1. FRAXTAL Overview:
  • What is FRAXTAL: FRAXTAL (FRAX’s Layer 2 solution) aims to enhance scalability, reduce transaction costs, and improve the overall user experience for FRAX ecosystem participants.
  • Benefits of L2: As an L2 solution, FRAXTAL can process transactions faster and cheaper than the Ethereum mainnet, making it an essential component for the future growth and usability of the FRAX ecosystem.
  1. Need for a Separate Token:
  • Operational Autonomy: An independent FXTL token would provide FRAXTAL with the operational autonomy needed to develop and expand without being tied to the broader FXS token’s governance and economic constraints.
  • Specialized Incentives: A separate token allows FRAXTAL to create specific incentives and reward mechanisms tailored to its unique needs and objectives, thereby fostering a vibrant and engaged community.
  • Improved Security and Compliance: With its own token, FRAXTAL can implement security and compliance measures optimized for its specific environment, enhancing overall system integrity and trust.

Process:

  1. Discussion: Open this proposal for community discussion on the FRAX forum to gauge interest and gather feedback.
  2. Drafting Final Proposal: Based on the community’s feedback, revise the proposal for clarity and comprehensiveness.
  3. Voting: Submit the final proposal for a vote by veFXS holders. As per governance protocols, any proposal must undergo a three-day discussion period followed by a five-day off-chain voting period on Snapshot, with results determined by a simple majority and a 7.2m veFXS quorum requirement.
  4. Implementation: If approved, work with the core team to implement the tokenization and ensure a smooth transition and integration.

Conclusion:

By tokenizing FXTL into a separate token, we can simplify governance, increase utility, and enhance market performance for FXTL and FXS. This strategic decision is aimed at fostering a more robust, efficient, and focused ecosystem for both tokens. We encourage community members to participate in this discussion and share their thoughts.

We welcome all feedback and look forward to a constructive discussion.

Thank you

6 Likes
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Well this proposal is quite unexpected, but let’s see what the community thinks about it overall. For proper context, this was my post on Telegram explaining how this came about:

This is a completely organic community initiative. If the team wanted it tokenized as a separate token, we’d have just said that long ago. Someone in the trading group kept saying “if only FXTL was tokenized as a separate token it would be much more bullish FXS since it wouldn’t cause dilution.” And I replied to him that he’s free to propose it, all power is in the hands of veFXS voters. And this proposal showed up by OldPaul.

I’ll be watching this proposal very closely to see what the will of the community is.

2 Likes
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Great and fast, @Oldpaul

This proposal may mitigate the issue of what is the conversion rate of FXS to FXTL points that I was trying to highlight. This issue may be impacting the price of FXS as it introduces uncertainty.

I initially saw option 2 or even 3 as a way to address it, but this proposal seems great as well. The ways to overcome these may be:

  1. Issue FXTL tokens to be able to have a price on these points.
  2. Provide a threshold on the conversion rate per year. FXS:FXTL points will be converted to a value that ranges between 5% to 40% on year 1, subsequent years will be on a decay to 60% per year.
  3. Specify the exact conversion rates of FXS:FXTL point now.

I personally see option 2 as clearer to reduce the uncertainty while keeping flexibility to adapt.

1 Like
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@samkazemian , imo we should think about introducing external fundings in order to make $FXTL growing faster and healthier. The team needs more money to attract more talents in different fields.
$FXS will own majority of $FXTL so the incentive is aligned. Just look at what the team Blur is doing.

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Appreciate you Oldpaul for being a man of action and hopefully steering the complaints of the community in a more fruitful direction.

I think that this is an analogous situation to the FPIS merger, and we agreed as a community to bring everything all back under the banner of FXS to harmonize the community and simplify future work for the core development team.

So I don’t see the need for a separate FXTL token. I think it creates unnecessary community division and takes us further away from the Singularity. Imagine if we tokenize FXTL and it starts outperforming FXS…way better to have everything under FXS and we all accept the reflexivity of price action that exists in bear markets as well as bull markets.

I think that making FXS the official Fraxtal gas token will help to abate whatever misgivings some may have about Fraxtal points dilution to FXS holders.

Imo the main focus or debate at present should not be FXS vs. FXTL, it should be frxETH vs. FXS as the gas token on Fraxtal. When do we want that to occur and what metrics are we using to determine that timeline/roadmap?

