List Frax Finance assets on Venus on Mainnet and BSC

Summary

This proposal seeks to introduce FRAX (FRAX stablecoin), sFRAX (staked FRAX), frxETH (FRAX Ethereum), and sfrxETH (staked frxETH) as supported assets on Venus Protocol on Ethereum Mainnet and BSC. It aims to leverage the innovative features of these assets to enhance the lending and borrowing ecosystem, provide diversified collateral options, and foster greater liquidity and user engagement within the Venus Protocol.

Background and Motivation

Frax Finance has established itself as a pioneering force in the decentralized finance (DeFi) sector, introducing stablecoins like FRAX (USD Stable) and frxETH (ETH Stable), alongside innovative staking options such as sFRAX (Staking vault targeting the IORB rate), and liquid staking solutions like sfrxETH.

Official Website: https://frax.finance/

Official dapp website: https://app.frax.finance/

Documentation: https://docs.frax.finance/

Frax Finance statistics and analytics dashboard: https://facts.frax.finance/

Assets

The integration of FRAX and frxETH into the Venus Protocol represents a great advancement in lending and borrowing options, offering users stable and reliable assets for financial operations. Meanwhile, the inclusion of sFRAX and sfrxETH as collateral options capitalizes on their yield-bearing nature, providing users with the unique opportunity to enhance their investment returns while maintaining liquidity in the DeFi ecosystem.

Frax:

  • Market Cap: $649,351,177 (As of writing)
  • Total Supply: 649,351,177 (As of writing)

frxETH:

  • Supply: 311,996 (As of writing)
  • 7259 Validators

sfrxETH:

  • Supply: 212,196 sfrxETH (As of writing)

sFRAX:

  • Supply: 27,333,333 (As of writing)

Collaboration on incentives and liquidity

In alignment with our goal to foster a meaningful integration between Frax Finance assets and the Venus Protocol, Frax Finance is committed to participating in the incentivization of Venus pools, specifically targeting the kickstarting of lending activities within the Venus Protocol ecosystem.

In addition to the inherent benefits of integrating FRAX, frxETH, sFRAX, and sfrxETH into the Venus Protocol, Frax Finance brings added value through its commitment to providing budgetary incentives aimed at boosting initial adoption and liquidity. Frax Finance is prepared to collaborate closely with Venus Protocol to establish FRAXBP/VAI, and frxETH/XVS liquidity pools on Curve and to co-incentivize these pools. This strategic partnership not only ensures a smooth and incentivized integration of these assets but also demonstrates a shared commitment to fostering a vibrant and sustainable ecosystem, enhancing the appeal and functionality of both platforms in the DeFi space.

Conclusion

This proposal outlines a strategic opportunity for Venus Protocol to embrace the growing FRAX ecosystem, enriching its lending and borrowing platform with stablecoins and staking solutions that are aligned with the evolving needs of the DeFi community. By supporting sFRAX, FRAX, sfrxETH, and frxETH, Venus not only diversifies its asset offerings but also enhances its competitive edge in the DeFi space.

11 Likes

This integration of Frax Finance tokens is a significant step for Venus, as it will provide greater opportunities for holders of these tokens to have a new use case within the Venus Protocol.

I am very excited about the tremendous work the team is doing.

2 Likes

This looks like a great opportunity for our users. I look forward to the launch of VIP as soon as possible

2 Likes

This is a great opportunity for cooperation and I will fully support the proposal!
I hope Vneus protocol can cooperate with Frax finance soon!! LFG!!

1 Like

I like to see FRAX on the partner list of Venus. I am sure that this collaboration will bring many positives for both sides.

2 Likes

this is huge news. bring it to venus protocol. they need venus Protocol. best intrest rate, easy to use protocol and more specialities. big cooperation will bring us bigger success

Excelente socio, a seguir creciendo Venus :zap:

1 Like

This is awesome…It is even more awesome news that Frax Finance, in particular, is ready to work closely with Venus Protocol to establish and co-promote FRAXBP/VAI and frxETH/XVS liquidity pools on Curve :fire::fire:

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If we are talking about main pool, then I’m against. There is a high risk connected to the Liquid staked tokens.
If we are talking about isolated pool, then I’m fine with that and we should proceed.

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Awesome, soon venus will be best on ethereum

2 Likes

I look forward to collaborating with FRAX.

