History repeats itself, or does it rhyme?
Approximately one year ago, the protocol authorized $20m FRAX to be used for discretionary buybacks of FXS. Up until now, only $2m was ever utilized, with the rest sitting in reserve. With the FXS price near 2 year lows, Sam Kazemian announced today that a new TWAMM order had been created. Over the next 5 months $2m FRAX will be used to buyback FXS.
Currently 72m FXS is circulating, of that, 40m is locked in veFXS, leaving 32m free floating and locked as LP. Most likely, the team knows that the outstanding share of FXS is starting to decline and buybacks will be effective at these price levels.
Last year, Fraxlend had just launched and frxETH was just announced. Fast forward to today, frxETH v2, Borrow-AMM (BAMM), Fraxferry v2, and Frax v3 are upon the horizon.
The previous buyback ultimately marked last years price bottom. The question is now, will it mark the bottom of this year?
Michael’s CRV position and Fraxlend
In one of the biggest news stories of the week, Gauntlet Network proposed freezing the CRV Aave pool, preventing additional borrowing. Curve founder Michael Egorov had deposited over 25% of the circulating supply of CRV to protect his $65m USDT loan. If liquidated, the total aggregated liquidity across all AMM’s would not be able enough the absorb the collateral sale, leaving the protocol will millions of dollars in bad debt.
Where people have issue with Michael’s position is that he recently moved it from Aave v3 to v2, where there are less capital controls. His position, which is extremely risky, allows him to borrow USDT at the pooled rate of 3.5%. The complete disconnect between rates and risk has worried several parties with exposure to Aave.
While this is Aave’s problem ultimately, the systemic risk caused by liquidation threatens the lenders who have supplied close to $20m FRAX to the pool for Michael. Unlike the Aave pools, Fraxlend’s are isolated, meaning there is no shared risk between assets and the protocol cannot end up with bad debt.
In the chat this week, Sam K said the protocols exposure is limited. Only $100k of protocol owned liquidity is in the pool. If his CRV was liquidated, the risk of bad debt would be carried by the lenders, not the protocol. In return for such risks, lenders are receiving 20% APR, the highest on Fraxlend.
And even if the CRV price falls precipitously, conversely yields will rise.
First down week for frxETH
We shed a tear for up only. For the first time since launch, frxETH contracted after a sharp market selloff. We knew the chat couldn't be perfect forever, and Sam K gave some additional info on it in the chat.
[FIP - 238] Frax Lend ITB Risk Management Tools
This proposal by IntoTheBlock Research did not pass. They were requesting $60,000 to build a near real-time economic risk monitoring and analytics platform for Fraxlend. There is speculation why the vote failed, some may deem it unnecessary since Frax Facts already exists provides information while others believe that the community is trying to be conservative with unallocated treasury funds until the CR reaches 100%.
[FIP - 239] FRAX <> Convergence - Seed investment proposal
Convergence, a Convex like system for Tokemak, proposed a seed investment of $100,000. In the past several months, voters appetites for cash investments has waned, instead preferring to swap for liquidity incentives.
[FIP - 240] FX Protocol <> Frax Finance
Unlike the Convergence proposal, this one put forward by FX protocol passed handily, most likely because they asked for 40,000 $vlCVX votes to incentivize their fETH/frxETH LP over a 6 month period. In return, Frax will receive 3,000 FX tokens, 0.15% of the total supply, vested linearly over 12 months.
Flywheel This Week
We released three pieces on frxETH v2 and Fraxchain following our interview with Sam K.
Abdul Ibrahim found out that Frax burned some FXS
Revest Partners with Frax to Enhance Scaling of frxETH on L2s
Revest has joined forces with Frax with the goal of advancing the scaling capabilities of frxETH on L2s.
Frax will guarantee upfront payouts for the frxETH-ETH pair on Velodrome. The concept is simple: by locking LP tokens for a month, participants will receive a guaranteed return that matches the projected annual percentage rate (APR). For instance, if the projected APR is 6%, Frax guarantees a 6% return on investment.