3 Likes
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Thank you for your thoughtful input and for bringing up important points regarding the potential implications of tokenizing FXTL separately.

1. FPIS Merger Analogy:

  • While the FPIS merger brought everything under the FXS banner for harmonization, the situation with FXTL is slightly different. The primary goal here is to create a more streamlined and efficient governance structure, not to create division. Tokenizing FXTL can lead to more focused governance and utility specifically for FRAXTAL, which could ultimately enhance the broader FRAX ecosystem.

2. Potential Outperformance of FXTL:

  • If FXTL outperforms FXS, it would likely indicate that FRAXTAL is experiencing significant growth and adoption. This growth can benefit the entire FRAX ecosystem, including FXS holders, by driving more usage, increasing transaction volumes, and enhancing the overall value of the network. The performance of FXTL doesn’t detract from FXS; rather, it can provide synergistic growth.

3. FXS as the Fraxtal Gas Token:

  • Making FXS the official gas token for FRAXTAL is a valid point and deserves careful consideration. This approach could indeed help address concerns about dilution and maintain a strong incentive alignment. However, separating FXTL can also offer unique advantages, such as specialized governance and tailored incentives for Layer 2 developments.

4. FXS vs. frxETH as the Gas Token:

  • The debate over whether FXS or frxETH should be the gas token on FRAXTAL is crucial and should be addressed in its own right. This discussion can proceed parallel to the consideration of FXTL tokenization. Evaluating the optimal gas token for FRAXTAL is essential, and we should set clear metrics and a roadmap for this decision.

Conclusion:

  • Tokenizing FXTL separately is not intended to create division but to enhance governance efficiency and utility. It can drive growth in a complementary manner that benefits FXS and the entire ecosystem. However, your points about FXS as the gas token and the importance of the frxETH vs. FXS debate are well-taken and should be integral parts of our ongoing discussions.

Let’s continue this constructive dialogue to find the best path forward for our community and ecosystem.

Thank you again for your engagement and valuable insights.

2 Likes
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Seems like a bunch of buzzwords with the sole goal of “don’t dilute fxs”. Great timing too with fpis merge not even fully out the door yet.

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I understand the concern, and I appreciate your direct feedback. The goal of this proposal is indeed to protect and enhance the value of FXS, but it’s also about much more. It’s about creating a governance structure that is efficient and specialized, allowing both FXS and FXTL to thrive in their respective roles.

The FPIS merger has taught us valuable lessons about integration and community alignment. With FXTL, we have an opportunity to apply those lessons and create a focused governance model that can drive growth and utility for FRAXTAL, without compromising FXS.

The idea is not just to avoid dilution but to ensure that each token can fulfill its specific purpose optimally, by clearly defining their respective roles and utilities.

I acknowledge that timing is crucial, and with the FPIS merger still fresh, we need to proceed carefully. However, this discussion is essential to prepare us for future steps. I’m open to further refining this proposal based on community feedback and ensuring that it aligns with our long-term strategic goals.

Thank you again for your engagement. I look forward to constructive discussions that help us move forward collectively.

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Before any comments, I would like to comment @Oldpaul on writing a very well thought out post. Even though I disagree with the hypothesis and conclusion, I am a huge fan of @Oldpaul and grateful for his contributions to the community and governance.

  1. Simplified Governance:

A well-groomed roadmap for a dev team should have one overall objective (Singularity). Having two separate governance tokens, each with different stakeholders and motivations, albeit, overlapping goals will risk misalignment. These risks can be mitigated with two distinct dev teams with their own objectives. Even then, it’s better for these objectives to align with a master goal. A single overall goal allows product owners to prioritize efficiently.

Example:

  1. Project A will benefit Fraxtal.

  2. Project B will benefit FXS.
    → You can’t do both at the same time due to dev resources. Two separate stakeholders with 2 separate objectives have a high risk of complicating governance decisions vs simplifying them.

  3. Increased Utility:

  • Targeted Enhancements :
    For me, targeted enhancements to one group has a huge risk of diluting attention and focus within the community (token holder community, dev community, dapps/partnership community). Community focus and attention is of the utmost importance.