A big yes to support sFRAX, FRAX, sfrxETH, and frxETH in Venus Protocol !

1 Like

Thanks for putting forward this proposal @nader.frax.
Chaos Labs will analyze this proposal and provide risk parameter recommendations for the community’s consideration.

Listing Frax Assets on Venus

Overview

Chaos Labs supports the listing of FRAX ecosystem-related assets in the Ethereum deployment. However, we do not recommend the integration of such assets within the BNB Chain market, due to the lack of liquidity and supply on BNB Chain. Following are our analysis and risk parameter recommendations for the initial listing.

Note: The following analysis is conducted solely from a market risk viewpoint, excluding considerations related to centralization and third-party risk. If the community aims to reduce exposure to sfrxETH, sFRAX or FRAX adopting more conservative supply and borrow caps should be considered.

frxETH and sfrxETH

Liquidity and Market Cap

frxETH

When analyzing market cap and trading volumes of assets for listing, we look at data from the past 180 days. The average market cap of frxETH over the past 180 days is ~$625M, and the average daily trading volume was $3.8M (CeFi & DeFi).

sfrxETH

sfrxETH constitutes approximately 73% of all deposits within frxETH. The average market capitalization of sfrxETH over the past 180 days stands at approximately $460 million, with an average daily trading volume of $1M across DeFi platforms. Users who deposit into sfrxETH are entitled to all staking rewards generated by the Frax liquid staking protocol.

frxETH does not undergo explicit rebasing or generate staking yield, effectively relinquishing its share to sfrxETH depositors. However, frxETH holders are incentivized through Curve LP rewards, creating a dual-incentive structure. This structure results in high staking yields for the vault, while the rewards allocated to frxETH liquidity providers effectively mirror the yield generated by sfrxETH suppliers.

Listing frxETH on Venus will lead to minimal demand, as it doesn’t accrue staking yield whatsoever, and all frxETH yield is generated from Curve LPs or deposita into sfrxETH… Nevertheless, its liquidity can be leveraged within the context of sfrxETH supply cap parameters, allowing for a greater value. This is due to the ability to atomically withdraw sfrxETH for frxETH and swap frxETH for ETH during a liquidation event.

Volatility

frxETH / ETH Volatility

Analyzing frxETH price volatility over the past, we observed daily annualized volatility of 11.29% and 30-day annualized volatility of 13%.

Collateral Factor

Considering the volatility and the correlation of sfrxETH to ETH, we recommend listing it in the ETH LST pool and setting the Collateral Factor to 90%, similar to the ETH and wstETH parameters.

Supply Cap, Borrow Cap, and Liquidation Bonus

Following Chaos Labs’ approach to initial supply caps, we propose setting the Supply Cap at 2x the liquidity available under the Liquidation Penalty price impact.

Given the concentrated liquidity of frxETH, we recommend a supply cap of 10,000 sfrxETH.

Based on our observations, the utilization rate for vault-standard LSTs has been low. Therefore, we have taken a conservative approach toward LSTs borrow caps of 1,000 sfrxETH. However, if there is a significant increase in demand and utilization, we will reassess the caps according to the utilization pattern.

Reserve Factor and IR Curve Parameters

For the Reserve Factor and Interest Rate curves, we recommend aligning the parameters with those of ETH on the Ethereum market to ensure consistency across similar assets on Venus.

sfrxETH Oracle Implementation:

We recommend utilizing the custom sfrxETH Oracle implementation as defined here. This is the current oracle utilized within FRAX-native lending markets, created by the frax team, which leverages an aggregate pricing approach through a combination of two discrete pricing mechanisms:

  1. sfrxETH/frxETH exchange rate, followed by a Uniswap V3 15 minute time-weighted average price (TWAP) of frxETH/FRAX and the Chainlink FRAX/USD Oracle.
  2. sfrxETH/frxETH exchange rate, followed by the exponential moving average (EMA) of the frxETH/ETH Curve Pool (with a current EMA time of 2 hours) and the Chainlink ETH/USD Oracle.

FRAX and sFRAX

FRAX

When analyzing market cap and trading volumes of assets for listing, we look at data from the past 180 days. The average market cap of FRAX over the past 180 days was ~$659M, and the average daily trading volume was ~$10M (CeFi & DeFi).

