Treasury Council Decision #19: Frax Gauge Strategy
TLDR: Swap all yield harvested from Frax gauges to DAI until we figure out a clear influence game to play there.
Background
With the creation of the BADGER/FRAXBP pool on Curve, the deployment of its respective gauges on Curve, Convex and Frax, and deposit into this pool and gauges, the treasury now needs a strategy. Similar to TCD-10, which defined how to process the yield of our Aura gauges, we need to define how to handle the yield harvested from the Frax gauge(s).
Proposal
A large part of the yield is in FXS, next to smaller parts of CRV and CVX. The volume at which this FXS is acquired however, is not substantial enough for starting a voting position similar to our bveCVX and vlAURA positions. Furthermore, there is currently no clear vision for what kind of voting influence game we could play there. Given the somewhat skewed ratio of stable/non-stable coins in the treasury, the proposal here is to swap all yield directly to DAI, the stablecoin we currently have the least of.
Metrics of Success
How long will the investment thesis take to play out?
This strategy will remain in place as long as we hold a position on any Frax gauge, or until a better alternative is proposed.
What are the risks associated with each investment?
- Protocol risk (0 - 10): Likelihood of a smart contract or a system of smart contracts (protocol) is exploited or funds are lost
3: The fair comparison to make here is holding (ve)FXS, CRV and CVX versus holding DAI. From a strict protocol perspective, DAI is the oldest and most proven of all of these.
- Liquidity risk (0 - 10): Liquidity risk refers to how easily an asset can be bought or sold in the market.
2: Again, comparing liquidity of (ve)FXS, CRV and CVX versus DAI, DAI is clearly the most liquid.
- Market risk (0 - 10): Market risk is the risk that arises from movements in stock prices, interest rates, exchange rates, and commodity prices. Metrics to consider : VaR, skew, sharpe.
1: DAI is one of the most stable stablecoins, with a very tight peg.
- Execution risk (0-10): How long will it take to execute, how many signers on a Multisig or queue of things that must be signed first.
4: Can be scripted for now, maybe be moved to a fork of the Aura avatar in due time.
