FIP - 14 - Re-propose prior FIP for purchasing ETH with AMO profits when FXS price trades above $1.50

FIP - 14 - Re-propose prior FIP for purchasing ETH with AMO profits when FXS price trades above $1.50

Author

Mark11/Capt - Community Members (resubmission of a prior FIP authored by Sam Kazemian)

Summary

Redirect the 50% of FXS1559 burns to purchase ETH on Uniswap and place it in FXS-ETH LP - only when FXS trades above $1.50 - for a trial period of 60 days. After 60 days, the community can vote to extend this ETH purchase program or re-instate burns. This would be a trial run to see how reinvesting AMO profits into the protocol goes.

Background

Sam Kazemian previously authored FIP 2 which passed with 92%, however, as FRAX governance was in its infancy, it had low turnout and was therefore not executed.

After further discussions within the community we believe it is time to revisit this proposal and determine if it has broad support through re-proposing it for a snapshot vote.

Abstract

If adopted, this proposal seeks to route 50% of the AMO profits that are currently going to burning FXS to purchasing protocol owned ETH for 60 days. The ETH will continually be placed in FXS-ETH LP through an AMO. The LP is not eligible to earn any farming rewards so it would not be competitive in any way with community rewards. Currently there is no FXS rewards for any FXS-ETH pair, but if there was, the FXS-ETH AMO would not be eligible for FXS yields so it would not be competitive with farmers. Additionally the mechanism would only operate when FXS is trading above $1.50 - when it is trading at or below $1.50 the purchasing of ETH would be switched off until FXS trades above $1.50 again.

Motivation

A prior governance proposal created by Justin Bram and Brazy.eth successfully passed to reroute 50% of AMO profits to veFXS holders and we considered it very successful for the protocol. This current FXS-ETH proposal was inspired by YFI’s similar idea of “own the land on which we operate” posted here: Own The Land (Eth) On Which We Operate - Finance - yearn.finance 2

Sam believes (and we agree) reinvesting part of the AMO profits back into the protocol itself could yield just as much of a success if not more. This 60-day trial period is ideal and does not commit to changing the FXS1559 dynamic other than accruing more FXS-ETH liquidity which is a great way to trial increase FXS value in this way. Additionally, if FXS1559 burns are re-instated, a governance proposal can be made to simply use the accrued ETH to burn the FXS itself which would retroactively create a similar amount of deflationary pressure for FXS if desired.

The FXS price floor guarantee of $1.50 to switch off this mechanism and channel back to full burns - is to provide confidence to FXS holders that the full burn will be reinstated when FXS token price is low.

Risks

There is a risk that the price of ETH crashes making the purchased ETH-FXS less valuable than other opportunities. The length of the trial should mitigate any substantial impact of this occurring.

Voting

For: support the purchasing of ETH with one quarter of the total AMO profits (coming out of the portion currently burning FXS) - and depositing to FXS-ETH LP pair through an AMO for 60 day trial period. Approving this proposal would make AMO profits distribution as follows: 25% burn FXS, 25% purchase ETH, 50% distributed to veFXS. This mechanism will be programmatically switched off whenever FXS trades at or below $1.50 and instead will use the portion to continue FXS burns until price returns above $1.50.

Against: no change at this time