[ARFC] Add sFRAX on Ethereum V3

[ACI]

[ARFC] Add sFRAX on Ethereum V3

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title: [ARFC] Add sFRAX on Ethereum V3

Author: @0xlide - @SaucyBlock - ACI (Aave Chan Initiative)

Date: 2024-01-18

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Summary

This publication presents the community an opportunity to add sFRAX to the Ethereum Aave V3 Liquidity Pool.

Motivation

Staked FRAX (sFRAX) is an ERC-4626 staking vault that distributes a portion of the Frax Protocol yield. sFRAX APY attempts to roughly track the interest on reserve balances (IORB) rate of the United States Federal Reserve.

Integrating sFRAX as collateral asset in the Aave V3 Ethereum Pool has the potential to create new demand for borrowable assets on Aave V3, such as stablecoins and FXS.

Specification

Ticker: sFRAX

Contract Adress: 0xA663B02CF0a4b149d2aD41910CB81e23e1c41c32

Chainlink Oracle: 0xB9E1E3A9feFf48998E45Fa90847ed4D467E8BcfD

Parameter	Recommendation
Isolation Mode	NO
Borrowable in Isolation	NO
Stable Borrow	NO
Enable Borrow	NO
Enable Collateral	YES
Loan To Value	70.00%
Liquidation Threshold	75.00%
Liquidation Bonus	6.00%
Reserve Factor	20.00%
Liquidation Protocol Fee	20.00%
Supply Cap(sFRAX)	10.00M
Borrow Cap(sFRAX)	N/A
Uoptimal	N/A
Base	N/A
Slope1	N/A
Slope2	N/A

Next Steps:

1. If consensus on ARFC stage is reached and risk service providers provide feedback on risk parameters, escalate to ARFC snapshot stage.
2. . If ARFC snapshot stage outcome is YAE, escalate to AIP stage

Disclaimer

ACI is not presenting this ARFC on behalf of any third party and are not compensated by any entity for creating this ARFC.

Copyright

Copyright and related rights waived via CC0.

[ChaosLabs]

Chaos Labs supports the listing of sFRAX with the proposed parameter values. These parameters are noticeably equivalent to that of FRAX itself, as in the context of liquidations, sFRAX can functionally be atomically withdrawn to FRAX itself, thereby subjecting it to equivalent underlying liquidity logistics when deriving parameters.

We want to highlight that the underlying oracle within this ARFC is the FRAX/USD oracle, thereby effectively pricing sFRAX as FRAX whilst sFRAX alternatively grows in ERC-4626-standard fashion. This should be addressed prior to the final AIP, utilizing the sFRAX/FRAX exchange rate and employing the price-correlated oracle

[Gauntlet]

Gauntlet Analysis

Summary

Gauntlet recommends adding sFRAX to the Ethereum Aave V3 Liquidity Pool, conditioned on the price feed being addressed properly in final AIP.

Assessment

Market Cap

Current supply of sFRAX is ~28M.

Staking Yield

sFRAX is designed to allow holders of the protocol’s partially collateralized fractional-algorithmic stablecoin FRAX to earn yields matching the U.S. Federal Reserve’s (Fed) interest rate on reserve balances (IORB), currently around 5.4%.

Below shows yield rankings of stablecoin LSD on Ethereum, ordered by TVL.

Slippage and Liquidity

• sFRAX liquidity creates ~2.5% slippage on trade over $2M sFRAX to FRAX (see here)
• The primary liquidity venues for sFRAX include the sFRAX - crvUSD (~$165M TVL) on Curve (see here)

Counterparty Risk

In the sFRAX model, users deposit FRAX, and the DAO invests their own equivalent funds in short-term assets via Finres. Thus sFRAX is able to be atomically exchanged for FRAX without any liquidity concerns funds invested in RWAs.

Recommendations

Given the market cap, liquidity and risk profile analyzed above, Gauntlet recommend parameters as below.

Parameter	Recommendation
Isolation Mode	NO
Borrowable	NO
Borrowable in Isolation	NO
Collateral Enabled	YES
Stable Borrowing	NO
Supply Cap	10M
Borrow Cap	N/A
Debt Ceiling	N/A
LTV	70%
LT	75%
Liquidation Bonus	6%
Reserve Factor	10%
Base Variable Borrow Rate	N/A
Variable Slope 1	N/A
Variable Slope 2	N/A
Uoptimal	N/A

[ACI]

This proposal has been submitted to snapshot and voting will start tomorrow.

[ACI]

Following Snapshot monitoring, the following ARFC Snapshot has passed with both Quorum and YAE as winning option with 528K votes.

Next step will be the publication of an AIP to add sFRAX on Ethereum V3 if decided.