Use FXTL to redistribute Fraxtal revenue to users (v2)

Authors

@wolfehr

Summary

  • Fraxtal is a new Frax product that will generate revenue via sequencer feeds and MEV.
  • Frax will redistribute 20% of revenue back to users that add value to the ecosystem (as measured by flox blocksapce rewareds), with the remaining 80% going to veFXS and insurance (78/2 split).

Key Principals

  • The FXTL system should incentivize Fraxtal usage, Fraxtal TVL, and building/innovating on Fraxtal.
  • Fraxtal’s revenue should be redistributed to users who add value to the ecosystem (as measured by FXTL). This is a core value of Frax, as seen in the revenue distributed to sFRAX and sfrxETH users.
  • FXTL should not produce FXS inflation
  • FXS should charge a fee for building and maintaining Fraxtal.
  • FXS should remain the governance token and value sink for all Frax products.

Mechanism:

  1. Use revenue Fraxtal generates via sequencer fees and MEV to purchase FXS. A TWAMM purchase will be made every epoch using the previous epoch’s revenue.
  2. Deposit 20% of FXS into a vault, distribute 78% to veFXS, and reserve 2% for insurance.
  3. FXTL holders can burn FXTL in exchange for a prorated share of what’s in the vault. The payout will take place at the end of each epoch based on the FXTL burned during the epoch.

Pros

  • Does not dilute FXS
  • Does not introduce a new token (except keeping FXTL as the accounting system for ownership of the Fraxtal vault).
  • Maintains FXS as the center of the Frax ecosystem, which now includes Fraxtal.
  • Redistributes Fraxtal revenue to those adding value to the ecosystem, providing an incentive to use and build on the chain. Since the flox mechanism gives more FXTL to users/contracts, adding more value, more FXTL means the holder added more value.
  • Allows users to speculate on the future value of Fraxtal. For example, someone can buy FXTL for more than the current revenue suggests.
  • If wallets with FXTL are lost, the share of the Fraxtal vault they represent will never be claimed. That means either FXS is effectively burned.
  • Helps keep FXS off the market (since it’s in the Fraxtal vault). This is boosted by…
  • Encourages holding FXTL long-term (boosting the value of the below three pros); if someone believes Fraxtal will generate more revenue in the future, there’s an incentive to hold FXTL to get a share of a larger vault.

Cons

  • Fraxtal revenue might not be a sufficient incentive, particularly at first
  • Limits the value veFXS captures from Fraxtal to 78%.
  • Not a straight conversation ratio, which adds some complexity (e.g., when’s the best time to claim?). This might be particularly true for early users, especially those with a large airdrop.
  • Assets in vault are not productive (i.e., FXS in the vault is not earning money for Frax)

Parameters that can be adjusted in the future via governance

  • Fee split. The proposal starts at 20/78/2
  • Vault token. FXS would be the initial vault token, but that could be adjusted via governance in the future. FXTL burning would work the same, but you’d get a prorated portion of each token type in the vault.

Example

  • Epoch 50 starts with 1,000,000 FXS in the Fraxtal vault and 10,000,000,000 FXTL.
  • During epoch 50
    • Fraxtal earns $1m in sequencer fees and MEV.
    • Alice burns 1,000,000 FXTL, and Bob burns 2,000,000 FXTL.
  • At the end of epoch 50
    • Fraxtal starts a week-long TWAMM purchase of FXS using the $1m in sequencer feeds and MEV, which is deposited into the Fraxtal vault.
    • Alice is delivered 100 FXS (1,000,000 FXTL burned / 10,000,000,000 FXTL supply * 1,000,000 FXS in the vault), and Bob is delivered 200 FXS (2,000,000 FXTL burned / 10,000,000,000 FXTL supply * 1,000,000 FXS in the vault)

Vote

  • Approve
  • Reject

Author’s Note
I think this mechanism can be paired with a separate incentive program to boost the rewards (e.g., at the end of every epoch, Frax adds FXS to the fraxtal vault using new emissions from an incentive program). I didn’t include that here because I (personally) don’t think it needs to be a core part of the FXTL system and can be a separate incentive stream that goes into the vault. However, if the majority feels emissions should be baked into the FXTL system long-term or we should include a short-term bootstrapping mechanism to kick start things included in this proposal, I can add it. Please just respond here, telegram, or discord to let me know. Here is ideal so the discussion is all in one place.

