[ARFC] Add FXS to Ethereum V3

Governance New Asset
1

title: [ARFC] Add FXS to Ethereum V3
author: @0xlide + Powered by Aave Chan Initiative’s Skyward
created: 2023-10-13

Summary

This publication presents the community an opportunity to add FXS to the Ethereum Aave v3 Liquidity Pool.

Motivation

Frax Finance is a DeFi protocol that offers a stable protocol for issuing FRAX/FPI/frxETH and subprotocols such as Fraxlend, Fraxswap, and Fraxferry. The Frax Shares Token ($FXS) serves a dual role as both a governance token and a utility token.

The addition of FXS to Aave V3 represents the introduction of a new asset, encouraging the transition from Aave V2 to V3 and diversifying collateral assets for GHO. Furthermore, Aave DAO can utilize FXS obtained from the pool to kickstart the adoption of GHO and/or new aTokens.

Specification

The parameters shown below are supported by @Gauntlet

Ticker: FXS
Contract Adress:0x3432B6A60D23Ca0dFCa7761B7ab56459D9C964D0
Chainlink Oracle: 0x6Ebc52C8C1089be9eB3945C4350B68B8E4C2233f

Parameter Recommendation
Isolation Mode YES
Borrowable YES
Collateral Enabled YES
Stable Borrowing NO
Supply Cap (FXS) 800000
Borrow Cap (FXS) 500000
Debt Ceiling $4M
LTV 35%
LT 45%
Liquidation Bonus 10%
Liquidation Protocol Fee 10%
Reserve Factor 20%
Base Variable Borrow Rate 0
Variable Slope 1 0.09
Variable Slope 2 3.00
Uoptimal 0.45
Stable Slope1 13.00%*
Stable Slope2 300.00%*
Base Stable Rate Offset 3.00%*
Stable Rate Excess Offset 5.00%*
Optimal Stable To Total Debt Ratio 20.00%*
Flahloanable Yes
Siloed Borrowing No
Borrowable in Isolation No

*StableBorrowing is disabled.

Next Step

The following steps are as follow:

・ gather community feedback on this ARFC.
・ Publish a snapshot of the risk providers recommendations.
・ If said snapshot is successful, escalate to an AIP.

Disclaimer

0xlide is not presenting this TEMP CHECK on behalf of any third party and is not compensated by Frax for creating this proposal.

Copyright

Copyright and related rights waived via CC0.

1 Like
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Thanks for posting, it’s well done :+1:

I have a few feedbacks thoo:

  • From my understanding, regarding the implementation perspective the following parameters will also need to be set, and having them decided right now will avoid a few headaches for the one who will implement the AIP:
Parameter Value
Stable Slope1 13.00%
Stable Slope2 300.00%
Base Stable Rate Offset 3.00%
Stable Rate Excess Offset 5.00%
Optimal Stable To Total Debt Ratio 20.00%
Flahloanable Yes
Siloed Borrowing No
Borrowable in Isolation No
  • Last but not least, I would like to remind the voters that the stablecoin of the protocol (the FRAX) is in part backed by X/FRAX LP making it endogenous and in case of depeg, the protocol can mint new FXS. (This last part is only my personal opinion and shouldn’t be used to infer the ACI position on the matter)
1 Like
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Hello @Alice ฅ•ω•ฅ Thank you for your feedback.

Regarding Stable Borrowing, we recommend setting it as invalid in this ARFC. The reason is that FXS is a new asset listing, and we believe it’s important to adopt the conservative parameters proposed by Gauntlet.

If there is strong demand for FXS after its launch in the Aave V3 market, I plan to propose an increase in line with the LTV recommended by ChaosLabs (55%) and enabling Stable Borrowing.

1 Like
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Sorry for inviting the misunderstanding.
I am not advocating for stable borrowing, I am just pointing out that when adding a new collateral these value need to be setup and just setting them to 0 might be dangerous in case stable borrowing get activated without changing those value ^^

Here you can see BGDLabs exemple listing where they set parameters to the stable borrow slopes despite disabling stableRateModeEnabled

1 Like
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Overview

Chaos Labs supports listing FXS in Isolation Mode. Following is our analysis and risk parameter recommendations for the initial listing.

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 FXS over the past 180 days was ~$480M, and the average daily trading volume was ~$19.5M (CeFi & DeFi).

FXS_Market_Cap

Liquidation Threshold

Analyzing FXS price volatility over the past, we observed daily annualized volatility of 93.49% and 30-day annualized volatility of 47.26%. Considering this volatility, we recommend launching with an LT of 60%.

We support listing FXS as borrowable under reasonable limits of supply and borrow caps, as we do not observe a significant risk to the protocol by allowing to borrow the asset.

FXS_Volatility

Debt Ceiling

Following Chaos Labs’ Isolation Mode Methodology, we recommend an initial debt ceiling of $4M. 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 FXS as High.

Supply Cap, Borrow Cap, and Liquidation Bonus

Following Chaos Labs’ approach to initial supply caps, we propose setting the Supply Cap at 2x the liquidity available under the Liquidation Penalty price impact.

Given the concentrated liquidity of FXS we recommend a 10% Liquidation Bonus and a derived supply cap of 800,000 FXS, and a borrow cap of 500,000 FXS.

Recommendations

We support the recommendations in the post for the Reserve Factor, Liquidation Protocol Fee, and Interest Rate curves.

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

Parameter Value
Isolation Mode Yes
Borrowable Yes
Collateral Enabled Yes
Supply Cap (FXS) 800,000
Borrow Cap (FXS) 500,000
Debt Ceiling $4M
LTV 50.00%
LT 60.00%
Liquidation Bonus 10.00%
Liquidation Protocol Fee 10.00%
Reserve Factor 20.00%
Variable Base 0.00%
Variable Slope1 9.00%
Variable Slope2 300.00%
Uoptimal 45.00%
Stable Borrowing Disabled
Stable Slope1 13.00%
Stable Slope2 300.00%
Base Stable Rate Offset 3.00%
Stable Rate Excess Offset 5.00%
Optimal Stable To Total Debt Ratio 20.00%
Flahloanable Yes
Siloed Borrowing No
Borrowed in Isolation No
3 Likes
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The snapshot has been posted, votes will start tomorrow:
https://snapshot.org/#/aave.eth/proposal/0xd8a8bdf3692666195895efbe0e885887c73b614273d6f0bd584c68afa9c11600

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Alice, I want to express my gratitude for creating the Snapshot. However, I strongly recommend deleting this Snapshot. The risk parameters are identical to “TEMP CHECK,” and they have received approval from the community. If we’re considering adding new options at the ARFC stage, it’s absolutely essential to engage in thorough discussions within the community before proceeding with the vote. Failing to do so could become a significant obstacle to the process of adding FXS tokens and potentially result in a failure to meet the quorum requirement.

2 Likes
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39 for your feedback :purple_heart:

While I do agree that having two choice is suboptimal and will divide YAE votes, choosing only one when the two risk provider provided differents results would be an arbitrary choice as well as an abuse of power. Moreover, it would also be a huge disrespect toward the work of our dear risk providers.

Judging from historical engagement on the post for FXS listing, I do believe that going to snapshot now is the right choice as it would get the community attention and gather their opinion while still allowing a path for FXS to be listed before the pause in governance due to the migration to V3.

I hope I managed to answer your worries ^^

1 Like