MIR-34┃Add FRAX as collateral for paUSD on Parallel on Ethereum

Integration Request (PIR) Approved PIRs
1

Summary:

This proposal aims to add FRAX as new collateral for paUSD on Parallel on Ethereum.

Rationale:

Frax is the first fractional stable, an hybridization of algorithmic and collateralized mechanisms to stay on price target. Frax is open-source, permissionless, and entirely on-chain and currently implemented on Ethereum and 12 other chains. The end goal of the Frax protocol is to provide a highly scalable, decentralized, algorithmic money in place of fixed-supply digital assets like BTC.

Frax uses ideas from Uniswap and AMMs to build a novel hybrid stablecoin design never seen before. In a Uniswap pool, the ratio of asset A and B has to be proportional due to the constant product function.

Frax takes that idea and turns it over to design a unique stablecoin. The LP token is the stablecoin, FRAX. It is the object of stabilization and always mintable/redeemable for $1 worth of collateral and the governance (FXS) token at the collateral ratio. This ratio of the two assets (collateral and FXS) dynamically changes based on the price of the stablecoin. If the stablecoin price is dropping, then the protocol tips the ratio in favor of collateral and less in the FXS token to regain confidence in FRAX. An arbitrage opportunity arises for people wanting to put in collateral into the pool at the new ratio for discounted FXS which the protocol mints for this “recollateralization swap.” This recollateralizes the protocol to the new, higher collateral ratio.

With the release of the v2, Frax expands on the idea of fractional-algorithmic stability by introducing the idea of the “Algorithmic Market Operations Controller” (AMO). An AMO module is an autonomous contract(s) that enacts arbitrary monetary policy so long as it does not change the FRAX price off its peg.

You can learn more about these mechanisms in their documentation / whitepaper.

Once the vote is accepted on Snapshot, we will determine the associated liquidation ratio, minimal collateral ratio, debt ceiling, liquidation bonus on a second MIR discussion.

Project Presentation:

Protocol name : Frax Finance
Token requested : FRAX
Token contract address : https://etherscan.io/token/0x853d955acef822db058eb8505911ed77f175b99e
Audit(s) links : Audits - Frax Finance ¤
Chain requested : Ethereum
Relation with the project : None.
Website: https://frax.finance/
Github: GitHub - FraxFinance/frax-solidity: Solidity implementation of the Frax Protocol
Twitter : https://twitter.com/fraxfinance
Discord : Frax Finance
Telegram: https://t.me/fraxfinance

Token metrics & Risk assessment:

1118×444 19.6 KB

  • Smart Contract risk: A-

Frax launched on Ethereum on 21 December 2020. The code has 3 audits from Trail of Bits and Certik, and there are more audits ongoing. FRAX can be minted and redeemed from the system for $1 of value, allowing arbitragers to balance the demand and supply of FRAX in the open market. At all times in order to mint new FRAX a user must place $1 worth of value into the system. FRAX has generated more than 800k transactions.

  • Counterparty risk: B-

The Frax DAO operates as a decentralized organization. Frax is open-source, permissionless, and entirely on-chain – currently implemented on Ethereum and 12 other chains. There is no mint function in the Token smart contract, so the team can’t mint token. There are currently 8478 holders on Ethereum.

  • Market Risk: B

FRAX is currently ranked 7th in the list of stablecoins with a capitalization of $2B. Furthermore the price is correlated to the USD and over-collateralized at 146% by the Frax factionnal algorithmic mechanism. For this reason we consider the risks of FRAX mitigate by their principal collateralized assets such as USDC and FXS. The liquidity available on Ethereum is nearly $150M with approximately $12,4M of volume per day on Ethereum.

Collateralization of FRAX & FXS : Credmark Terminal - Actionable DeFi Data

  • Chain Risk : A

Ethereum had 0 outages over the last 6 months. (https://etherscan.com/chart/blocks)

  • Liquidity Risk of PAR on Ethereum: C-

The paUSD/wUSK/USDC pool on Balancer has $245k liquidity composed of 17,8% USDC, 27,67% wUSK and 54,53% paUSD. The paUSD/wUSK pool Uniswap (Bunni) has $17k liquidity.

This provides the following price impact on the following trade sizes:

1000 USDC → paUSD: 0.12%
10000 USDC → paUSD: 0.29%
25000 USDC → paUSD: 0.48%
50000 USDC → paUSD: 0.68%

  • Overall Risk : B

The Overall Risk is the average of the points mentioned above.

  • Community size :

Twitter: 82,3k followers

Discord: 13,2k members
Telegram: 19,3k members

Means:

  • Human resources: If the proposal is approved, multisig DAO signers will need to sign and execute transactions to add FRAX as collateral on Parallel.
  • Treasury resources: There is no cost for the treasury to add FRAX on Parallel Ethereum.

Technical implementation:

  1. Add FRAX in the ConfigProvider Contract with all parameters decided by the Mimo governance.
  2. Set the chainlink oracle related to the FRAX: FRAX/USD into PriceFeed Contract

Voting options:

  • Add FRAX as new collateral for paUSD on Parallel on Ethereum
  • Against adding FRAX as new collateral for paUSD on Parallel on Ethereum
  • Abstain

Authors: @starny & @JeanBrasse from Mimo Labs

Community poll:

  • Add FRAX as collateral for paUSD on Parallel on Ethereum
  • Against adding FRAX as collateral for paUSD on Parallel on Ethereum
  • Abstain
0 voters
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the vote is now live on Snapshot: Snapshot

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The vote has been approved by the dao, result: Snapshot

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