I want to start sharing some notes I take from articles/podcasts. Hopefully will be able to make it a weekly thing.

FRAX logo/symbol is the unspecified general currency sign - when internet came out they had a placeholder for general currency symbol, for what they thought would be the general internet currency symbol.

• Frax started out of the concept that if you have a protocol that controls its own liquidity and collateral like, you can deploy it into AMM's and the protocol itself can earn yield and transaction fees.

• Before, instead everybody just rented liquidity and paid their governance token to rent liquidity inside of these AMMs/DEX's.

• Curve AMO that Frax developed, (which is just a smart contract that sends collateral and extra FRAX into FRAX's curve pool), essentially allows Frax to become largest TVL and controllers of liquidity on Curve.

• Obviously 4pool won't be happening anymore. Frax went back to drawing board to implement/create a similar system, that can be done risk-free: a FraxBasePool where Frax can allow other projects to pair with FRAX liquidity.

• FraxBasePool: Just FRAX-USDC (least risky because USDC is basically tokenized treasuries).

  • Any project that pairs with FRAX base pool will proportionally get incentivized by demand they create.

  • When projects use 3pool, they have to basically rent liquidity and subsidize USDC-DAI-USDT.

  • FraxBasePool you pair with FRAX-USDC, Frax doesn't keep what you help grow, doesn't keep CRV-CVX, they channel it back to you.

  • Instead they build a network effect around the FraxBasePool as a Schelling point for liquidity, and give back proportional to demand for FBP by protocol.

  • LPs earn yield just by using FraxBasePool, Frax not involved with other stablecoins, so no esoteric risk coming from other stables - only FRAX-USDC risk.

• Timeline of FraxBasePool:

  • Sam's been talking to Mitch (founder of Curve).

  • Curve needs to deploy the FraxBasePool themselves.

  • After team deploys, CurveDAO vote will allow FraxBasePool up as other option (aside from 3Pool).

  • Second part of proposal is about whitelisting veCRV.

  • Whitelisting will let Frax to permanently lock all FraxBasePool earnings that the protocol earns from its collateral and expansions (that don't go to other protocols as yield).

  • Through this Frax can permanently vote FBP for the gauge weight etc. The more Frax can earn the more they can distribute to other protocols that pair.

  • No more dumping CRV from FRAX - good for CVX and CRV since less sell pressure.

• FRAX has good volume but not much velocity of money - to fix that they want to be a central liquidity locust, through FraxBasePool. FRAX will become high volume, high turnover money.

• FRAX has historically been a good savings stablecoin, good yields, stable peg and has been lindy - doesn't have much velocity - which FraxBasePool and FraxLending will improve.

AMOs

• When people mint FRAX into the new base pool/or put FRAX in there, they have to use USDC to mint that FRAX. That USDC comes into the Frax protocol. Frax takes that USDC and puts it into the AMOs.

• The other direction can also happen. AMOs can mint and burn FRAX and move collateral (USDC). Someone can buy FRAX from Curve pool until curve pool is imbalanced then AMO can mint FRAX to balance it 50/50 and get LP tokens.

Collateral Ratio

• Collateral ratio is entirely backed by hard assets. Rest is FXS and other assets that aren't immediately liquid like vlCVX.

• FRAX has a lot of locked liquidity in a lot of different places. If you take a deterministic analysis by looking at entire landscape of user owned FRAX and protocol owned FRAX you see that there cannot be a bank run right now.

• Collateral ratio shows amount of FRAX backed by USDC (hard assets). Rest is backed by FXS and other volatile assets vlcvx. One of the things in times of liquidity crisis/bank runs etc. if you take a full look at entire landscape of user owned frax etc.

Decentralization Ratio

• Decentralization ratio is amount of FRAX backed by completely non-custodial assets: non-fiat coins, not wBTC etc.

• If FRAX is backed partially by DAI - DAI itself is 65% centralized assets. The ratio only counts decentralized version of DAI (because underlying DAI has claims on USDC etc.)

Doomsday situation

• If you simulate everything, FRAX is entirely deterministic, no Jump, no market makers, no collateral off-chain, what you see is what you get - everything is on-chain.

• What if every single person farming FRAX pulled their Curve LP and dumped?

• Currently it will not depeg. This is because there's a lot of locked liquidity and a lot of protocol owned liquidity.

• Future depends on locked liquidity, how much debt denomination it has etc.

• Sam thinks recent bill is bullish.

FRAX vs USDC, VISA et al.

• Its outside of FRAX's scope to try and do things off-chain.

  • Doesn't want to incorporate a company and hold treasuries with Frax etc.

