Summary
This proposal seeks to add an sFRAX market to FiRM, Inverse Finance’s fixed-rate lending protocol. The sFRAX market will operate like other markets on FiRM, with parameters set to manage exposure and risk efficiently.
Background
sFRAX, a staking vault deployed as part of FRAX v3, is Frax Finance’s first implementation of a RWA strategy to use DAO treasury capital to return yield from off-chain sources, via off-chain partner FinresPBC. By leveraging the Personal Collateral Escrow feature in FiRM, this integration will enable sFRAX deposits, allowing users to borrow with a high collateral factor while earning FRAX interest, capped at 10% and declining towards the Federal Reserves IORB rate at full capacity. The immediate success of sFRAX is evident, amassing an impressive 30M TVL within 24 hours post-launch.
Market Opportunity
The integration of sFRAX presents a significant market opportunity for both FiRM and Inverse Finance. It allows us to tap into the growing user base and liquidity of Frax Finance, which has exhibited substantial on-chain liquidity and stability. Furthermore, no competitors have yet integrated sFRAX into their lending markets, presenting a first-mover advantage for FiRM and potentially attracting a new user base seeking to earn stable yields on their holdings.
Risk Assessment
A comprehensive risk assessment was conducted to evaluate the implications of integrating sFRAX into FiRM. This can be found here. Key considerations include:
- Security: Frax Finance has a robust bug bounty program and has undergone multiple audits from reputable firms ensuring the protocol’s security and resilience.
- Regulatory Risks: The involvement of FinresPBC as a custodian could attract regulatory attention. However, the decentralized governance model of Frax Finance provides a layer of decentralization that helps mitigates such risks.
- Collateral & Liquidity: FRAX showcases substantial on-chain liquidity, ensuring stability and lower slippage in larger transactions.
The Total Asset Score (TAS) of 9.39/10, derived from a meticulous evaluation, indicates the asset’s strength and low-risk profile.
Conclusion
The integration of sFRAX into FiRM aligns with our objective of expanding our market offerings and showcase FiRM’s unique features. The strong governance and security measures in place by Frax Finance, alongside the promising market opportunity, make sFRAX a compelling addition to FiRM’s suite of financial products.
On-Chain Actions
- Add sFRAX Market to DBR
- Set the borrowController of the sFRAX Market
- Set the sFRAX Feed to the FiRM Oracle
- Set sFRAX Market Supply Ceiling to 5,000,000 DOLA
- Set Initial Fed Supply to 2,500,000 DOLA
- Set sFRAX Market Daily Borrow Limit to 500,000 DOLA
- Set sFRAX Market Collateral Factor to 90%
- Set sFRAX Market Liquidation Factor to 70%
- Set sFRAX Market Liquidation Incentive to 5%
- Set Staleness Threshold of sFRAX market to 86430
