Summary
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.