• There will always be use for USDC or if Visa came out with a stablecoin or something. (something like BridgeFi)

• But USDC will not build AMOs or AMM primitives like TWAMM etc. to integrate liquidity into protocols etc. They will be specialized for the requirement to hold treasuries and etc.

• FRAX will be specialized to be the predominant on-chain stablecoin, for everything on-chain.

• Symbiotic relationship between USDC with Frax and Maker. It's not in Circle and Visa's wheelhouse to do certain stuff.

• What if government says USDC must blacklist everything unless KYC?

  • FRAX doesn't hold USDC it deploys it immediately into curve etc. USDC has to literally blacklist everything Curve Uniswap, Compound, AAVE etc.

  • Sam doesn't think it's going in that direction. If it does go in that direction, to get to FRAX and Maker is to nuke everything - at that point they have bigger problems to worry about.

• One of the biggest things was the surprising stance on stablecoins they want to keep a bit decentralized stablecoins, helps FRAX and DAI and FEI.

• What FRAX is building is hard to replicate. Money is the strongest network effect. The more debt denominated/the more liquidity/the more others hold it which makes it harder to dislodge and coordinating a large group to hold it, creates the mother of all network effects.

FXS

• FRAX - FXS is not just a mint and burn system.

• The protocol earns a lot of revenue in CRV, CVX, soon from interest rates from FraxLend etc. and a lot of transaction fees.

• Frax can buy back FXS if it's the best thing to do, if they know the governance token is highly undervalued compared to other assets on the balance sheet. Possibly buy back through TWAMM.

Fraxswap

• New UI, live on preview subdomains

• Big vision and why they're actually building an AMM and a lending protocol around FXS:

  • The way they look at it is that they have the concept of trinity:

  • Every DeFi ecosystem/economy are formed of different flavours of lending, liquidity and currency, which means stablecoins, AMM and lending market.

  • Many projects build stuff internally but don't go final 10% and make it a general infrastructural product. (i.e. projects already have a form of swap, but do not have a self-serve AMM that people can actually use and which will bring liquidity.)

• FRAX wants to build this ecosystem strategically:

  • If they're gonna spend weeks to create something that would allow them buy back FXS or contract supply of FRAX or rebalance collateral, they want to take a professional approach and build a new primitive.

  • They're building a new AMM (with TWAMM functionality) called Fraxswap to purchase back FXS with protocol profit to be able to contract supply of FRAX, rebalance collateral etc.

• You can TWAMM into any coin, not just FXS - you can create any pool against FXS. You don't have to create a FRAX pair. You can use any ERC-20 token.

• TWAMM: User sets time period, every block during this period the user buys a small amount - essentially DCAing, buying small amounts over a period of time.

• Fraxswap has a fee switch/admin switch that will distribute value to FXS holders.

• How to bring liquidity into Fraxswap/TWAMM:

  • TWAMM functionality will cater to large protocol owned liquidity.

  • Additionally FXS gauges will be used. Anybody that uses Fraxswap for treasury rebalancing etc. they will get FXS gauges.

  • How will they incentivize gauges?

    • They will use redacted, pitch.money and votium in the future to earn bribes/incentives.

• Sam doesn't want to be zero-sum competitors with Curve, they will still deploy largely to Curve. He thinks Fraxswap will be used for volatile pairs for protocols themselves that need to deploy liquidity and rebalance stuff.

• Future Features:

  • Through TWAMM, protocols can protect liquid backing by always slowly buying back into until price hits x over next y years and they get to buy low to get to a certain price.

  • Custom curves. Currently Fraxswap is just regular xy=k curve but with TWAMMs. They're working on custom curves, concentrated liquidity and other unique projects.

Fraxlend

• Allows creation of isolated pairs with infinite customizability

• Fully permissionless

• Credit-based LTVs: You can create a pair where only whitelisted address of a DAO or individual (e.g. Tetranode) can borrow, and you can modify LTV for that specific pair.

• It is essentially an entire framework for creating lending systems

• Same idea of building strategically. You can mint FRAX on Fraxlend, loop and lend it back etc. Can essentially get leverage just like people were able to do with MIM.

• Why are they doing so much?

  • They are working/concentrating on FRAX, trying to build a professional and decentralized software, that allows more functionality - as opposed to building a limited/one-dimensional product.

• Yields generated from Fraxlend would go to FXS holders.

Ecosystem

• What do you want next for the Frax ecosystem?

  • The more people build on the gauge ecosystem, the more vibrant the teams building on top of it, with primitives on top of base primitives etc.

  • Frax's gauges are unique because people can lock the actual LP deposit for a period of time to get an extra boost. This is an anti-reflexive/anti-bank run product as liquidity is locked

  • Through Stax, Temple will take LP and lock for 3 years, tokenize the position and you can exit your locked tokenized position, while the liquidity is still locked, acting as an anti-reflexive/anti-bank run product.

