[FIP - 127] Fraxlend FXS-FRAX Pair Gauge

Author

Hameed

Summary

Create a gauge for the FXS-FRAX pair on Fraxlend.

Background and Motivation

Fraxlend effectively allows the Frax protocol (via Fraxlend AMOs) to mint FRAX against various collateral types. In most cases, the overcollateralized nature of the loans also increases the overall protocol collateral ratio. This is probably the best method that is currently available to increase the protocol collateral ratio.

Minting FRAX against the FXS-FRAX pair on Fraxlend actually does the opposite as it increases the amount of FXS that is backing Frax. This limits the liquidity that the protocol can add to the FXS-FRAX Fraxlend pair (via the AMO ) without decreasing the collateral ratio. The FXS-FRAX pair currently has about 50% less liquidity than any other pair on Fraxlend because of these constraints. I have heard from users that want to use this pair but need increased liquidity in order to do so.

Deep liquidity on the FXS-FRAX pair benefits the protocol in a number of ways: increasing usage for Fraxlend, FRAX, and providing FXS holders the ability to access liquidity against FXS without selling their FXS. As a borrower, it's important that there is sufficient liquidity to prevent extreme interest rate volatility that requires active management of the position (aside from collateral management). Creating a gauge for the Fraxlend FXS-FRAX pair is the best means of creating deep liquidity for the FXS-FRAX pair without negatively impacting the protocol's collateral ratio.

Voting

• For: Approve a gauge for the FXS-FRAX pair on Fraxlend
• Against: Do nothing