FIP 77 - $20m FXS buyback program using TWAMM

Authors Sam Kazemian Travis Moore

Summary

Propose using 20m FRAX to buyback FXS using Fraxswap FRAX-FXS TWAMM pair over a period of minimum 3 days or up to 30+ days (exact period at core team's discretion).

Background and Motivation

Over the past month, the crypto markets have indisputably become bearish and prices have dropped anywhere between 40-90% for most major tokens. However, FXS has been particularly hard hit. FRAX's peg is indisputably resilient, has never been in doubt, and has held perfectly since inception. The protocol as a whole has been in excellent shape. Thus, the core team does not believe the significantly worse performance of FXS compared to other tokens is justified any longer and feels confident to propose a large $20m FXS buyback using the TWAMM should the community+token holders approve.

FRAX still makes over $80m annual revenue while FXS has dropped out of the top 100 Coingecko rankings. Thus, FXS seems to be the most undervalued out of all other volatile assets FRAX could hold on the balance sheet. At these prices, it is probable that using capital/profits to purchase FXS is the best use of capital dollar for dollar spent. It's important to highlight that this is not something that is often true. This is only the case when the community and core team believe that FXS is the most undervalued across all assets that the protocol can allocate capital to. For example, a $20m FXS buyback (and burn) at $4 FXS would retire 5% of the total supply of FXS. An incredible return of value to token holders at such prices. Such a scenario would effectively make the total supply of FXS less than 95m.

But at this time, we personally believe that to be the case. Thus, we are proposing this extensive buyback program. FRAX is strong and profitable enough to take advantage of the market irrationality on its governance token. While other protocols are liquidating volatile assets and their tokens for stablecoins, FRAX has a formidable warchest and cash flows that it can do the exact opposite and take advantage of this mispricing.

Should the proposal pass, the FXS bought back can be burned entirely, placed in veFXS yield, or retained in the treasury until future governance allocates uses. This specific proposal is simply for the clearance to initiate this $20m TWAMM FXS buyback.

PROPOSAL

For: Approve 20m FRAX to buyback FXS using Fraxswap TWAMM of 3 days or up to 30+ day period.

Against: Do nothing