Re-activate fee switch

Governance Proposals
1

Author

Westwood

Summary

The Collateral Ratio (CR) of FRAX at time of writing is 98.8%. With the CR approaching 100% in accordance with [FIP - 188] Increase CR to 100%, and the overall market sentiment in bullish territory, I believe it is rational to reinstate fees to veFXS holders.

Abstract and Motivation

At the same time, it is important to ensure the protocol is fully collateralized by exogenous assets in order to be as resilient as possible for future market downturns. With this in mind I propose that until the protocol is fully collateralized by exogenous collateral, fees should be split 75/25 between veFXS holders and the protocol treasury.

As of now, the protocol has been twap selling FXS to recollateralize FRAX (which is a rational choice) but I believe that switching strategies in this market, while seeming counter-intuitive, wiil actually go further to recollaterize quicker. Switching from selling FXS to buying FXS with protocol revenues and then redistributing will increase FXS price, increase sentiment, and increase community confidence, leading to a higher FXS price, more activity for Fraxtal, and more veFXS locking. It will also increase the distribution and amount of FRAX in the FXS/FRAX LP which is counted against the CR, ultimately achieving our mission of 100% CR.

In conclusion, I believe this is the positive catalyst Frax needs in order to get the flywheel spinning again.

Voting

  • For: Redistribute 75% of protocol fees to veFXS, 25% to Treasury.
  • Against: Do nothing.
6 Likes
2

If you remove Frax owned from both asset and liabilities to compute the real CR, you’ll find that the real CR is closer to 92%. Still a bit early in my opinion to reactivate the fee switch (even though I would love to see some more yield going to sdFXS, but just trying to think of what’s best for Frax in the long term).
The 8% unbacked is relying on FXS value, so not taking the yield now will just make FXS safer, which I think is good for the token. I would still follow whatever the team is willing to do tbh. Also with Fraxtal, we probably don’t have much longer to wait to get back to 100%.

3

May I suggest for the 25% protocol treasury to just buy and hold BTC, the hardest monetary asset.

4

With the CR organically hitting 100% I believe this proposal has become redundant. Fees should automatically be activated now that the threshold has been achieved. Is this correct? @samkazemian

5

I was encouraged to post here in order to move this forward for vote.

There will be ample time to change things after Sam’s proposal, however, in the interest of the veFXS holders, its time to vote on this proposal to flip the fee switch. There has been growing support from the team to flip the fee switch without being fully collateralized as we are in a bull market and the CR will eventually hit 100%.

Let veFXS holders decide on the proposal at hand. Make holding veFXS great again.