Frax Finance

Authors

Frax Core Team

Summary

This proposal seeks to establish percentage-based allocation caps for the frxETH Curve AMO allocation in frxETH curve pools. These caps, defined as a minimum and a maximum allocation cap for each pool, will guide the team’s allocation decisions.

The proposed allocation caps for frxETH Curve AMO are:

Current Allocation:

• frxETH/ETH: Max 100% Min 100%

Proposed Allocation:

• frxETH/ETH: Max 100% Min 50%
• frxETH/stETH: Max 50% Min 0%

This means the team is mandated to maintain at least 50% of the allocation of the frxETH Curve AMO (withheld ETH) in the frxETH/ETH pool at all times but can allocate up to 50% to the frxETH/stETH pool if it is deemed advantageous.

It is important to clarify that the min/max caps specified in this proposal are separate from the “withholding ratio.” The caps are not intended to suggest that we are directing 100% of all ETH minted from frxETH to the AMO. The withholding ratio of ETH is a separate parameter. These max/min caps are put in place to govern the portion of the withheld ETH that will be allocated to the frxETH/ETH and stETH/frxETH pools within the AMO. more information about the current frxETH balance sheet can be found in Frax Facts.

Background and Motivation

Automated Market Operations (AMO) make Frax Finance one of the most potent stablecoin protocols, creating maximum flexibility and opportunity without altering the base stability mechanism. In Frax Ethereum, most of our Protocol Owned Liquidity (POL) resides on Curve, so setting clear allocation caps is crucial for managing our liquidity effectively and transparently in frxETH Curve AMO.

Our current Frax Ethereum portfolio is primarily based on the frxETH/ETH pool, which has served us well thus far, ensuring liquidity and stability for our operations. However, as we cast our sights toward future expansion and robustness, it becomes essential to explore other potential avenues for diversification.

stETH, being the largest and most demanded liquid staking derivative (LSD) on the market, brings a significant value proposition to the table. It provides liquidity nearly the same as ETH while generating an attractive yield, making the inclusion of stETH/frxETH a beneficial addition to our holdings.

Therefore, the aim of this proposal is to set allocation caps that balance the benefits of incorporating stETH LP tokens into our portfolio while maintaining a strong position in our existing frxETH/ETH pool

Voting

• For: Authorize frxETH Curve AMO to allocate funds in Curve pools based on the mentioned max and min authorized allocations.

• Against: Do nothing.