Summary:
This proposal seeks to introduce a new cvxFXS market to FiRM, Inverse Finance’s fixed-rate lending platform. This market would be the first of its kind with no direct rivals; therefore we expect it will draw attention from both the Frax and Convex communities, as well as small and large DeFi natives… The proposed cvxFXS market highlights many of the defining features of FiRM, including Personal Collateral Escrows (PCEs), the ability to accrue rewards on your collateral, and Pessimistic Price Oracle (PPO). A comprehensive risk assessment was conducted by the Risk Working Group (RWG), and was utilized as guidance when deciding on deployment parameters for the market.
Background:
As part of the Convex ecosystem, cvxFXS plays a crucial role in representing voting power and earning potential, second only to cvxCRV. When users deposit their FXS tokens into Convex, these tokens are locked on the platform as veFXS. In return, users receive an equivalent amount of cvxFXS tokens. This process is one-way, meaning that the conversion from FXS to cvxFXS cannot be reversed. However, users can trade their cvxFXS tokens for FXS through existing liquidity pools.
The value of cvxFXS is derived from the FXS tokens locked in Convex and the platform’s ability to continuously accumulate more FXS. The Convex platform aims to secure as much FXS as possible by offering attractive yield farming opportunities and streamlining the process for users. As a result, the value of cvxFXS is closely tied to the success of Convex in its ongoing competition with other platforms in the Frax ecosystem, often referred to as the “Frax Wars.”
In July 2023, the Convex team initiated a pool migration for the cvxFXS/FXS pair to the new Curve LP. Crucially, this allows for Curve’s renewed EMA price oracle to be utilized, and thus the ability to use staked cvxFXS as collateral (with ERC-20 compatibility). This update highlights the Convex team’s commitment to enhancing the cvxFXS token’s utility and value within the DeFi ecosystem. With the introduction of the ability to use cvxFXS as collateral, there is increased interest in incorporating cvxFXS into lending markets such as FiRM, where it can further demonstrate its utility and drive demand.
Risk Assessment:
The RWG conducted a thorough risk assessment on cvxFXS, which can be found here, and determined that it is a suitable collateral for FiRM.
The market will require a composite oracle implementation that makes use of several price feeds in order to protect from both upward and downward malicious price manipulations. Specifically, the chainlink price feed for FXS will act as a “price ceiling” for cvxFXS. Otherwise, the price will be derived from the Exponential Moving Average (EMA) reading from the new cvxFXS/FXS liquidity pool when cvxFXS price is below 1 FXS. Together with FiRM’s Pessimistic Price Oracle safety feature, we believe this makes for a robust and reliable oracle implementation.
As the price oracle component of this proposal is essential for maintaining the stability and overall security of the cvxFXS market on FiRM, we included it in a recent external audit of FiRM recently conducted by Nomoi. All cvxFXS market and FiRM-related smart contracts have already undergone our rigorous smart contract safety review process, which includes formal review from both internal and external developers.
Based on the risk assessment, the following parameters are proposed for the cvxFXS market on FiRM:
- Supply Ceiling: $5,000,000.
- Initial Fed Supply: $500,000.
- Daily Borrow Limit: $200,000.
- Liquidation Factor: 50%.
- Collateral Factor: 50%.
- FiRM Global Supply Ceiling: $36,000,000.
Conclusion:
Adding the cvxFXS market to FiRM presents an exciting opportunity to expand the platform’s offerings and attract further attention from the DeFi community. By implementing the recommendations from the risk assessment and launching the market in “guarded-mode” for an initial period, we can ensure a safe and successful integration of cvxFXS as collateral on FiRM. This proposal represents a well-researched and carefully considered addition to the platform, and we encourage the Inverse Finance community to support its approval.
On-chain Actions:
- Add ConvexFraxMarket to DBR contract
- Set borrowController of Market to FiRM BorrowController
- Set daily limit in BorrowController to 200,000 DOLA
- Change market supply ceiling in Fed to 5,000,000 DOLA
- Set FiRM Oracle price feed for cvxFXS to the newly deployed ConvexFraxPriceFeed
- Set unnecessary guardian role to zero address
- Increase FiRM Fed global supply ceiling to 36,000,000 DOLA