DeFi winter is coming, they say. Macro conditions are at a crossroads, and some of the largest crypto lenders and funds have gone completely underwater. Many people have called the last few weeks “crypto’s 2008.” Indeed, perhaps winter is already here. Hope has faltered in the realm of crypto’s town hall: Twitter, and trial and tribulation beset the countless contributors who left their conventional careers to experiment with DAOs.
But cold as it may be -- building continues.
For it is not decentralized finance that is faltering. It is the opaque, centralized gates into DeFi, which we call CeDeFi, that are experiencing systematic contagion and collapse. Uniswap, Aave, and Frax are all proceeding according to plan. The trusted loans that broke the lender’s back in ordinary web2 businesses were programmatically prevented on-chain, and indeed, web3 innovation continues to happen at breakneck speed. While cadres of suit-clad financiers scramble to alleviate their impending insolvency, the Frax and Curve DAOs have just partnered to shift the paradigm of decentralized liquidity.
Frax and Curve: the hub of DeFi
Curve is famous for autonomously market-making like-valued tokens, and its core technology, the 3 pool, is built around a pool of 3 stablecoins: USDT, USDC, and DAI. This 3pool forms the “base” of every other stable-asset on the exchange.
The rules of the game are simple: if you’re a stablecoin protocol and want liquidity (life) for your project, you must “pair” with the 3pool. In other words, you can trade your token for 3pool tokens, and vice versa, offering financial rails into the rest of the ecosystem. Once you’re paired against the 3pool, you must convince people to market-make (provide liquidity for) your token, which is no easy feat. Protocols must 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.
This is well-and-good if you, the protocol, love being exposed to USDT, USDC, and DAI, and if you’re rich with cash to incentivize votes. If you’re one of the few who fits this bill, then you get to participate in the harrowing world of “the Curve Wars'“, an expensive lobbying competition for the adoration of veCRV holders. How medieval; Winter, perhaps, had arrived.
Until the clouds burst.
Frax proposes a novel Frax base-pool (FBP) on May 26th, 2022. Composed of simply FRAX-USDC, the meta-pool would optionally pair against any other stablecoin on Curve. This provides an additional choice for protocols who don’t want exposure to the tokens within the 3pool. But what about the endless Curve warfare?
Pitching as a Service:
Protocols who choose to trade with the FBP have their vote-incentives automatically provided by Frax. But where does the money come from?
Every $1 of token demand against the FBP allows for more the minting of more FBP. The additional liquidity creates profits for the Frax protocol, who, as the central bank of Defi, can mint itself into existence for yield farming (and many other purposes). This new Frax liquidity earns rewards through trading volume and token emissions.
As a thank-you to the host protocol, Frax plans to send all of these rewards back to the protocol’s pool as a vote-incentive. Instead of protocols competing zero-sum against each other for stablecoin liquidity on Curve, they can trust Frax to do it for them. And as of this week, the FBP is officially live on mainnet!
Automated FBP Reward Routing
Frax’s new base pool is already live and supporting several new pools of liquidity, and Pitch couldn’t be more excited about how this will transform the landscape of DeFi governance. To that end, we’ve custom-built a rewards aggregator in our backend to support this exact paradigm. In the old world, Frax needed to deposit liquidity incentives on multiple protocols to support multiple voters (CRV, CVX, etc). Now, however, they can deposit a reward in one location and trust that it will be divided up pro-rata among the different underlying protocols who voted for a gauge.
Summer is coming
In the face of widespread fear, uncertainty, and doubt, developers and builders across DeFi continue to innovate. Positive-sum thinking has engendered yet another innovation in DAO coordination, and it will continue to do so as crypto bands together. The thawing has already begun in preparation for a Frax summer.
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