i think adding sfrxETH to Aave will be a huge benefit, because unlike the other LSD, Frax has a better token model in regards of tax. Instead of for example paying up to 45% its only 20%. So a lot more incentive to use sfrxETH instead of the others.
Chaos Labs supports adding sfraxETH due to the token’s low counter-party risk and decentralized nature. Considering the recent recommendations for other LSDs, such as cbETH and rETH, we believe the same parameters could be applied in this case.
We support the suggested supply cap of 5K. It reflects the differences in market cap and liquidity compared to the recommendations for cbETH and rETH (10K) while taking into account the ability to unstake to frxETH and the deep liquidity for frxETH on Curve.
|Symbol||Isolation Mode||Borrowable||Collateral Enabled||LTV||LT||LB||RF||LPF||Debt Ceiling||Supply Cap||Borrow Cap|
Thanks for your answer @ChaosLabs, updating the ARC to integrate your feedback and escalating this proposal to snapshot stage.
edit: Link to snapshot vote
From my understanding, sfrxETH has significant counterparty risk to the frax team, including:
- Managing all validators for frxETH
- Minting rights for frxETH (as mentioned above)
- Withdrawal keys for staked ETH underlying the asset
- Control of frxETH Curve LPs generated by withholding 10% of user ETH deposits and pairing with newly minted frxETH
There is no need to run a product like this on a multisig. I find it difficult to call sfrxETH a decentralized liquid staking derivative in its current form. It feels a bit reckless to accept this asset in the same week as the recent Kraken news.
I think sfrxETH would be a suitable addition to Aave once minting, validator withdrawals, and any AMO LP deposits are managed in a decentralized manner (eg on chain governance by FXS or veFXS holders), and underlying staked ETH is distributed across several validators rather than just the Frax team.
TL;DR - sfrxETH is valuable for the ecosystem and definitely should be onboarded to Aave at some point in the future, but is immature at the moment and control is relatively centralised in the Frax team.
Apologies for the late reply, but out of an abundance of caution we will be voting against this proposal due to the centralization and counter-party risk associated with sfrxETH (as highlighted by @monet-supply and which can be found here)
While the 5k supply cap is conservative, in the case of an adverse event I doubt Aave’s expected revenue will be greater than the expected loss.
We’d be much more comfortable voting for this once the Frax team has addressed major centralization concerns, which they expect to do post-Shanghai upgrade.
Update, the snapshot vote passed.
That being said @Pauljlei & Gauntlet have requested time to produce feedback on this proposal.
The ACI will wait for their contribution before posting the AIP to allow the community to form an opinion with as much feedback as possible before casting their vote.
Below, we have conducted research to shed light on the trust assumptions of various ETH LSDs, in order to provide the community with additional information. Although Gauntlet’s platform focuses on market risk, we hope that the below research provides transparency and helps the community in making an informed decision.
TLDR: Based on the below, listing sfrxETH requires greater trust assumptions compared to stETH and rETH.
|Frax sfrxETH||Coinbase cbETH||Lido stETH||Rocket Pool rETH|
|Validator||Ran by the FRAX core devs||Ran by Coinbase||30 entities approved by Lido DAO||2000 deposit addresses|
|ETH rewards||Managed by the FRAX Multisig Treasury Contract||Managed by Coinbase||Controlled by smart contract + DAO-assigned oracles, the withdrawal credentials are derived from the withdrawal address supplied by the DAO||Controlled by smart contract + Oracle DAO, the reward snapshot is compiled into a Merkle Tree and the Rocket Pool contracts enables node operator to claim the reward|
|Permissions for Minting LSD||frxETHMinter contract has frxETH minting permission. The contract owner is a multisig with various permissions.||cbETH contract’s master minter set the MintForwarder contract as a minter.||The outstanding stETH amount is based on the total amount of ETH controlled by the protocol.||Only the RocketDepositPool contract is allowed to mint rETH.|
While the counterparty risk is difficult to quantify, based on these qualitative evaluation criteria, listing sfrxETH requires greater trust assumptions compared to stETH and rETH. Given that different LSDs exhibit different levels of trust assumptions, the decision of listing sfrxETH should be based on the community’s risk preference that is separate from market risk.
