How Frax Stands to Benefit from Arbitrum's Short Term Incentive Program

Samuel McCulloch
Samuel McCulloch
Oct 2, 2023
How Frax Stands to Benefit from Arbitrum's Short Term Incentive Program

Just last week the deadline for the first round of Arbitrum Short Term Incentive Grants applications passed. Over 100 projects applied for 120m total ARB, with 50m to be granted over two rounds.  

We dove into the data and analyzed which projects integrated Frax and what the potential impact could be. We will be covering this grant phase intenly as Frax Finance applied for a 1.6m ARB grant for liquidity.

We discussed Frax's grant proposal in the This Week in Frax from Sep 22, right after the Core Dev Team submitted it.

List of All Arbitrum Protocols Integrated with Frax

Protocol Requested ARB
Pendle 2,000,000
Synapse 2,000,000
Magpie 2,000,000
Curve 1,600,000
Frax Grant 1,500,000
Ramses 1,248,000
QiDAO 1,000,000
Arrakis 846,000
Wombat 750,000
Notional 500,000
Arbidex 240,000
StakeDAO 200,000

Analysis & Breakdown

Frax Finance - 1.5m ARB

According to the grant proposal

"This grant is to incentivize users of both Frax stablecoins and staked ETH tokens, so that the Frax ecosystem’s extensive mainnet user base is attracted to try out Arbitrum’s growing DeFi ecosystem.
Incentives will be divided between sfrxETH, frxETH, FRAX, and FPI (Frax’s unique flatcoin) with a target of utilizing all of the funds no later than January 31, 2024. In order for incentives to boost usage, but not attract the most mercenary “hot money”, the rewards program under this grant plan will target a total yield of 120% the unsubsidized yield on each pool."

Frax has three KPIs that it will use to judge how it distributes funds.

Milestone Goal Milestone Metric Source of Truth
Increase FRAX usage > 10 million FRAX bridged to Arbitrum in 30 day period (~triple current volumes) Frax Facts 1
Increase FRAX usage > 60 million FRAX locked in DeFi smart contracts (~triple current levels) Frax Token
Create capital flows to Arbitrum equal to or greater than grant funds Staking yield on Frax Ether on Arbitrum > 480 ETH (equivalent market price to requested grant) in 12 months TBD

Ramses - 1,248,000m ARB

Ramses is a 3,3 DEX on Arbitrum that "combines incentives with concentrated liquidity (CL) to provide a unique model amongst other liquidity bootstrapping solutions and DEXs across the DeFi landscape."

Rames is asking for 1.2m ARB and will match it with 1,000,000 RAM weekly in the form of xoRAM. LPs on Ramses will be the only recipients of the grant.

- 50% of ARB allocated as direct LP incentives for concentrated liquidity pairs, with a focus on ARB pairings, key ecosystem participants, and blue-chips
- 50% of ARB allocated as direct LP incentives matched to fees generated on the pair by the end of the prior epoch. *Epoch N-1 fees will be matched with ARB distributed to Epoch N liquidity providers. This has a global cap of up to 52,000 ARB/Epoch, and RAM will be used to match these (up to 1,000,000/epoch).*

The largest Frax asset LPs on Ramses are:

crAMM-FRAX/alUSD 360k

Pendle Finance - 2,000,000 ARB

If you haven't listened to our interview with Dan, Head of Growth at Pendle start there.

How to Maximize Your APR with Dan from Pendle - Flywheel #70
Get the latest DeFi podcasts, newsletters, hackathons & IRL events straight to your inbox.

Then read our write-up of how you can trade sfrxETH on Pendle.

How to trade sfrxETH yield with Pendle Finance
Pendle has been making a lot of waves with its yield trading system. We’re going to explore in this post how you can earn additional yield on your sfrxETH and even trade future yield outcomes with Pendle Finance.

By their description in the grant

The Pendle protocol enables permissionless tokenization and trading of yield. Pendle allows anyone to purchase assets at a discount, obtain fixed yield, or long DeFi yield. The protocol enables this by taking yield-bearing tokens and then splitting them into their principal and yield components, PT (principal token) and YT (yield token) respectively, which allows them to be traded via Pendle’s AMM.

Pendle is asking for the 2m Arb to:

The ARB grant will be used and deployed over the course of October 2023 (once it is received) through the end of 31st January 2024 and will be used towards increasing yield trading volume, inciting activity on the platform, deepening liquidity on existing pools as well as an additional incentive for users to bootstrap liquidity for newly listed Pendle markets Arbitrum, and finally to encourage activity on protocols built on top of Pendle. Below is the detailed breakdown:

-55% (1,100,000 ARB) will be allocated to the Pendle pools on Arbitrum to deepen liquidity.
-40% (800,000 ARB) will be allocated to campaigns to increase activity and trading volume for the Pendle markets on Arbitrum.
-5% (100,000 ARB) will be allocated to ecosystem integrations that are integrating the Pendle protocol on Arbitrum.

