Ouroboros Cap, Fraxbonds, Bastion Puts - This Week in Frax - June 23, 2023

A lookback at the previous week's events and happenings in the Frax community.

June 23, 2023

FXS Buybacks Part Deux

As we discussed last week, Frax Founder Sam Kazemian announced the launch of a $2m buyback program of FXS using the TWAMM over a 5 month period.

Sam’s response to the above meme…

The response to the buyback announcement was slow. It took the wider crypto media two full days to catch on to the story after we reported it on Flywheel. Fraximalists hopped on board right away, buying FXS in size and providing a local bottom. Over the last week, since it was announced, FXS price rose 28.4% to $6.

While the initiative was a good start, some felt that the capital should be allocated faster.

Ouroboros (who is the main character in this week’s review) immediately asked Sam about the 5 month time period. Sam Kazemian told him that it could be changed with a governance vote. And so Ouroboros started a thread on the governance forum “Optimizing FIP-77’s TWAMM Parameters.”

His plan was the following":

I propose a $1mn TWAMM that spans over 1-month (30 days), buying only when price is below $5 and an additional $1mn 1-month TWAMM on top of it that starts buying only when price is below $4.

Frax supporter Geronimo replied to the post with some deeper analysis of the buybacks.

Ouroboros understood, but he replied:

My view on this is if we become too academic on these things, we will end up not being able to execute on any buybacks which would then defeat the purpose on such a mechanism. Price is often not a function of academic models. If a DCF model can properly price a stock then we wouldn’t have bad investors. Historical price levels reflects the psychological “fair price” the market ascribes to an asset. Right or wrong, that’s what everyone in the room thinks is the consensus standard of “cheap”.

We agree with his viewpoint, the market can and will stay irrational longer than one believes, so optimizing for the TWAMM only when prices get to #3 might never happen.

Sam Kazemian popped in a little later in the thread with his opinion. He asked for another 2-3 days for modification and more feedback. He noted that the TWAMM shouldn’t be run if prices rise above $7 and also that there should be some discretion on time periods for allocation. The bear market can last longer than what Frax might have dry powder for.

Geronimo also pointed out that “The funds usage should be compared against alternatives. What else could the $20M be put towards that would increase long term value?” Is there somewhere that Frax can make a higher return for the protocol than buying back FXS?

C2tP popped in with some thoughts. While he was ok with Ouroboros’ price targets for the TWAMM, he did say the proposal had a pumpy vibe to it to speed up buybacks to impact prices. In his opinion, 1 month was too short of a time for the buyback.

Ouroboros responded that the 30 day interval was chosen based on previous price action. Over the past year the time that FXS has spent under $6 has been less than 30 days on average. While we could go lower for longer, as Sam Kazemian pointed out, history has shown otherwise so far.

Bastion Proposes Cash Secured Puts

In the latest developments, Jake from Bastion Trading, proposed Frax sell cash secured puts to their trading firm, to buy the rights to purchase FXS at a, most likely, strike of $4 or $5. This would have to be a custom contract approved by FXS holders.

After posting this, Jake and his team posted Proposal - Bastion Trading / Implementing FIP-77’s TWAMM with extra yield to the governance forums. He posted a few examples of what the contract structure could look like for a $1m outlay from Frax.

Mathletamine remarked that puts are a bad idea and could lead to problems.

I asked Math about his position and thought about how the contracts would be setup.

While 26% might seem low, it is for the lowest strike. The ATM strikes will always have a higher APR. My biggest issue is how they are calculating the volatility pricing. 65% seems low for the strikes they are proposing.

Obviously this situation is still developing. The original $2m TWAMM is still active over the original 5 month period.

Frax Forks?

Adam Cochran posted a short tweet thread after the buyback announcement hit the major crypto news publications. He was bullish on the idea and growth potential for Frax.

However, in his third tweet, he said that most of the products in the Frax ecosystem are simple forks. Sam responded saying that all of the products were inspired, but all of the code was Frax’s alone and were designed to enhance the protocol at large. He brought up Fraxlend, which was coded from scratch and released before any other major protocol. He also brought up the AMO’s, which still are a revolutionary creation of Frax’s.

It’s all about the endgame….

Release of Fed Master Account Holders

This week, a list of all Fed Master Account holders was released. The list was surprising to say the least and probably bolsters Frax’s chances to acquire one longer term. Interestingly, of the 9000 approved FMA holders, 414 are not federally insured, which is what narrow banks like Custodia and potentially Fraxbank would be.

Frax Bonds? BTC?

Travis dropped a new logo this week… what’s it for? Bonds or Bitcoin?

More Fraxchain Updates

Our weekly main character Ouroboros also asked this week what dapps would be built on Fraxchain. Sam listed that all of the currently built products would be live, and that it would have some new applications as well like privacy tech and other financial products.

Sam is bullish on Fraxchain….

Rocketpool is a losing game

Rocketpool has some of the lowest yields in crypto due to how their fees and commissions are structured. rETH holders get rekt while node operators earn upwards of 40-60% getting leveraged. Someone asked Sam Kazemian why this was…

TriCrypto Pools

Tetranode proposed what have all been wanting, a FXS-FPIS-FRAXBP. A deep liquidity pool to house all of the Frax governance assets. We like the idea and it can be a reality with the new Curve Tricrypto metafactories.