Summary
Activate AMO and deploy Frax liquidity to Yield Protocol, a fixed-rate lending and borrowing platform, unlocking an alternative venue for Frax to earn yield.
Background
Yield Protocol is a collateralized fixed-rate borrowing and lending marketplace. Yield Protocol pioneered structuring fixed rate loans as liquid ERC-20 tokens and developed a novel AMM (YieldSpace) for trading the tokenized loans. Yield Protocol launched its Version2 in Oct. 2021 and has seen consistent un-incentivized growth in TVL of the protocol reaching over $20M.
Yield’s fixed rates have been very competitive relative to variable rate borrowing platforms such as Aave and Compound. Current rates have been below 2% for most of the last month. To encourage borrowing, Yield Protocol continues to add new forms of collateral including assets from Yearn and Convex.
Yield Protocol has gone through extensive code reviews and security audits by Trail of Bits, several CodeArena contests, and has an active $500,000 USDC bounty through Immunefi.
Abstract
Users can currently borrow Frax at floating rates on platforms such as Aave and Rari. The unpredictable nature of variable interest rates make borrowing difficult to manage and makes some kinds of borrowing not worth it. Users currently don’t have good ways to borrow Frax at fixed rates.
We propose that Frax partner with Yield Protocol to bring fixed rates to Frax. Yield Protocol can add Frax to its menu of available assets to borrow. This will make borrowing of Frax easier to manage for users since interest rates are locked in for the fixed term.
To make this program a success, we are proposing that Frax provide liquidity through deployment of an AMO to provide liquidity to Yield Protocol. This will guarantee liquidity for the users looking to borrow fixed rates in Frax. The Frax AMO will earn yield from both borrowers and lenders.
In the future, Yield Protocol will add CvxFrax ($3 Billion TVL as of Feb 11th, 2022) as a collateral type, to be borrowable for more Frax. This will allow Frax liquidity providers to take on leverage by borrowing more Frax and unlock more value from their position.
Proposal
Yield Protocol will add Frax as a borrowable asset, enabling the borrowing of Frax at fixed rates. Initial terms will be 3 months and 6 months.
Frax will deploy an AMO to provide liquidity to Yield Protocol, earning fees from lenders and borrowers.
Yield Protocol will add CvxFrax as a collateral type so that it can be used to borrow more Frax, unlocking value and more liquidity for LPs.
Motivation
Revenue: Frax will earn passive yield from borrowers and lenders.
Low risk: Frax liquidity would not be subject to significant impermanent loss. This is true because liquidity is provided in FRAX and fyFRAX. fyFRAX is an asset that matures into FRAX after a maturity date, so a known amount of liquidity can always be withdrawn after the maturity date.
Additionally, Yield has been audited twice and Version 2 has been running without issue for several months.
Exposure: By providing a mechanism for users to obtain Frax at fixed rates, this proposal will grow the utility of the Frax stablecoin and increase the venues through which users can engage with Frax. Since Yield Protocol is a known trailblazer in the fixed rate borrowing and lending space, this would be a great partnership.
What do you think?
We’d love to hear from the FRAX community about this potential partnership and understand any community interest, concerns, or questions.
Links to Audits