It's incredible how much the team at Frax built into their system, that is now proliferating across all of DeFi. From its two token frxETH model, to the AMOs, many of its core features are now commonplace products in other protocols. One of the core features of Frax, which has contributed greatly to its long-term survival, is locked liquidity.
Frax's understood early on that liquidity is typically mercenary and will flee at the first sign of weakness. But for an algorithmic, stable coin, a loss of liquidity during high market volatility is anathema to its very existence. In order to withstand the most disastrous of user outflows, liquidity must remain as constant as possible over a long period of time. Second protocols should not reward mercenary liquidity. Token rewards should be distributed to those who are most aligned with the project long-term.
The result of this was the creation of the LP locks. This system allowed anyone to stake their LP from a minimum of one week to a maximum of three years. A multiplier was added on top with a linear increase from 0 to 3x. Those LPs, who locked the longest were rewarded in kind. The system has worked, wonders, allowing Frax to withstand several black swans, including FTX, Celsius, 3AC collapse and the USDC deppeg. Without the locks, Frax probably never would've survived this long.
Given the success of Frax's LP locks, it's surprising that this system has not caught on with with the wider DeFi community. This is where Hourglass comes in and seeks to serve a crucial role for protocols. Hourglass is trying to take Frax’s locked liquidity model, and expand it to every crypto project imaginable. Their idea is that anyone should be able to use their system to lock LP and reward users based on their long-term alignment to the protocol.
Hourglass is a expansion for Pitch, the previously named protocol which aimed to maximize pride revenue for veFXS. While their idea was noble, the bribe markets for Frax are still in the early stages. Their token PitchFXS was able to acquire several thousand FXS, and will be supported inside of Hourglass. Now the protocol has voted to change its name to Hourglass, and to pivot towards the wide crypto community.
This is the first second time guest for Flywheel and we're excited to have Charlie on. This was also the first outdoor interview filmed at the PIF pad in LA.