[ARFC] Add FRAX to Aave V3 Ethereum

Title: [ARFC] Add FRAX to Ethereum Aave v3
Author: @oneski22 @TokenLogic
Created: 2023-05-11

This proposal is to add FRAX to Aave v3 on Ethereum.



Project - https://frax.finance/
Documentation - https://docs.frax.finance/
Whitepaper: https://docs.frax.finance/overview

Github / source code - https://github.com/fraxfinance
Analytics: https://facts.frax.finance/
Chainlink Oracle - 0xb9e1e3a9feff48998e45fa90847ed4d467e8bcfd8


11/2020 - Certik

07/2021 - Trail of Bits

01/2022 - Trail of Bits


FRAX is the inventor and first fractional stablecoin that uses a hybrid of algorithmic and collateralized mechanisms to stay on price target. FRAX is currently the #7 largest stablecoin by market cap 2 (1B) according to Coingecko. FRAX has also never lost peg a single time in its existence (defined as more than 1 cent price deviation on each side).

FRAX currently has the largest Curve pool on Ethereum mainnet with almost $900M in liquidity and is a Uniswap top 10 token. Additionally, FRAX has already been successfully lent out on Aave v2 on ETH mainnet for many months and is a popular borrowable stablecoin with no issues of unpegging or economic problems.

FRAX is also already deployed natively on Polygon, Avalanche, Arbitrum and Optimism where Aave v3 resides.


FRAX can use its Lending AMO (similar to Maker’s DAI Direct Deposit Module) to mint protocol controlled FRAX to be lent out on Aave Protocol. Frax Finance has in the past done so in Aave v2 via an Aave Lending AMO.

The Frax Finance team could deploy a similar Aave Lending AMOs to Aave v3 after FRAX is listed.This will provide Aave users with access to FRAX and present an alternative to the four USD stable coins on Aave v3.

Users are able to borrow FRAX and earn yield across DeFi, such as on Curve Finance and Convex Finance.


  1. What is the link between the author of the AIP and the Asset?
  • There is no link between the authors and the core teams of the asset.
  1. Provide a brief high-level overview of the project and the token
  • See summary.
  1. Explain the positioning of the token in the AAVE ecosystem. Why would it be a good borrow or collateral asset?
  • FRAX is a popular stablecoin to borrow, with its Lending AMOs it is able to mint protocol-owned FRAX to ensure low interest rates.
  1. Emission schedule
  • FRAX is a stablecoin and mintable/redeemable so it does not have a governance token emission schedule.
  1. Token (& Protocol) permissions (minting) and upgradability. Is there a multisig? What can it do? Who are the signers?
  • There is a multisig which can operate certain AMO contracts but cannot in any way change users’ FRAX balances, cannot freeze or pause any user’s funds, and cannot in any way alter the behavior of the protocol or sweep/rug collateral or value. There are no FRAX whitelists/blacklists in any capacity as it is entirely a bearer asset/decentralized exactly like DAI.
  1. Market data (Market Cap, 24h Volume, Volatility, Exchanges, Maturity)

Market Cap: ~$1B

24h Volume: ~$6.5M

Volatility: stablecoin (extremely low)

Maturity: Launched Dec-16-2020


Curve Finance

Screenshot 2023-05-11 at 9.23.15 AM

FraxSwap Liquidity

Screenshot 2023-05-11 at 9.23.15 AM

  1. Social channels data (Size of communities, activity on Github)

Discord - Frax Finance

Telegram - Telegram: Contact @fraxfinance

Governance Discussion - https://gov.frax.finance/

Governance Voting - Snapshot

Twitter - https://twitter.com/fraxfinance

  1. Contracts date of deployments, number of transactions, number of holders for tokens
  • Deployed December 16th, 2020
  • As of Block 1,7231,800: 673,151 Transfers, 7717 Holders

Risk Parameters



Copyright and related rights waived via CC0.


Hi everyone :wave:

Once the risk parameters are provided, we would like to move this proposal to the next stage with a Snapshot vote.

@MarcZeller and @fig whilst TokenLogic is prioritising the Polygon v2 payload. Depending on how the timing falls, we may seek support in preparing this proposal for the on-chain vote.


happy to support TokenLogic.

1 Like

I would like to know if this will be accompanied by FXS incentives, to provide more depth of liquidity.


Chaos Labs supports listing FRAX in Isolation Mode as part of the V2 to V3 migration plan and increasing the offering of the Aave protocol. As explained in the migration plan post, FRAX maintains its peg reasonably, and given a fair market cap of over $1B and sufficient liquidity, we recommend listing it on Aave V3 on Ethereum in isolation mode.

Liquidity and Market Cap

When analyzing market cap and trading volumes of assets for listing, we look at data from the past 180 days. The average market cap of FRAX over the past 180 days was ~$1B, and the average daily trading volume was ~$15M (CeFi & DeFi).

Untitled - 2023-05-30T103929.191

Liquidation Threshold

Analyzing FRAX price volatility over the past, we observed daily annualized volatility of 4.69% and 30-day annualized volatility of 1.04%.

Considering this volatility and the history of FRAX on other networks, we recommend an LT of 75%.

We recommend listing FRAX as borrowable as we do not observe a significant risk to the protocol by allowing to borrow FRAX, as long as it is bound by a well-defined cap.

Debt Ceiling

Following Chaos Labs’ Isolation Mode Methodology, we recommend an initial debt ceiling of $10M. Under the methodology for Isolation Mode, we consider two levels of probabilities for extreme price drops - Medium-High and High. We estimate the probability of an extreme price drop for FRAX as Medium-High. Given this debt ceiling, we do not identify a profitable attack vector under the current liquidity levels.

Supply Cap, Borrow Cap, and Liquidation Bonus

When evaluating the initial supply caps for migrated assets from Aave V2 Market, we carefully analyze the current supply of the asset on V2 so that we can accommodate it on V3. We then ensure that this amount is aligned with the current liquidity on-chain.

Given the current on-chain liquidity and supply on V2 (2.71M), we recommend an initial supply cap of 15M FRAX, and a borrow cap of 12M FRAX.

Untitled - 2023-05-30T103937.291

Given the concentrated liquidity of FRAX we recommend an initial 6% Liquidation Bonus.

Untitled - 2023-05-30T103940.726


For the Reserve Factor, Liquidation Protocol Fee, and Interest Rate curves, we recommend aligning the parameters to the other stablecoins currently on Ethereum V3.

Following the above analysis, we recommend listing FRAX with the following parameter settings:

Parameter Value
Isolation Mode Yes
Borrowable Yes
Collateral Enabled Yes
Supply Cap (FRAX) 15M
Borrow Cap (FRAX) 12M
Debt Ceiling $10M
LTV 70.00%
LT 75.00%
Liquidation Bonus 6.00%
Liquidation Protocol Fee 10.00%
Variable Base 0.00%
Variable Slope1 4.00%
Variable Slope2 75.00%
Uoptimal 80.00%
Reserve Factor 10.00%
Stable Borrowing Disabled
Flahloanable Yes
Siloed Borrowing No
Borrowed in Isolation No

Hi Everyone :wave:

We just published this Snapshot vote to progress this proposal through the governance process.