>> Should locked FXS be liquid? [ veFXS liquidity discussion ]

General Discussion
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veTOKENs are the new wave

As many of you know, vote escrowed tokens are the new wave and I suspect many protocols in DeFi to move to this new standard in the coming months (not leaking any alpha here but I know several large protocols developing models around this new token standard).

As a result, I wanted to ask / prompt community feedback on whether or not liquidity is beneficial in these locked tokens? Or is it counterproductive as holders would still be able to sell their veFXS and inflict downward price pressure on the native asset we’re trying to protect?

TIME - wMEMO evolution is a comparable dynamic

Regardless, one interesting corollary I would like to bring up is the TIME - wMEMO dynamic. At first, you could only acquire wMEMO by staking TIME in 1-to-1 fashion, and vice versa for redemption (there was no secondary market liquidity for wMEMO, you could only redeem it 1-to-1 for TIME on Wonderland). Many people urged Olympus and Wonderland to adopt time-based staking mechanisms whereby your APY would increase in proportion to the duration of time you staked (i.e. illiquidity premium, rewarding longer term / high conviction holders of TIME, which is ultimately the asset they’re trying to protect. This is similar to what we’re doing with FXS and veFXS). However, as the project progressed they started emphasizing liquidity at the wMEMO layer as a key incentivize to get more of DeFi to stake / lock TIME and turn it into wMEMO. In other words, the upside of more locked TIME would outweigh any potential downside of creating liquidity (i.e. exit liquidity) for wMEMO.

Is veFXS liquidity beneficial?

As a result, I think a key discussion point I want to get feedback on from our community is whether or not liquidity for veFXS is beneficial to the protocol (currently through cvxFXS / FXS curve pool). On the one hand, a liquid secondary for veFXS provides more incentive for current FXS holders to lock their tokens and move into the veFXS layer. On the other hand, this opens up the protocol to sell pressure on the veFXS token, which ultimately will bleed into the native value of FXS through pools like curve.

Very curious to hear everyones opinion and thanks for reading along!

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No. It’s for security.

1 Like
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Please expand. It’s a trade off. I think there’s more upside to veFXS being liquid as more FXS holders will lock up their tokens.

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we already have a liquid version of locked FXS, thats cvxFXS.

i see no reason to build another one.

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I agree. As much as I’d have liked to put my locked veFXS to work through the convex integration, having it locked is important for the health of the protocol. It would be excellent to be able to borrow against it or something, and then instead of earning my yield on it, have that yield go to pay down the loan, alchemix style (no liquidations, which means it’d need to be borrowed denominated in FXS, which would be a bummer since that’d potentially cause a price dump - although I’d be kinda stoked about since I’d be able to buy it up on the cheep again for a moment)

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Wow. Are you saying that you would want it to be borrowed in FXS, so there’s no liquidations? Because later you say it would cause a price dump, which i agree because people would just swap ourt of FXS into another asset, but wouldn’t that then cause potential for liquidations as you’re borrowed asset is now different than your collateral asset (veFXS)?

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the question here is about whether or not it’s healthy for the reason veFXS was made in the first place. We’re aware cvxFXS exists.

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i personally dont think it would be healthy to have a liquid veFXS, the current system rewards people that are willing to lock there funds in to the FRAX ecosystem. if people can trade veFXS then it gives long term investors nothing extra for their commitment they are showing to the protocol.