FIP 84 - FRAX <> Gamma Strategies

Summary

Add the Gamma FPI-FRAX 0.05% Uniswap v3 pool to FRAX gauges on Optimism

Background

Gamma is an active liquidity manager and market-making platform that is currently building on Uniswap v3. It has been managing liquidity on Uniswap v3 since the launch of Uniswap v3 and has undergone multiple audits with the most recent one completed by ConsenSys Diligence. Currently, Gamma is managing over 50 pairs on Mainnet, 9 pairs on Polygon, and 5 pairs on Optimism.

Motivation

The main advantage of adding a Frax gauge for the FPI-FRAX Uniswap v3 pool is to increase market coverage and trade volume for FPI and FRAX on Optimism. Uniswap currently has the majority market share of all trading volume on Optimism (as of 6/21/2022). The capital efficiency and breadth of assets on Uniswap will allow for efficient trades from ETH, WBTC, and exotic assets to FPI and vice versa. This combined with Uniswap’s top-of-mind awareness amongst traders and LPs ultimately allows for greater exposure to FPI.

The advantage of using Gamma to manage the FPI-FRAX pool is that it will manage the range to more tightly maintaining the peg to the CPI-U as indicated here Bureau of Labor Statistics Data as well as generate profitable yield for LPs.

Unlike prior gauges for Uniswap v3 FRAX-USDC and Uniswap v3 FRAX-DAI, the gauge for FPI-FRAX will likely require active management due to the slowly drifting peg of FPI. For example, the current Uniswap V3 FRAX/USDC position was easier to make a gauge for because one could simply specify the min and max price at 0.995 and 1.005 respectively without ever having to change the ranges for the position. Because FPI will increase against FRAX over time, some active management of the position will be necessary.

Gamma is currently managing the rETH-THETA / ETH pair for Ribbon Finance, which similarly deals with an increase in rETH-THETA price against ETH of around 0.3% per week. Our algorithm dynamically tracks the price per share of rETH-THETA and manages the liquidity to maintain peg to the Net Asset Value of rETH-THETA. Similarly, we will track the value of the CPI and automatically manage the liquidity ranges to maintain peg to the CPI-U.

An added benefit of having a manager is that we will also compound fees that are collected outside of the LP position back into the LP position, further increasing the liquidity for FPI-FRAX.

FRAX/FPI Specs

• Fee Tier: 0.05%
• Position ranges: Maintain a +/- 5 tick distance from the current price as indicated by the CPI-U
  • Example if CPI-U price is 1 FRAX per FPI, then the lower range will be 0.9956 and the upper range will be 1.0056.

Gamma Specs

• Gamma takes 10% of fees claimed to pay gas fees for rebalances
• The position manager contract allows for limited admin functionality, namely with regards to rebalancing the position as the FPI drifts gradually upward. There are no functionality or admin rights to withdraw any liquidity.

The last audit was performed by blue-chip auditing firm, ConsenSys Diligence Audits on 3/28/2022. All audit details can be found here: https://docs.gamma.xyz/gamma/learn/audits

Poll

• For: Add the Gamma FPI-FRAX 0.05% Uniswap v3 pool to FRAX gauges on Optimism
• Against: Do nothing