Building on our efforts to expand liquidity for DOLA on new exchanges, this proposal aims to authorize the launch of the “Fraxbp Fed” meant to support our new DOLA-Frax pool on Curve.
On May 26th, 2022, Frax proposed a novel Frax base-pool (FBP). Composed of simply FRAX-USDC, the meta-pool would optionally pair against any other stablecoin on Curve. Prior to this, if you were a stablecoin protocol and wanted liquidity for your project, you had to “pair” with the 3pool. Protocols pay a hefty sum through liquidity (vote) incentives, whereby they offer $$$ to Curve (veCRV) DAO members who vote to direct token emissions (rewards) their way. FBP provides an additional choice for protocols who don’t want exposure to the tokens within the 3pool. The Frax DAO (“Automated Market Operations” or “AMO”) mints and burns Frax to the pool to keep it balanced and farm CRV and CVX incentives on Convex, recycling the rewards accruing to the DAO back into bribes that continually expands the rewards available to LP’s in the pool.
Frax has invited DOLA and other stablecoins to pair with this FRAX-USDC basepool. The proposal for a DOLA-Frax basepool was also recently approved by Convex, and Curve governance (required to get a gauge assigned) with overwhelming majority. Pairing DOLA with FraxBP allows for extremely efficient bribes that results in high APY’s for LP’s and growing demand for the DOLA stablecoin. For example, if $1.50 of incentives is distributed for every $1.00 in bribes, and the Frax AMO has around 40% dominance of the pool, then Frax will receive $0.60 from this $1 bribe and then bribe again with it. They will then receive $0.36 from the extra $0.60 bribe. This means that a $1 bribe from Inverse, actually is like doing a $1.96+ bribe that directs $2.94+ in incentives to the DOLA-FraxBP.
Inverse will soon be able to attach a Fed to the pool, meaning the protocol can mint and burn DOLA directly into the pool to help with peg management. This is very useful for flexing the supply of DOLA for instant peg management, as managing the peg directly via lending Feds can take much longer. This Fed will also be harvesting CRV and CVX rewards from the Convex pool itself, which will be locked by the protocol and used for directing more incentives towards DOLA.
The FraxBP Fed will play an important role for the DOLA ecosystem as we trend towards sustainability (not reliant on a single 3rd party such as Yearn, or bribing with the INV token) all whilst reducing impact of DOLA bad debt on DOLA ecosystem (bad debt will become smaller % of circulating supply). Ultimately setting up a FraxBP Fed will generate large, permanent revenues for the DAO. The longer time goes on, it is likely that less of a return will be able to be farmed from the bribes, so it is important we act fast and decisively.
On Chain Actions:
grant DOLA minting rights to the fed contract