2 Likes

i dont think this is correct, if a wallet has FXTL and access to that wallet is lost, then the wallet would never be able to burn that FXTL and claim some FXS. but the same amount of FXS would still be paid out.

so a lost wallet would result in everyone else with FXTL getting slightly better conversion rate in general.

but i would support this idea.

1 Like

I haven’t done the math to figure out how it would fully play out, but if FXTL is claim on a share of a vault (i.e., your share / total outstanding fxtl * what’s in the fault), then no one will ever be able to claim the entire vault if lost wallets mean total outstanding fxtl > “your share” of the last person claiming.

Either way, I think everyone getting a better conversation rate works too if my logic is wrong :slight_smile:

i dont understand why the total amount of FXTL is included in your maths.

imo, the amount of FXS should be shared between everyone who burnt FXTL in that round.

people who hold FXTL but never burn will never get a share of a vault.

the FXS rewards for each round will all be paid out every round.

example,
FXS reward for that round is 1,200
you deposit and burn 1,900,000 FXTL
the total amount deposited and burnt is 143,888,888
1,900,000 = 1.32% of the burn that round.
you get 1.32% of the total reward , for 15.84 FXS.
all 1,200 is paid out in rewards.

I think I maybe wasn’t clear on the burn mechanism I was proposing.

In my head, it would work like this…

  1. A fraxtal vault is created
  2. A one-time lump sum is deposited into the vault to account for all fraxtal revenue to date
  3. Epoch n starts
  4. People can burn FXTL
  5. Epoch 1 ends
  6. People who burned FXTL get # FXTL burned \ total FXTL * total in vault. In other words, the share of the total FXTL you burn is equivalent to your share of the total vault (i.e., your claim amount).
  7. Revenue from Epocn n is deposited into vault (and FXTL airdropped if that’s still a once-a-week thing)
  8. Go back to 4 and increment n

I like this because it accounts for the revenue earned before the proposal passes and the large airdrop to veFXS/veFPIS holders and encourages holding.

I understand your setup, but I feel we would benefit more from integrating FXTL more strongly into the FXS ecosystem and not only use it as a rebate system. We should do some kind of issuance that ensure revenue to protocols and users of Fraxtal. Hence, I think this is a 0 to 0 proposal, that in the end is not that positive and productive for the ecosystem.

Can you elaborate on what you mean by this? My initial reaction is that issuance doesn’t ensure revenue; if you issue more tokens and the increase in tokens isn’t backed by a corresponding increase in revenue, you’re just diluting the value of existing coins.

There is main two scenarios.

  1. We only use the revenue that Fraxtal brings in to reward Fraxtal users and protocols. This is a form of rebate system, but with the implementation of FLOX the most valuable users will get more. However, we can never guarantee what the reward will be, making it less attractive to bet on for new protocols and users.

  2. We issuance of FXS to redeem/convert Fraxtal points, for example as outlined in this discussion (Discussion for a proposal to convert FXTL points to FXS - #9 by Sharkysnakefish). This creates a floor so to speak for the rewards, making building and using Fraxtal more predictable.

None of the options guarantee revenue short term. However we have to look at the solution who will bring the most traction and success to Frax and Fraxtal long term. While issuance might dilute FXS holders in terms of FXS/FXS as you will own less shares of the ecosystem, the goal is to grow the overall value of FXS so that the dilution will be positive for FXS holders. Holders have to understand that issuance can be net-positive for the ecosystem, if it creates value.

While it does create a floor, the floor is FXS denominated. I think when most people (that aren’t frax maxis) think about their rewards, they do so in USD or ETH denominated terms. So while it may be a more consistent number of tokens, the floor is variable depending on the FXS:ETH or FXS:USD ratios. Emissions based rewards might also be an incentive to sell before the token price drops/their rewards get diluted by future emissions.

It is true that the floor is FXS denominated. However, as the Frax and Fraxtal ecosystem grows, it is likely that FXS will gain more value as more revenue will gather to the token. Having a set emission schedule using FXS will also encourage protocols to align and hopefully buy into Frax’s vision. Hence, FXS will hopefully become a valuable token to hold both in terms of potential, but also revenue.

Using this way of thinking, users will sell of any reward to buy USD or ETH for safe storage. It is my belief that we have to be more bullish on the potential of FXS, and see FXS as a safe storage of money in the future. Just like a bluechip dividend stock.