We saw a successful launch of sFRAX (Staked Frax) last week, attracting nearly $43 mn in TVL at the time of writing. FXBs are around the corner and their corresponding Curve pools will likely be deployed soon as well.
But today I want to discuss a different topic, one that I have been closely monitoring for a few weeks with very few breakthroughs until recently. BAMM or Borrow AMM. This is a mechanism of Frax v3 that has been kept under wraps for some time. Whenever I would ask Sam K. about it, I would get vague answers with not that much detail regarding how it works.
I kept thinking BAMM (Borrow AMM) Borrow.. A…M…M, and just like that I had an epiphany moment! I started piecing it all together. I brought it up in my recent interview with Flywheel podcast which is due out later this tomorrow. So, you may want to listen to that when it's released.
Sam Kazemian would give us tidbits like, “BAMM will allow Frax to keep USD peg even if USDC depegs” or “BAMM will allow for locked liquidity in an AMM” and “solve the stablecoin trilemma”.
See the Screenshots below that I’ve been collecting
So what is BAMM?
In a very basic sense think of BAMM as an updated version of Fraxswap that allows users to lock their tokens (liquidity) in for various periods of time. These tokens would mostly be paired with Frax. The amount of time that the liquidity is locked for determines your boosted yield. So, users get extra incentives for locking longer I would assume, just like it is now with Frax’s locked LPs.
Editors Note: BAMM will share many of the characteristics with Infinity Pools, which Flywheel interviewed earlier this year. Please refer to our previous writings on their model and the interview.
Now imagine for a moment that Frax can borrow from this locked liquidity at any moment structured as an AMO to fill in any gaps if Frax happens to depeg. Of course, Frax would pay locked liquidity providers additional fees during a depeg event until things settle down because Frax is borrowing the funds from the AMM.
Essentially BAMM becomes Frax’s very own borrow facility. (See screenshot below).
Not only does this solve potential depeg events but it also solves the CR issues (Collateral Ratio). Frax has been trying to get to 100% backed and as of the time of writing, it’s a 60m dollar hole that Frax is trying to fill.
So how does BAMM solve this?
Well if Frax can attract locked liquidity, then some of that liquidity can be put on Frax’s Balance sheet. CR Ratio is solved quickly as BAMM TVL grows.
So wen BAMM?
Let’s not get too excited so fast, Sam K. indicated that this was something that was slated to be released on Fraxchain which is still due in early 2024. But it's coming! And what Frax is developing is groundbreaking!
I will bring you more developments as more information about BAMM is released. Until next time degens!
Follow me @Cryptovestor77 on X for 24/7 Alpha on the Curve and Frax Ecosystems.