Authors

Frax Core Team

Summary

This proposal builds on FIP-430, which established a separate balance sheet and governance-guided yield strategy for sfrxUSD, by whitelisting an initial set of AMO strategies with allocation caps and setting clear rules for how future strategies are approved. The aim is to ensure sfrxUSD remains the onchain benchmark yield stablecoin, with allocations that are transparent, risk-managed, and always guided by a minimum yield rule to prevent subsidizing below-market opportunities.

Background and Motivation

sfrxUSD was launched as part of Frax’s Payment Stablecoin Charter framework to serve as the onchain benchmark USD yield stablecoin. In FIP-430, the DAO approved the establishment of a separate sfrxUSD balance sheet with governance-guided yield strategies, ensuring its liabilities and assets remain isolated from legacy FRAX and frxUSD reserves.

With sfrxUSD now upgraded, the next step is to whitelist initial AMO strategies and provide a framework for how future strategies will be evaluated. This proposal clarifies which venues may receive sfrxUSD allocations, sets maximum caps for each, and establishes rules for approving new strategies. It also introduces a minimum yield rule to ensure allocations are capital-efficient and always benchmarked against the current sfrxUSD APY.

The objective is to create a clear, durable framework that both operationalizes sfrxUSD in DeFi and provides governance with consistent criteria for evaluating future opportunities.

Proposal Details

## AMO Strategy Whitelist (Initial Package)

1. Hold frxUSD or any underlying assets of frxUSD

2. Curve AMO : sfrxUSD-frxUSD Pool

• Cap: $50M
• Underlying assets: sfrxUSD, frxUSD
• Chain: Ethereum
• Pool: link
• Motivation: Deepens primary liquidity and peg stability for sfrxUSD on Ethereum.
• Specific note: including Convex Booster Staking where it maximizes revenues.

3. Curve AMO : reUSD+sfrxUSD Pool

• Cap: $5M
• Underlying assets: sfrxUSD, reUSD
• Chain: Ethereum
• Pool: Link
• Motivation: Deepens primary liquidity and peg stability for sfrxUSD on Ethereum.
• Specific note: including Convex Booster Staking where it maximizes revenues.

4. Euler Lending AMO : frxUSD

• Cap: $10M
• Underlying assets: frxUSD
• Chain: Ethereum
• Pool: Link
• Motivation: Expands frxUSD into a leading lending venue and earns sfrxUSD top risk-adjusted yields.

5. Fraxlend Lending AMO (Ethereum)

• Cap: $30M
• Underlying assets: frxUSD
• Chain: Ethereum
• Pools:
  1. Collateral: sfrxETH : Link
  2. Collateral: sUSDe : Link
  3. Collateral: scrvUSD : Link
  4. Collateral: WBTC: Link
• Motivation: Expands frxUSD into a leading lending venue.
• Specific note: including borrowing of reUSD against lending positions on Resupply protocol

6. Fraxlend Lending AMO (Fraxtal)

• Cap: $2M
• Underlying assets: frxUSD
• Chain: Fraxtal
• Pools:
  1. Collateral: sfrxETH : Link
  2. Collateral: WFRAX: Link
• Motivation: Expands frxUSD lending on Fraxtal.

7. dTrinity Lending AMO

• Cap: $1M
• Underlying assets: dUSD
• Chain: Fraxtal
• Pools: Link
• Motivation: Previous Governance Commitment to Fraxtal-native builders.

8. Curve AMO : dUSD+sfrxUSD Pool

• Cap: $1M
• Underlying assets: dUSD, sfrxUSD
• Chain: Fraxtal
• Pools: Link
• Motivation: Previous Governance Commitment to Fraxtal-native builders.

9. Ethena Integrations

• Holding idle (s)USDe

  • Cap: $30M
  • Chain: Ethereum
  • Motivation: Captures Ethena points + yield

• Curve AMO : sfrxUSD-USDe Pool

  • Cap: $40M
  • Underlying assets: sfrxUSD, USDe
  • Chain: Ethereum
  • Pools: Link
  • Motivation: Captures Ethena points + yield
  • Specific note: including Convex Booster Staking where it maximizes revenues.

• Aave Lending AMO

  • Cap: $10M
  • Underlying assets: USDe, sUSDe
  • Chain: Ethereum
  • Pools: Links [1] [2]
  • Motivation: Captures Ethena points + yield
  • Specific note: including borrowing of stablecoins against our collaterals.

• PT-(s)USDe Pendle AMO

  • Cap: $10M
  • Underlying assets: USDe, sUSDe
  • Chain: Ethereum
  • Pools: Links [1] [2]
  • Motivation: high fixed yield

Rules for Adding New Strategies

To maintain the safety, credibility, and efficiency of the sfrxUSD balance sheet, any future strategies beyond the initial whitelist will be subject to the following rules and must be approved through Frax governance:

• Asset Requirement

  • Underlying assets must be blue chip USD-denominated stablecoins.
  • Volatile collateral or purely speculative assets are not eligible.

• Protocol Requirement

  • Protocol must be a blue chip platform with at least $1B+ TVL.
  • Only venues with strong track records and robust security are eligible.

• Caps for Third-Party Requests

  • Any strategy proposed by an external protocol will be capped at the lower of $2M or 1% of total sfrxUSD TVL during its initial whitelisting phase.
  • These caps may only be increased through a subsequent governance vote after the strategy has demonstrated sufficient performance and risk management.
  • Strategies initiated by the Frax core team are not subject to this cap and may exceed these limits if approved by governance.

• Discretionary Allocation

  • Actual allocations are at the discretion of the Frax core team and internal risk team, based on prevailing market conditions, liquidity needs, and risk assessments.
  • Allocations will be managed dynamically to ensure sfrxUSD maintains a competitive rate compared to other stablecoin opportunities, reinforcing its role as the benchmark onchain risk-adjusted yield.

• Yield Floor Rule

  • To be eligible as a whitelisted strategy, a venue must demonstrate a sustained effective yield higher than the current epoch sfrxUSD APY.
  • Short-term APR spikes (e.g., from temporary incentives or wash activity) will not qualify.
  • Governance and the Frax risk team may use rolling averages or time-weighted APYs to evaluate yields and prevent manipulation.

Additional Notes

The sfrxUSD balance sheet must be managed conservatively to protect its role as the benchmark onchain risk-adjusted yield. Allocating capital below the current epoch sfrxUSD APY creates direct opportunity costs for holders and risks effectively subsidizing external protocols. At the same time, over-allocation can stress the sfrxUSD ↔ frxUSD redemption balance, since a large portion of lent assets may be borrowed and sold. The minimum yield rule and sustained-yield requirement ensures sfrxUSD allocations are both capital-efficient and resistant to APR gaming, while governance caps prevent smaller protocols from lobbying for disproportionate allocations.

Voting

• For: Approve the listed sfrxUSD AMO whitelist with allocation caps, and adopt rules for adding new strategies

• Against: Do nothing.