Proposal to add FXS to Anchor

Author: DAO member Mark11

Summary: Proposal to add FXS to Anchor as collateral only for a whitelisted FRAX Finance protocol treasury address, in order to allow FRAX Finance to borrow DOLA on Anchor. Set an initial cap at a maximum of 250,000 FXS (currently worth about $550,000) - with a collateral ratio (CR) of 180% or such lower CR as the Dev team considers safe.

Background & Motivation:: FRAX Finance is a protocol that produces a fractionally backed synthetic stable coin called FRAX – since its launch in December 2020 it has not lost its peg – it is currently backed by 85% USDC and 15% by FXS shares which is adjusted over time up or down depending on the demand for FRAX. There is currently about $20 million in liquidity in the FXS/FRAX Uniswap pool. FRAX was recently added to CRV and whitelisted to receive CRV rewards – the amount of locked CRV voting for FRAX is something they would like to increase as a priority – however they don’t wish to dilute the treasury in doing so.

This presents an opportunity for Inverse DAO to increase DOLA lending by providing a facility to allow for FRAX Finance protocol to borrow against their governance token.

Abstract: I propose that we add FXS to Anchor as collateral only, in order to allow whitelisted FRAX Finance protocol treasury address to borrow DOLA against FXS.

I propose the initial amount be be set at a maximum of 250,000 FXS currently worth about $550,000. With a collateral ratio of 180% or such lower amount as the Dev team considers safe.

As the intention of FRAX Finance is to use this facility to boost their veCRV we can expect the loan to be on a long term basis - earning Inverse DAO interest for several years. It will also set up our relationship with FRAX Finance for when we roll out undercollateralized loans.

This proposal will not proceed to execution until such time as the mirror proposal in the FRAX Finance community passes https://gov.frax.finance/t/fip-7-borrow-against-fxs-on-inverse-finances-anchor-to-boost-vecrv/55

Risks: As always there is a risk of FRAX Finance's protocol failure leading to sudden drop in FXS value leaving the debt on our books - this can be mitigated with appropriate collateralization ratio.

As mentioned above the liquidity on Uniswap is about $20 million - a market sale of 250,000 FXS tokens would lead to a 7.34% price impact on the pool.

For: Add FXS to Anchor as collateral only for a whitelisted FRAX Finance protocol treasury address, in order to allow FRAX Finance to borrow DOLA. Set an initial cap at a maximum of 250,000 FXS (currently worth about $550,000) - with a collateral ratio (CR) of 180% or such lower CR as the Dev team considers safe

Against: Do not authorize FXS borrowing on Anchor at this time.