Flexibility in Development :
Currently, there is a single objective: Singularity Roadmap. Constraints are due to the size of the team, to my knowledge, the constraints are not due to having separate governance tokens. As stated above, the only way I see this solution kinda working is if you split up the dev teams; and Team A works on Fraxtal and Team B works on Frax Assets, but, I believe separate dev teams/separate objectives will be less efficient long term vs 1 overall objective.

In conclusion: A single governance token allows for a single stakeholder with aligned motivations and objectives simplifying governance, objectives, prioritization and more…

3 Likes
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I think the primary issue with creating a new token is that Fraxtal is built and maintained by the same team as other Frax products, so you have one team that is being controlled by two different governance tokens. I kind of think of this as similar to a scrum team having two backlogs with independent priorities and product owners. How does the team know which one to work on?

I think a separate token only makes sense if Fraxtal is spun off as an independent product that’s owned by a completely different team and outside of Frax, but I don’t think that’s the right direction to go in since Frax and Fraxtal are so intertwined.

1 Like
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I can’t for the life of me understand how anyone could support the bifurcation of the protocol via this proposal.

Since I’m pretty sure this proposal was just generated by chatGPT I’ll let chatGPT refute each point.

While separating FXTL from FXS might reduce some governance complexity, it introduces new complexities. Managing two separate tokens and their governance structures could actually make decision-making more cumbersome, requiring coordination between two distinct groups of stakeholders.

Specialization in governance could lead to siloed decision-making, where FXTL holders may not fully consider the broader impacts of their decisions on the overall Frax ecosystem. This might result in fragmented strategies that lack cohesion.

Creating exclusive features and incentives for FXTL holders may divert resources and attention from developing and enhancing the core functionalities of FXS. This could weaken the overall ecosystem by spreading efforts too thin.

Although a separate FXTL token might allow for more targeted development, it risks creating duplication of efforts and resources. The need to maintain and update two distinct token systems could strain the development team and slow down overall innovation.

Introducing a new token might initially attract diverse investors, but it could also lead to market confusion. Potential investors may struggle to understand the distinct value propositions and risks associated with each token, possibly reducing overall investor confidence.

Rather than enhancing clarity, having two separate tokens could muddy the waters. Investors and users might find it challenging to keep track of the different functionalities and benefits of each token, leading to confusion and potential misallocation of investments.

Optimizing token economics separately might lead to imbalanced incentives. The success of one token could come at the expense of the other, disrupting the intended economic balance and potentially undermining the stability and growth of the ecosystem as a whole.

Segregating FXTL from FXS does not inherently reduce risks. Instead, it could introduce new risks, such as the potential for one token’s failure to impact the reputation and perceived stability of the entire Frax ecosystem, given their interconnected nature.

Operational autonomy can be achieved through robust governance structures and clear delineation of responsibilities within a single token system. Introducing a new token might complicate governance rather than simplify it.

Tailored incentives can be designed within the existing token structure without needing a separate token. Creating a new token for this purpose might lead to overlapping and redundant incentive mechanisms, which could dilute their effectiveness.

Having a separate token does not inherently enhance security and compliance. In fact, it could introduce new vulnerabilities and regulatory challenges as both tokens would require rigorous and potentially duplicative security and compliance measures.

All jokes aside. This is a terrible idea. It will bifurcate the community, add unneccesary complexity and confusion to the ecosystem, and won’t actually solve the one thing everyone seems to be so afraid of, dilution. Perhaps in the short term it will fool some rubes into buying a shiny new token which insiders can dump on them but it doesn’t align incentives to make Frax more successful long term. FXTL holders would become second class citizens and eventually there would be a schism of holders wanting different things which would devalue both sides. Is BTC better or worse since BCH came to exist? Embrace the “dilution” as growth of the protocol. Do people complain that ETH stakers or BTC miners are diluting them? If it serves a purpose (incentivizing Fraxtal usage) then its a net positive. If you stake or in this case farm FXTL then you aren’t being diluted anyways. Do the work, get rewarded. Don’t do the work, get diluted.

5 Likes
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Probably didn’t need the AI generated response, but I agree with the overall sentiment: an additional token isn’t needed in my opinion. Doesn’t anyone remember what we just went through with FPIS?