The ARB will be divided across the pools by TVL most likely, and currently the sfrxETH has 5m deposited and is the 6th largest pool by TVL. If the ARB is divided according to TVL, the sfrxETH would recieve close to 110,000 ARB over the life of the grant, or an extra 1.6% APR increase.

Magpie - 2,000,000 ARB

Magpie is Convex for Arbitrum, they are requesting 2m ARB to increase liquidity and boosts across their ecosystem that supports Wombat, Pendle and Radiant.

Frax would benefit from the funds going to Penpie, the DAO supporting Pendle. According to them the ARB would be used to:

PENDLE Conversion incentives Allocation: 80% (480,000 ARB tokens)

-Purpose: Incentivize users converting PENDLE tokens into mPENDLE on Penpie, mPENDLE stakers and mPENDLE/PENDLE liquidity providers.
-Token Allocation: Proportional to the amount of PENDLE users convert, stake.
-Event Distribution: 4 events (PENDLE RUSH, Spin the wheel, etc) to incentivize conversion, mPENDLE/PENDLE liquidity pair.

While sfrxETH is an option for deposit on Pendle, Penpie has yet to list them. This could change in the coming weeks and Pendle deposited sfrxETH would earn extra yield and boosts.

QiDAO - 500,000 ARB

QiDAO is planning to use the grant to increase liquidity and MAI creation on Arbitrum.

The primary goal is to use QiDao’s native-first model to create more stables minted natively on Arbitrum with assets that belong to Arbitrum and the greater Ethereum ecosystem: ARB token, project-specific tokens like gDAI and stETH-ETH Curve LPs, as well as Ethereum LSTs (stETH, rETH, and sfrxETH).

Frax has two pools which qualify for rewards:

  • MAI-FRAX on Ramses: 0x3f6253767208aaf70071d563403c8023809d52ff
  • MAI-FRAX and MAI-sfrxETH LPs: [contract TBD pending governance respective arbitrum DAO proposals passing]

Arbidex - 240,000 ARB

A subset of "partner pools" will split 7.5% of the grant. Frax-WETH LP is one of the pools included.

Synapse - 2,000,000 ARB

The bridge and cross chain liquidity protocol plans to use the grant to increase liquidity and ease of use of their service. Synapse wants to use 500k ARB to support their existing partners, Frax being one of them. They plan to provide "Gas rebates, fee rebates and other incentives" with this grant for FRAX liquidity. It's unclear how much Frax would benefit from this grant.

StakeDAO - 200,000 ARB

The DAO will use the grant to attract liquidity to asdCRV, a tradeable yield bearing wrapped version of locked CRV on Arbitrum. With their increased voting power, StakeDAO will then direct CRV emissions at several pools, including Frax Base Pool. The ARB bribes will allocate 140,000 ARB tokens to incentivise these pools proportionately to their TVL. Currently, 477k worth of FRAXBP is deposited, rougly 20% of the total TVL.

Wombat - 750,000 ARB

Wombat is a cross-chain stableswap exchange protocol. On Arbitrum they support a FRAX/USD+/USDC.e pool (10k TVL) and a sfrxETH/frxETH/ETH pool (750k TVL). The grant will be proportionally distributed by total TVL to LPs.

Curve - 1.6m ARB

Curve is planning allocate 100k ARB per week for 16 weeks as liquidity incentives for the following pools

  • 20k ARB each to 3 stableswap pools paired with crvUSD (e.g. crvUSD/USDT, crvUSD/USDC, crvUSD/FRAX)
  • 40k ARB to the tricrypto pool paired with crvUSD (e.g. crvUSD/ETH/tBTC)

The crvUSD/FRAX pool currently not created or does not have significant TVL to be found yet, however, 20k ARB weekly should bring several million dollars of TVL to capture the yield.

Notional - 500,00 ARB

We spoke with Notional last week on TWIF, go check it out to learn more about the Fixed Rate lender.

Notional will use the grant to distributed to FRAX liquidity providers amounting to 50,000 ARB or 7,143 ARB per two-week period.

The protocol has yet to launch on ARB, the incentives would be used as a way to attract new users and increase yields.

Arrakis - 806,000 ARB

Arrakis Finance is the largest LP manager on top of Uniswap V3 and they've come on the podcast before.

How Arrakis Finance is Automating Liquidity Management
A once opaque activity, Arrakis Finance is redefining market making by making it more transparent, auditable, and capital efficient than ever.

They plan to use the ARB to provide liquidity incentives for 7 vaults, frxETH/FRAX being one of them. The LP pool would recieve 38.38k ARB per month.

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