FIP 84 - FRAX <> Gamma Strategies

Summary

Add Gamma FPI-FRAX pool to FRAX gauges

Background

Gamma is an active liquidity manager and market making platform that is currently building on Uniswap v3. It has been managing liquidity on Uniswap v3 since the launch of Uniswap v3 and has undergone multiple audits with the most recent one completed by ConsenSys Diligence. Currently, Gamma is managing over 50 pairs on Mainnet, 9 pairs on Polygon, and 5 pairs on Optimism.

Motivation

The advantages of using Gamma to manage the FPI-FRAX pool is that it will manage the range to more tightly maintain the peg to the CPI-U as indicated here https://data.bls.gov/timeseries/CUSR0000SA0 as well as generate profitable yield for LPs.

Unlike prior gauges for Uniswap v3 FRAX-USDC and Uniswap v3 FRAX-DAI, the gauge for FPI-FRAX will likely require active management due to the slowly drifting peg of FPI. For example, the current Uniswap V3 FRAX/USDC position was easier to make a gauge for because one could simply specify the min and max price at 0.9942 and 1.00542 respectively without ever having to change the ranges for the position. Because FPI will increase against FRAX over time, some active management of the position will be necessary.

Additionally, the capital efficiency of Uniswap v3 is comparable or preferable to the current situation with the FPI2Pool on Curve with 1/20th of the liquidity. On $74M of liquidity in the Curve pool, a 10,000 FPI swap for FRAX will yield 10,238 in FPI. Comparatively, on just $4.1M of liquidity in the Uni v3 pool, a 10,000 FPI swap will yield 10,264.3 FPI. Uniswap also is the leading DEX by trade volume, so integration with its ecosystem will bring the FPI/FRAX pool more volume as the Uniswap autorouter can efficiently route trades from other assets (such as ETH, WBTC, USDT, USDC, etc) to FPI and vice versa. Despite the $74M in liquidity on Curve, the pool is just generating around $26K in daily volume, so integration with Uniswap would likely bring a welcomed boost in trading volume.

Gamma is currently managing the rETH-THETA / ETH pair for Ribbon Finance, which similarly deals with an increase in rETH-THETA price against ETH of around 0.3% per week. Our algorithm dynamically tracks the price per share of rETH-THETA and manages the liquidity to maintain peg to the Net Asset Value of rETH-THETA. Similarly, we will track the value of the CPI and automatically manage the liquidity ranges to maintain peg to the CPI-U.

An added benefit of having a manager is that we will also compound fees that are collected outside of the LP position back into the LP position, further increasing the liquidity for FPI-FRAX.

FRAX/FPI Specs

• Fee Tier: 0.3% (this is the current fee tier with the most amount of liquidity on Uniswap v3)
• Position ranges: Maintain a +/- 5 tick distance from the current price as indicated by the CPI-U
  • Example if CPI-U price is 1.0296 FRAX per FPI, then lower range will be 1.0000 and upper range will be 1.0618.

Gamma Specs

• Gamma takes 10% of fees claimed to pay gas fees for rebalances and distributes the remainder to its xGAMMA stakers

Last audit was performed by blue chip auditing firm, ConsenSys Diligence Audits on 3/28/2022. All audit details can be found here: https://docs.gamma.xyz/gamma/learn/audits

Token Swap Option

Additionally, we’d like to propose a 250K USD value swap of GAMMA and FXS according to a 30d TWAP price found using CoinGecko.

The reasoning would be the following:

• The value of the GAMMA token is directly tied to the TVL and protocol revenues generated by Gamma given that the 10% of the fees earned from the LP positions are distributed directly to stakers. The increase in TVL and protocol revenue would be quite substantial from managing an FPI/FRAX pair, so Frax would directly benefit by holding and staking the GAMMA token
• Gamma would benefit from holding FXS and staking it as veFXS to incentivize more liquidity to the FPI/FRAX pair

Poll

• Add Gamma FPI-FRAX pool to FRAX gauges
• Add Gamma FPI-FRAX pool to FRAX gauges + 250K USD value swap of GAMMA and FXS
• Do nothing