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Thank you for your feedback. I appreciate the concerns about potential community division and complexity. The goal of the proposal was to provide a structured way to incentivize and reward contributions to Fraxtal while maintaining FXS’s central role, and it was meant to initiate discussion, which it has successfully done. Let’s focus on the discussion and continue to refine this or anyone’s else proposal to fix the uncertainty around FXTL. Looking forward to more constructive feedback and collaboration.

p.s. chatgpt… really? :wink:

2 Likes
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Hey all, long time lurer first time poster.

Ill try and provide some context from a relatively new holder (first buys in september 2023, mostly bought and got deeper into it over the past 3 months).

Key points that makes FXS and the wider Frax ecosystem interesting:

  1. Frax doesn’t shy away from truly involving holders and distributing revenue
  2. The ecosystem has a diverse set of revenue streams and is always at the tip of innovation
  3. FPIS merger caused everything to be aligned around FXS even if its short term dillutive
  4. The system is flexible/dynamic so that fees can be used as incentives for other products, all holders realise growing the pie is more important than short term distribution
  5. Growth in new products (like fraxtal) will ultimately come back to FXS

For me, many of these points become void if Fraxtal where to be governed by a separate token. Like seen in the Kava ecosystem and more that have already died, additional tokens is the ultimate dillution.

Cons:

  1. Dillutes community awareness around the frax ecosystem
  2. increases complexity in the thesis (goodluck explaining tokenomics to people)
  3. Introduces incredible technical and other overhead related to exchanges, security, liquidity etc
  4. Dillutes FXS holders as they are no longer subject to MEV and Sequencer fees stemming from Fraxtal

If some dillution, or merely just dillution of revenue, is needed to incentivize FXTL points holders or potential Fraxtal users then I would 100% take that over adding a new token.

To summarize, issuing a separate token generates a ton of uncertainty and complexity which was just removed by absorbing FPIS and starting singularity (fee distribution). To bring that to a statement let’s quote some TradFi and Philosophy specialists:

Uncertainty is the death of all investments

and

Simplicity is king

Best,
ertemann

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Thank you all for your thoughtful feedback on my proposal

@samkazemian @ertemann @Bueno_Pues @wolfehr @messi @Westwood :pray:

After considering the community’s input, I’ve decided to take it down. I truly appreciate the constructive discussions it sparked, which have been invaluable in addressing the uncertainty around FXTL. Let’s keep working together to find the best solutions for our ecosystem. The best alternative proposal, IMHO, at the moment comes from @wolfehr, here:

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@Oldpaul , thank you for your thoughtful proposal and the clear effort put into outlining the potential benefits of FXTL tokenization. While I appreciate the thorough analysis, I’m currently against the idea of separating FXTL from FXS.

I believe that fragmenting attention across two tokens could lead us back to some of the challenges we faced with the FPIS and FXS duality. Instead, I think we should focus on exploring ways to leverage the potential of FXTL to drive even more value and attention towards FXS. There must be a way to align the success of FXTL with the growth of FXS, creating a more unified and cohesive ecosystem.

Again, I commend your dedication to improving Frax Finance and look forward to further discussions on how we can best leverage FXTL for the benefit of the entire community.

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I’ll keep it short. My opinion: The last thing Frax needs is a second governance token. Launching FXTL points without a plan for a specific conversion was not the best plan.

3 other random options off the top of my head right now for dealing with fxtl,

  1. If you want to go down the tokenizing route, FXTL could be, say a token, but not a governance token, used purely for gas. maybe find another use-case that isn’t governance to add.

  2. Let’s be real. There are no basically no new users entering the Frax Ecosystem right now, meaning no/very little user inflow to $FRAX or $FXS. There is one inflow though that doesn’t rely purely directly on users (rwa yields). FXTL points could be converted for pure $FRAX in X time, using x % protocol profits and tapping the real-world US treasury yield flowing to sfrax / other real world yield (susde going to sfrax). These aren’t anywhere near concrete numbers, but say, start streaming a minority (10?%) of this yield over the long-term to a holding contract/multisig/whatever, at the 12 months point of fxtl being live, do a full conversion at whatever ratio, dividing all existing fxtl by the $amount collected and put aside over the many months. People probably would not like this idea because it pulls real-yield from sfrax->lower apr etc. + no speculative value. we would be able to quickly model that fxtl unrealized-apr

  3. third, follow the fpis playbook of fxtl to 4 year vefxs locked chunks. could be wrapped in an nft or something so people can sell their chunks to each other if they want, idk

Just throwing out some random brainstorming. have a good day everyone

1 Like