ARFC has been updated with Risk Parameters provided by Risk Service Providers 2024-10-08
Summary
This proposal aims to onboard FRAX to the Aave v3 Lido Instance.
Motivation
The integration of FRAX into the Aave v3 Lido Instance is driven by the following factors:
FRAX Adoption: Frax is also taking a new place in Aave ecosystem with harmonization between FRAX and USDC parameters.
Liquidity Enhancement: The inclusion of this widely-used stablecoin is expected to boost liquidity in the Lido Instance, potentially attracting more users and increasing overall platform activity.
Strategic Alignment: This move aligns with Aave’s goal of offering a comprehensive suite of high-quality assets, keeping the protocol at the forefront of DeFi liquidity.
Proof of Liquidity and Deposit Commitments
FRAX has pledged liquidity provision support. These will complement the ongoing incentives for the Lido Instance.
Specification
Contract addresses:
FRAX: 0x853d955aCEf822Db058eb8505911ED77F175b99e
ARFC has been updated with Risk Parameters provided by Risk Service Providers 2024-10-08
Parameter
FRAX
Chain-Instance
Ethereum-Lido
Isolation Mode
No
Borrowable
Yes
Collateral Enabled
No
Supply Cap
20,000,000
Borrow Cap
18,000,000
Debt Ceiling
-
LTV
-
LT
-
Liquidation Bonus
-
Liquidation Protocol Fee
-
Variable Base
0%
Variable Slope1
5.5%
Variable Slope2
75%
Uoptimal
90%
Reserve Factor
20%
Stable Borrowing
Disabled
Flashloanable
Yes
Siloed Borrowing
Disabled
Borrowable in Isolation
No
E-Mode Category
-
Disclaimer:
This proposal is powered by Skywards. ACI is not directly affiliated with FRAX and did not receive compensation for creation of this proposal.
Next Steps
If consensus is reached on this [ARFC], escalate this proposal to the Snapshot stage.
If the ARFC snapshot outcome is YAE, publish an AIP vote for final confirmation and enforcement of the proposal.
As previously posted in the original ARFC, we recommend onboarding the FRAX stablecoin to the Aave V3 LiDo instance as a non-collateral asset, aligning with the parameters proposed by ChaosLabs. The demand for wstETH<>FRAX borrowing is expected to be relatively small, so a smaller supply cap of $20m is recommended for now — similar to other instances allowing FRAX borrowing, even though the available liquidity for the pair is plentiful.
Current usage
Regarding FRAX, currently, $164k FRAX is being borrowed against wstETH on the main Aave V3 instance, and only $17k is being borrowed against the EtherFi instance. This is small compared to these two markets’ $15m supply cap. Therefore, the proposed incentive for FRAX borrowing will be welcome to bootstrap this market further.
Available liquidity
The available liquidity for a wstETH<>FRAX swap currently stands at $75m or 28,000 wstETH. This ample liquidity is partly protocol-owned thanks to the AMO (Algorithmic Market Operations Controller) mechanism pioneered by FraxFinance. Because of the low anticipated demand, a much smaller supply cap of $20m makes sense. This allows controlled growth with potential subsequent increases of the FRAX supply cap over time.
Disclaimer
This review was independently prepared by LlamaRisk, a community-led non-profit decentralized organization funded in part by the Aave DAO. LlamaRisk is not directly affiliated with the protocol(s) reviewed in this assessment and did not receive any compensation from the protocol(s) or their affiliated entities for this work.
The information provided should not be construed as legal, financial, tax, or professional advice.
Based on our prior analysis of the initial ARFC post, we are in favor of onboarding FRAX on the Aave V3 Lido instance.
Currently, $164.45K worth of FRAX is being borrowed against wstETH on Ethereum-Main, but we anticipate greater demand in this instance since USDT — the second most borrowed stablecoin against wstETH — is not available.
Outlined below are the parameters we proposed, as included in the proposal:
