This Week in Frax - Sep 29, 2023

Partnership Spotlight: Notional Finance

This week we had on Teddy Woodward from Notional Finance. Teddy joined the show to talk about integrating Frax for their leveraged yield vaults on Arbitrum.

Notional is a protocol on Ethereum and Arbitrum that facilitates fixed-rate, fixed-term crypto asset lending and borrowing through a novel financial instrument called fCash. On Arbitrum they are running a closed beta for their new leveraged vaults.

Big shakeups this week as governance goes on full display. There were two major issues that were brought up by community members and drove the narrative for the week. Lets dive into the drama...

Revest Takes to Main Chat After Losing Governance Vote

Last week we talked about Revest's FPIIP to implement a new locking system for FPIS. The idea came out of the Flywheel Hackathon and was coded into reality over a few weeks. The Revest team was excited to see the launch of their newly built product, but were rebuffed at the polls in a resounding no vote.

As a result, the Revest team took to Telegram and Twitter to air their grievances specifically against C2tp, who voted no with his vlCVX. While C2 is a large voter at Convex, he by no means is the only voter. The Convex ecosystem is governed by a diverse set of entities and Revest did not pre-lobby for their governance proposal beforehand. Additionally, for the Frax ecosystem, Convex does not have a majority stake and can be outvoted if there is enough community support, which Revest failed to gather.

Sam wrote:

I don't think it is a big secret Convex itself has a lot of voting power so I'm not sure saying it yet again teaches anyone a new fact. I get that it's frustrating for votes that don't pass. But Convex Protocol votes based on the distribution of the vlCVX votes so it is not a 1 vote wins all thing. The Convex tokens that the Convex team has obviously hold big sway since they are a decent minority chunk of the largest locker and thus still pretty big. I get that. In any case, I'm sorry the optimizer did not pass, I actually had no specific issues with it. I have a small issue with the Revest proposal myself so that is a different situation if I'm being honest. I'm very open to seeing how we can propose a follow on vote in some way for a 2nd attempt at a gauge for you guys.

After the initial outburst, Sam Kazemian, the Founder of Frax, took to the forums and expressed his apologies for a misunderstanding and miscommunication surrounding the proposal for NFT-based lockers in the Frax ecosystem. He clarified that the initial request for veFXS and veFPIS wrapper lockers was his personal idea, acknowledging a lapse in active engagement and feedback during the Frax hackathon.

The issue at hand was that Revest's FPI locker veNFTs potentially undermining the limitations imposed by the veFXS system, by allowing unlimited creation of any kind of lock and for any duration. Kazemian suggested that a more valuable approach would be for Revest to own the FXS and FPIS tokens on its DAO balance sheet and hypothecate NFTs/tokens against them. New lockers should not undermine or break the existing ve-system. Ultimately, he asked the team to review their design and resubmit once changes were made.

CR to 100% Clouds Unlock sdFrax3CRV-f &Unlock Curve VSTFRAX-f pool (Arbitrum)

The other big governance issue was around unlocks for the Vesta Finance and StakeDao LPs. Vesta Finance recently voted to conduct a full unwind and dissolve. VST would be available for 1:1 redemption for stablecoins ongoing into the future.

TVL has been declining naturally in the pool, but there is still $3.7m staked.

Additionally, TG member Luke has been working on extracting a massive amount of data to determine rage quit fees for how much FXS was paid out to the sdFrax3CRV-f pool over the last 2 years.

But.... there are issues

Sam K voiced his opposition to unlocking this or any pool under the current market conditions. His reasoning was that as we are under 100% CR and supply has been shrinking due to market conditions, unlocking any pools would be detrimental to the overall health of the protocol. While the figures Luke put forward are correct, further outflows could affect the FRAX peg.

Sam clarified that he isn’t against future unlocking if market conditions improve and the CR continues to climb towards 100%. FRAX v3 potentially is the solution for this problem and that when CR was at 100% he would support it.

His view is most likely shared by other DAO voters, signalling the end to "rage quits" or other early unlocks for staked LP.

Other Governance Issues

[FIP-289,290] Add Arrakis LST Vaults of frxETH/FRAX to FXS Gauge Controller

Arrakis Finance is a non-custodial on-chain market-making protocol that builds both the infrastructure and the strategies that enables and execute sophisticated algorithmic market-making on Uniswap V3.

[FIP - 291] Add triSDT to the gauge controller

Add an FXS gauge for the following Convex pool: SDT/frxETH/crvUSD
The staking token is a wrapped Convex staking position that receives CRV and CVX rewards.
Curve LP token: 0x954313005C56b555bdC41B84D6c63B69049d7847
Convex pool ID: 233
URL: https://www.convexfinance.com/stake/ethereum/233 1

Q&A with Sam K

FrxETH liquidity

flcl: What's happening with frxETH liquidity? Why was so much removed?

Sam Kazemian: It’s moved to the frxETH-WETH Curve pool instead of the frxETH-ETH original pool because the WETH one has improved EMA oracle code and is used for crvUSD markets. Total liquidity hasn’t changed much overall. It’s just migrating between different pools slowly over epochs. Also, some more POL moved to frxETH-stETH per a previous governance vote to increase yields that ultimately go to sfrxETH holders. Between all those 3 pools, overall liquidity is about the same range as before.

FinresPBC

McKenna: @samkazemian curious why you guys chose FinresPBC instead of BlackRock iShares for short-term treasuries? People like Ondo Finance are utilizing these types of ETFs, is it due to management/intermediary fees?

Sam Kazemian: Yes, management fees are one reason, but other than that, you’d still need a properly set up legal entity to handle and hold the iShares. FinresPBC can hold those if we want. But regardless of whether we want to hold iShares or raw tbills, we still need our own entity like FinresPBC since a protocol can’t hold it by itself.

tan: Check USDT balance sheet, how profitable it is! Don't want to share with anyone.

Frax v3 Launch

Cryptovestor: We must be getting close, October just a few short days away.

Sam Kazemian: We are close, ser. Audit complete. Just improvements and final prep.

Cryptovestor: Will v3 be here in time for October's attestation of assets via Plaid?

Sam Kazemian: Yes, it doesn't matter though exactly if it's before or after Oct 1 since everything is real-time anyway. So balance sheet will catch it whatever date it's launched anyway.

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