|Frax sfrxETH||Frax frxETH||Coinbase cbETH||Lido stETH||Rocket Pool rETH|
|Top Liquidity Sources||$1.9M on Balancer||$62M on Curve||$7.3M on Uniswap v3, $3M on Curve, $6.5M 2% depth on Coinbase||$820M on Curve||$26M on Balancer, $3M on Uniswap v3|
|DEX 25% Depth||$2.7M||$88M||$9M||$1.1B||$84M|
Given that sfrxETH may be unstaked into frxETH via smart contract, users looking to liquidate an sfrxETH backed loan can make use of frxETH liquidity. Setting aside the counterparty risk, the liquidity of frxETH on the DEX is greater than that of rETH, although its market capitalization is lower. Therefore, we recommend using the same parameters as those used for rETH (if the community decides on listing sfrxETH). Please refer to our rETH post for considerations regarding ETH staking derivatives.
With the proposed supply cap of 5,000 suggested by Chaos, the highest possible opportunity cost of deferring sfrxETH for two months would be approximately $31.1k in borrowing interest (calculated as 5000 * $1680 * 0.74 LT * 3% stablecoin borrow interest * 2 months / 12, as of 2023/02/16), assuming the majority of the debt against sfrxETH will be stablecoin. Therefore, two potential paths are recommended for moving forward:
- Conservative approach: wait for the release of frxETH v2, which is expected to launch following Shanghai upgrade, and will enable a more decentralized validator set. By delaying the listing of sfrxETH, the maximum potential opportunity cost in borrowing interest is estimated to be $31.1k.
- Aggressive approach: if the community favors the listing of sfrxETH, they may choose to reduce the supply cap from 5,000, based on their level of confidence in the Frax team. Gauntlet is unable to provide a specific recommendation for the supply cap since counterparty risk cannot be quantified.
We hope that this analysis helps the community assess the risk-reward tradeoffs.
Hi guys - what are the plans for an oracle for sfrxETH?
Haven’t seen mention of this in the post or much elsewhere.
I’ve noticed this oracle address on other forums
0xd2F0fa7f2E6a60EEcf4b78c5b6D81002b9789F2c but would love to gauge the community’s willingness for a “SfrxEthFraxDualOracle”
Seems to incorporate Chainlink + Curve EMA & UniV3 TWAP.
When will the AIP for this proposal be submitted?
As soon as a Chainlink price feed is available for this asset.
what is curve using for their oracle for crvusd w/ sfrxeth?
IIRC Curve is oracle-less, only relying on pool liquidity to determine price of each asset relative to the other.
And it can’t be used as an oracle as it can be (and already been) manipulated, while benign for curve itself it’s not for protocole that would use them as oracle.
Hey @MarcZeller what happened with this proposal?
it has been de-prioritized due to a need a price oracle adapter (and CL price feed in the first place)
it could theoretically be implemented now, but lack of strong demand never allowed it to come back into the heavy to-do list.
After all this time, I’d suggest a reboot via a new TEMP CHECK
Hope you are well sir. I wanted to jump back in here and chime in on sfrxETH being included on Aave. I’m not sure if there’s actually a lack of demand or if both communities are just waiting in limbo for Aave to include sfrxETH.
For reference, sfrxETH has had a Chainlink rate oracle for a few months now so that requirement which was the bottleneck before has been cleared a while ago.
Also, in terms of the demand question, sfrxETH is extremely popular collateral on crvUSD and also the largest Fraxlend pair bay far with over $85M used to borrow FRAX: Frax Facts
I think there’s more than enough demand and we’d be happy to promote its usage on Aave if the process for listing is restarted. I think there might just be miscommunication here or misunderstanding that there is no oracle or demand. I’d be happy to help in any way personally to answer any questions.
Let’s make it happen @MarcZeller
Thank you good sir! Will follow up with you in the new thread then and also coordinate with you guys for any further information you might need
We are ready @MarcZeller