Hi all - Just a random DeFi Degen here.
As many are already aware (FIP 32 Adjust veFXS boost ratio to catch up with rising FXS price), it is currently very expensive to invest in veFXS to achieve max boost.
I believe a new mechanic should be considered. Although I do agree that “forcing” users to deposit into every boost enabled LP paints a path to a healthy market - where no specific LP pool dominates in TVL and emissions. The project, however, is currently unusable for many.
Source of the Issue
- Let’s say, FXS trades at $28
- And then FXS is staked for 4 years
- This means that $28 invested in FXS will enable $2 to be invested in an LP pool at max boost
- This is an efficiency ratio of 14x ($28 in FXS / $2 in LP)
- The upfront investment is beyond reasonable at the moment (i.e. $14 invested in FXS, just to achieve boost on $1 in LP)
- However, there are 11 boost enabled pools
- This means, if I were to invest $28 in FXS, I can achieve max boost for $2 in LP in each of the 11 pools
- Currently, to achieve full capital efficiency, I would need to put up $28 in FXS and $22 in LP across the pool options
- This seems pretty good actually - reducing the efficiency ratio to 1.27x ($28 in FXS / $22 in LP), but…
Why it’s a Real Issue
- Okay fine, I just need to put up $1 in LP for every $1.27 invested in FXS
- To execute this, I must deploy liquidity in 11 places and stake 11 LP tokens on Frax
- This means: 11 contract approvals & executions for liquidity deployment and 11 contract approvals & executions for LP staking (roughly $2,000 in gas fees, low estimate)
- Assuming cost of doing business on ETH is 5% of principal, therefore the underlying value of 11 LP pools would equate to $40,000 (i.e. $2,000 / 5%)
- Side note: I think 5% is a generous assumption. It can really be a lower %; thereby, increasing the value of the underlying assets even more than $40,000
- Using the 1.27x efficiency ratio from above, this means I would need to invest $50,800 in FXS to achieve max boost (i.e. $40,000 x 1.27)
- This totals the investment to $90,800 ($40,000 in LP and $50,800 in FXS)
- It currently costs $90,800 to purchase FXS and to actually use it at its full potential
Proposal (More like a starting point for the community to discuss/refine further):
I think the # of veFXS to achieve max boost should be dynamic - to reflect and allow for a lower amount to be staked with limited boost benefits to 1 specific pool (i.e. veFXS boost direction).
As illustrated, it costs $90,800 in total to use FXS effectively. This is largely due to the implicit “requirement” of forcing users to deploy in 11 LP pools. Instead, why not allow users to stake/hold veFXS in a lower amount - but only be able to direct the “boost power” to 1 specific LP pool?
To deter users or any particular LP pool from dominating in TVL or emissions, we would add a premium for choosing to direct boost power. For now, I think a 20% premium would be fair? Let’s discuss in the comments.
- Due to current prices of FXS, a high upfront investment is required for max boost
- At $28 per FXS (and max lockup), it costs $1.27 to boost $1 in LPs given that all 11 pools are invested
- However, to do so effectively on ETH, it costs $90,800 in total investment for 11 pools total
- Why not allow users to direct “boost power” into 1 specific LP pool (and not “force” them to deploy in all 11 pools)?
- The mechanic would simply be 1.27x + 20% premium to calculate the amount of veFXS or FXS investment required
- Obviously, the “1.27x” is the simplified version - the actual figure would be dynamic and would be explained through a formula
- Formula: # of veFXS required for max boost direction = ( 4 veFXS / (1 FRAX in LP x # of Pools) ) x (1 + Boost Direction Premium %)