Discussion thread: https://gov.frax.finance/t/fip-54-frax-citadel-bringing-btc-to-frax/1192

Author: On behalf of the Citadel DAO community

Introduction

Citadel is a treasury DAO aiming to be the largest community owned Bitcoin position in the world. The treasury and protocol will be governed by the CTDL token, with a predominant Bitcoin treasury actively earning yield and shared with long term CTDL holders. Citadel DAO is a sub DAO to Badger.

It will leverage unique funding mechanics to accelerate the continuous growth of its treasury while using the power of BadgerDAO’s tried and tested vault strategies to optimize its yield.

To ensure it can create sustainable yield on its Bitcoin positions it will hold not only Bitcoin (+ BTC LP’s), but also yield influence assets across DeFi (eg. CVX, FXS and BADGER). This enables Citadel to wield large influence across multiple ecosystems and fight for Bitcoin to get the yield it deserves.

To better understand how Citadel works, CTDL token mechanics and elastic emissions, review Citadel DAO’s tokenomic deep dive article here https://thecitadeldao.medium.com/tokenomics-deep-dive-a11e7f5e2083

For a comprehensive overview of all the details of Citadel DAO please review our introduction article: https://thecitadeldao.medium.com/introducing-the-citadel-dao-551849104d26

CTDL Launch Event

Citadel DAO’s goal is to have a completely fair and transparent launch while distributing ownership of CTDL to not only users that participate early but to a select group of DAO’s/dapps across our ecosystem, that align with the core values of Citadel. Their alignment and vested interest will accelerate Citadel’s ability to effectively deploy its treasury to benefit all participants in the ecosystem.

We call this launch the Citadel Knighting Round.

Over the course of multiple days users will be able to swap BTC and yield influence assets for xCTDL.

Only users who qualify for the whitelist can participate in the launch event. The whitelist selection criteria will be based on a combination of actions users have taken in the Badger ecosystem and in our partners dapps, like Frax. The group of partners/knights have been revealed over the last month and consists of;

• Frax
• Convex
• Redacted
• Ren
• TRIBE
• Alchemix
• Tokemak
• JonesDAO

All of the Citadel Knights are also whitelisted to participate in the launch event themselves, leveraging their treasuries.

The current launch event details being discussed amongst Citadel DAO community members are as follows;

Round 1 (Core Treasury Boostrap): Uncapped, whitelist participants only, open to bribes, fixed price of $21/CTDL

Accepted assets: WBTC, bibbtc/sbtc (ibbtc Badger vault token), ETH, FRAX, USDC

Assets will be rebalanced post launch to reflect the Citadel DAO policy teams ideal treasury composition for optimizing yield and BTC exposure

Round 2 (Yield Influence) : Capped (amount TBD), no whitelist, no bribes, fixed price of $25/CTDL

Accepted assets: Badger and CVX

For a detailed breakdown of CTDL token distribution and launch event please refer back to the discussion thread on the governance forum: https://gov.frax.finance/t/fip-54-frax-citadel-bringing-btc-to-frax/1192

This launch event is the ONLY distribution of CTDL tokens. There were no prior investment rounds, private or public.

Proposal

Frax DAO participates in Round 1 of launch

To further align the two DAO’s, introduce BTC backing to FRAX, accelerate FRAX’s yield influence and support the growth of 4pool on Curve, we’re proposing FRAX DAO participates in the initial launch event using protocol capital. This is at the same fixed price as the whitelisted users from partner communities and the only distribution of pre-protocol launch CTDL.

To gain community wide sentiment, we’re proposing 3 different participation amounts for the purpose of deciding the adequate allocation collectively;

• $21M ($16M in FRAX & $5M in FXS) @$21 per CTDL = 1,000,000 CTDL
• $15M ($12M in FRAX & $3M in FXS) @$21 per CTDL = 714,285 CTDL
• $11M ($9M in FRAX & $2M in FXS) @$21 per CTDL = 523,809 CTDL

What will Citadel DAO do with the FRAX & FXS?

Create deep liquidity for BTC/4 Pool on Curve

Citadel will pair the FRAX provided with WBTC from its treasury (in a new wbtc/4pool) and provide liquidity for the Curve v2 pool it intends to launch. Today most of the volume of BTC <> stablecoins on Curve goes through the tricrypto pool. Introducing deep liquidity for the 4pool against BTC, will provide additional utility for FRAX and alternative routes for swapping with BTC on Curve. This is, of course, contingent on the creation and gauge approval for 4pool – if the gauge is not approved, Citadel DAO could create a wbtc/frax pool instead to execute the same strategy.

Outside of providing liquidity, Citadel DAO will support yield on this pool through its Convex farming strategy. Using its potentially large CVX position along with bribing, Citadel DAO will push vote weight to optimize the CRV and CVX rewards allocated to this pool via bi-weekly Curve/Convex gauge votes. This will not only help with the wbtc/4pool, but also the overall adoption of 4pool across DeFi.