Collateral Factor

Analyzing FRAX price volatility over the past, we observed daily annualized volatility of 4.25% and 30-day annualized volatility of 3.83%.

Considering this volatility and the history of FRAX on other chains, we recommend a CF of 75%.

We recommend listing FRAX as borrowable as we do not observe a significant risk to the protocol by allowing the borrowing of FRAX, as long as it is bound by a well-defined cap.

sFRAX

sFRAX represents a yield-bearing equivalent to FRAX and can be atomically withdrawn for FRAX at any point, leveraging its underlying liquidity. The total supply of sFRAX is 30 million. Therefore, we apply the same logic when defining parameters for FRAX as we do for sFRAX.

Supply Cap, Borrow Cap, and Liquidation Bonus

While Chaos Labs’ approach to initial supply caps is set such that the Supply Cap value is at 2x the liquidity available under the Liquidation Penalty price impact, given the relative lack of demand for FRAX in other money markets, we initially propose a more conservative supply cap approach for FRAX and sFRAX of 10M. Should demand scale, thereby leading to hitting the cap, we will reassess and parameterize accordingly.

FRAX Borrow Cap

We recommend FRAX borrow caps be set to 8M. The ensuing parameter changes will result in borrow cap values aligned with the Uoptimal threshold per the 10M supply cap value.

sFRAX Borrow Cap

Much like LSTs, the utilization rate for yield-accruing vault tokens like sFRAX has been low, given the additional borrowing cost on top. Therefore, we have taken a conservative approach toward the sFRAX borrow caps of 1M sFRAX. However, if there is a significant increase in demand and utilization, we will reassess the caps according to the utilization pattern.

Reserve Factor and IR Curve Parameters

For the Reserve Factor and Interest Rate curves, we recommend aligning the parameters with stablecoins on Venus.

sFRAX Oracle Implementation

The underlying Oracle implementation should be structured in a way that the sFRAX/FRAX exchange rate and the FRAX/USD Chainlink oracle collectively serve as the aggregate pricing mechanism for the sFRAX market. This is because sFRAX liquidity is incredibly limited, at just 100K, while its underlying value is derived from traditional staked FRAX generating protocol revenue.

Binance Chain:

At present, we do not advise listing FRAX-centric assets on Binance Chain due to the absence of native-chain liquidity. In such a scenario where a liquidation event occurs in a FRAX asset, there may be difficulties in liquidating the position. We will reassess and parameterize accordingly once these assets gain liquidity on Binance Chain.

Recommendations

Following the above analysis, we recommend listing FRAX-ecosystem-related assets with the following parameter settings:

Asset FRAX sFRAX sfrxETH
Pool Core Pool Core Pool LST Pool
Collateral Factor 75% 75% 90%
Liquidation Threshold 80% 80% 93%
Supply Cap 10,000,000 10,000,000 10,000
Borrow Cap 8,000,000 1,000,000 1,000
Kink 80% 80% 40%
Base 0% 0% 0%
Multiplier 15% 15% 9%
Jump Multiplier 250% 250% 300%
Reserve Factor 10% 10% 20%

Thank you all for your prompt responses and enthusiasm. We’re thrilled to be joining Venus on Mainnet and are eager to deepen our collaboration with this exceptional protocol.

As a continuation of this proposal, we will introduce a rewards incentive program for the first month of Venus’s launch. This program will utilize our TVL-based model, calculated based on the balance of Frax Finance assets within each lending smart contract, and rewards will be allocated weekly. Our aim with this initiative is to provide support during the launch phase and promote mutual growth between our communities.

Examples:
Lending Smart Contract (A) has 1000 FRAX supply, and 600 FRAX is borrowed:
Frax Finance incentives will be calculated based on the 400 FRAX balance of the contract

Lending Smart Contract (B) has 1000 FRAX as collateral:
Frax Finance incentives will be calculated based on the 1000 FRAX balance of the contract

We firmly believe that Venus holds significant strategic value for the Frax ecosystem, especially concerning deployment on Fraxtal and optimization with Fraxlend on the mainnet. We are currently developing detailed proposals for each of these initiatives and are excited about the prospect of a fruitful partnership that benefits both communities.

We have updated the following recommendations:

  1. Recommend adding sfrxETH to the ETH LST pool.
  2. Updated IR curve recommendations for FRAX and sFRAX following our Stablecoin IR Update proposal.
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