[ARFC] Remove FRAX from Isolation Mode on Aave v3 Mainnet

Governance
1

[ARFC] Remove Frax from Isolation Mode on Aave v3 Mainnet

Author: ACI (Aave Chan Initiative)

Date: 2024-10-07

ARFC has been updated with Risk Parameters provided by Risk Service Providers. 2024-10-14

Summary

This is an ARFC to remove FRAX from isolation mode, and set LTV to 0%. This is a reboot with minor changes of a previous ARFC which passed Snapshot but has not yet been implemented.

Motivation

FRAX and Aave DAO have found more synergies over the last months. The FRAX team has responded with major updates to security on sfrxETH in response to BGD Labs feedback. FRAX has also initated governance proposals to add GHO to Frax Lend. There are ongoing conversations to have a FRAX AMO included into Aave v3. sFRAX was previously accepted for onboarding in a previous ARFC vote before the introduction of CAPO feeds.

This proposal suggests removing FRAX from isolation mode to facilitate further AMO deployments.

Furthermore, this proposal sets LTV to 0% as there is no use-case for FRAX to act as collateral.

Specification

  • FRAX will be removed from Isolation Mode on Aave v3 instances.
  • FRAX will receive same parameters as DAI, a Reserve Factor as other stables, and LTV of 0%.
Parameter Recommendation
Isolation Mode NO
Borrowable in Isolation NO
Stable Borrow NO
Enable Borrow NO
Enable Collateral YES
Loan To Value 0%
Liquidation Threshold 75.00%
Liquidation Bonus 6.00%
Reserve Factor 10.00%
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
Debt Ceiling -

Useful Links

[ARFC] Remove Frax from Isolation Mode and onboard sFRAX to Aave v3 Mainnet

[ARFC] Remove Frax from Isolation Mode and onboard sFRAX to Aave v3 Mainnet Snapshot

[ARFC] Add FRAX on Ethereum v3 Forum Thread

[ARFC] Add FRAX on Ethereum v3 Forum Thread Snapshot

Disclaimer

This proposal is powered by Skywards. The Aave Chan Initiative is not directly affiliated with FRAX and did not receive compensation for creation this proposal.

Next Steps

  1. Publication of a standard ARFC, collect community & service providers feedback before escalating proposal to ARFC snapshot stage.
  2. If the ARFC snapshot outcome is YAE, publish an AIP vote for final confirmation and enforcement of the proposal.

Copyright

Copyright and related rights waived under CC0.

2

LlamaRisk supports the removal of FRAX from Isolation mode under the proposed parameters. DAI’s parameters, including 0% LTV, are appropriate for this asset. Liquidity for the asset is good.

We do not see significant changes in the protocol structure since our last comment reviewing this asset. It is worth noting that FRAX now conducts governance on Fraxtal L2, their inhouse chain, but it does not appear to be “onchain” governance that was promised since 2023.

3

Chaos Labs supports the proposal to remove FRAX from Isolation mode while also decreasing its LTV to 0%. On-chain liquidity for the asset has improved significantly since July of this year, with a $60M swap to USDC able to be completed for just 1% price slippage, significantly larger than its current 15M supply cap and 12M borrow cap. Its current market cap is 648M, again indicating that the current supply and borrow caps are sized appropriately to limit risk to Aave. These factors support the removal of the asset from Isolation mode.

image - 2024-10-10T020419.812

Additionally, we have observed strong peg stability, with a 30-day daily annualized volatility of just 1.84%, reducing the chances of liquidation when FRAX is used as a borrowed asset.

image - 2024-10-10T020422.877

Finally, the proposal to reduce LTV to 0% is prudent, as we have observed extremely limited demand to borrow against this asset. As of this writing, less than $1 of USDC (with a debt ceiling of $10M) is being borrowed against 800K FRAX supplied.

Specification:

The current parameters for FRAX remain unchanged despite the modifications listed below.

Parameter FRAX
Isolation Mode No
LTV 0%
Debt Ceiling -
2 Likes
4

The current proposal has been escalated to ARFC Snapshot.

Vote will start tomorrow, we encourage everyone to participate.