To optimize the returns and increase influence for Citadel leveraging this pool, Badger will design a custom LP vault (wbtc/4pool) that participates both in Convex and FXS ecosystems. This vault strategy will allow Citadel to earn more CVX (locked) to influence the yield on this pool, grow liquidity, lock more FXS and support the cvxFXS peg, while creating a flywheel to redistribute BTC to CTDL lockers (which FRAX could be one of the largest).

Become a long term locker of FXS and gauge system supporter

Citadel DAO will max lock the FXS received for veFXS. Assuming a FXS gauge approval for bwbtc/4pool (Badger vault token) and protocol whitelisting, Citadel DAO will use its vote weight to drive additional yield in the form of FXS. It will then use that FXS to support the cvxFXS peg and lock more as veFXS.

This further aligns Citadel DAO with FRAX as both would be large participants in each others protocols governance along with long term supporters.

Introduce BTC backing to FRAX

The launch of wbtc/4pool on Curve opens up a unique opportunity for Frax Finance to introduce BTC to the backing of FRAX. If Frax were to extend its existing Curve or Convex AMO to this pool, The protocol can use it to create additional peg stability and farm more CVX while increasing the backing of the LP (wbtc/4pool) for FRAX.

This is contingent on the Frax core team building out an AMO to support this, but in preliminary conversations this seems like something they are open to doing.

What does Frax get from this?

Frax will receive voted locked CTDL (vlCTDL) in exchange for their participation, which has a 21 week lock.

Holders of xCTDL will also have the option to LOCK their xCTDL for a fixed period of 7 epochs (each epoch is 3 weeks, so this amounts to 21 weeks). In return for locking xCTDL, lockers will receive the following additional rewards:

• 2x boost on CTDL emissions (for example, if a user was receiving 1% of CTDL emissions when staking xCTDL, they would receive 2% with vlCTDL).
• Share of Funding revenue generated — paid out in BTC
• Share of treasury yield — paid out in BTC
• Governance rights to vote on whitelisting protocols for Citadel treasury deployment and which assets to accept for continuous funding (ie. allow for swapping to discounted xCTDL).

Frax would directly benefit from the yield being generated on the Citadel DAO treasury, which would consist of the FRAX and FXS received for participation. It will also receive a consistent flow of BTC into its own treasury that could be used to further grow the backing of BTC in the FRAX asset.

Frax would also have influence over how the treasury is deployed and which assets the treasury takes in. This is important for ensuring Citadel DAOs long term alignment with Frax.

Citadel + FRAX become a force TOGETHER

Together, Citadel and Frax can support yield on bitcoin, grow utility of FRAX, grow 4pool adoption, have another strategic partner in the Curve renaissance, and Frax can gain significant influence around one of the largest BTC treasuries in the world. On top of it all, FRAX will have a protocol committed to being a long term holder and participant of the FXS ecosystem.

Bribe to Earn More Influence

There is 5% of the entire CTDL supply allocated to partners of Citadel. By using the Hidden Hand platform from Redacted (currently supports Frax Hidden Hand 3 ) during the launch event, users can vote for 1 of the 8 partner DAO’s when participating in the sale. The more votes a partner DAO gets, the larger share of the 5% supply they will receive.

Separate from the proposed participation of $21, $15M or $11M, to gain a larger share of this pool, we propose a $2M ONE TIME bribe in the form of FXS that will go directly to users.

This would amplify all of the outlined benefits in the previous sections, as Frax would become an even larger vlCTDL holder increasing its overall yield in CTDL and BTC.

How will the participation and bribe amounts be executed?

Prior to the community sale, Frax DAO would send the approved participation amount in Frax and FXS to the Citadel DAO multisig, which is governed by its token holders and 5 signers. Citadel DAO would then send the Frax DAO multisig xCTDL at the time of token & protocol launch after the completion of the 2 community rounds. Frax would then lock that xCTDL as vlCTDL via the Citadel DAO smart contracts.

For the $2M FXS bribe, that would be handled exclusively through the Hidden Hands platform with no control by the Citadel DAO. Conclusion

Resources

Discord - https://discord.gg/citadeldao

Twitter - https://twitter.com/TheCitadel_DAO 7

Github - https://github.com/Citadel-DAO/citadel-contracts

Blog - https://thecitadeldao.medium.com/ 3

Vote

Choose 1 of the 4 options outlined below. If the sum of 1-4 is greater then the quorum (~7.2M votes), the option that is the most popular one of the 4 will be approved as part of this governance proposal.

Due to the Snapshot character limits it can't display the amount per CTDL along with total CTDL Frax would receive as part of this proposal. See below for full outline.

• $21M ($16M in FRAX & $5M in FXS) @$21 per CTDL = 1,000,000 CTDL
• $15M ($12M in FRAX & $3M in FXS) @$21 per CTDL = 714,285 CTDL
• $11M ($9M in FRAX & $2M in FXS) @$21 per CTDL = 523,809 CTDL