The system of locking LP tokens for increased boost is part of design. To kick start an algorithmic stablecoin it is important to have an anti-reflexive/anti-bank run product.

• You can only build this type of product on top of Frax currently, and Temple built a platform on top of this system.

Could Convex do a similar Stax system:

• If Stax becomes the second Convex for Frax, then Convex might adopt their system.

Keeping Up With Narratives

• Inside in crypto more than he sees sunlight, around the clock sitting here reading about stuff.

• If he sees something new, what is it, is it new or fork/improvement?

• If new is team doing it are they understanding intricacies?

  • If yes he wants to talk to them and see if he can get involved

• See where industry is going rather than following right now

FPI and Yields

• Frax cannot do something like Anchor etc. so they need to find sustainable, highest growth and attempt to join into new things at the base/start.

• FPI is the second stablecoin, it's pegged to the CPI. It is an inflation resistant dollar. Grows and tracks the CPI.

  • FRAX/FPI LP on Convex to earn FXS, Curve vAPY, CRV, CVX as well as FPI yields.

• What do you mint against FPI:

  • FPI protocol needs to grow backing at inflation rate or more.

  • When Fraxlend comes out, users can borrow against FPI or borrow FPI, which will go towards the FPI balance sheet, keeping it collateralized.

Long Term Vision of FRAX

• Sam wants to build a full stack/complete economy around FRAX and the new FPI:

  • Complete economy: lending, liquidity and currency - (stablecoins, AMM and lending market and debt denomination)

• After a full stack economy is built, then they can think about a potential Frax Roll Up - to capture value of the block space and etc.

• Unlike Terra they want to build economy first and then build a roll-up, not start as an L1.

• If block space is valuable enough for people to pay fees, "months and months from now", might end up with own Frax Chain or Roll-Up.

• Tough macroeconomic situation.

• Confidence of stablecoins down and FRAX only 17 months old so relatively new.

• With stablecoins it's difficult because essentially you spend all your time stabilizing a token to a dollar, just so that it works every time people need to flee to stablecoins

• They're trying to develop Lindy effects to make sure that they have a stablecoin that is actually being used when there's a flight to safety

• Proud that FRAX kept peg when everything was de-pegged - happy to be able to develop confidence and Lindy effect similar to DAI and USDC

• Resilience of protocol acquired over time

• Why does Sam care about Lindy Effect much?

• Lindy Effect is social phenomenon that longer something is around, the higher the chance it sticks around

• Lindy Effect in stablecoins is much longer

• Longer stablecoin stays at peg, the longer people will think it will survive, which is why it's particularly important for stablecoins.

• FRAX and DAI or Maker have no competition/issues. FRAX wants sustainable and developing yield, and Maker is not interested in that - one is not necessarily better than the other.

• Sam wants deep liquidity, use for sustainable LP'ing and staking in Curve. Thinks UST wanted to be similar to FRAX, a fractional algorithmic currency, because it's a more resilient model Terra wanted to be more like FRAX but they never managed to get their collateral ratio high enough

• Stablecoins need a lot of exogenous collateral FRAX is highly collateralized, and people say isn't that like a fully backed stablecoin FRAx needs to be highly collateralized since it is quite young, it should be 90% backed, it cannot be a fiat like currency yet, it's only 17 months old. That's why they have been trying to be similar to DAI, to have lots of hard-backed collateral, to lower bank-run chances and reflexivity

• The only similarity FRAX currently has to algorithmic stablecoins is the name, right now it's not necessarily algorithmic

• FRAX kind of passed the test of terrible market conditions.

• They want to constantly improve, it will never be a finished product

• They've been building 24/7, they want to build the FRAX full stack economy. A full permissionless economy, with TWAMM and FRAXSwap TWAMM - a good system for protocol owned liquidity: allows balancing large amounts of collateral and making large market orders Can also be used like Uniswap V2.

• Essentially building a full economy around FRAX and using FXS, not a random bunch of tokens. Want to create liquidity and capture value, debt denominated in your own infrastructure, like Maker and CDP and DAI Full DeFi stack Lending, liquidity and currency When things are good, traditionally stablecoins don't have much velocity and have low fees Which is why they need to find ways to generate velocity and fees

• Use cases of money: store of value, unit of account, and medium of exchange

  • FRAX has been a good store of value, but they want to have more trading pairs and debt denominated in it (loans), to make sure that they satisfy all use cases of money - to capture value.

• They make 80 million dollars in annual revenue, they want to buy back 20 million of FXS using TWAMM.

• They are proposing it now, because FXS has been hit hard, harder than most bc of stablecoin confidence.

• FXS lost a lot of value, not just because of market conditions, but also because of general distrust of stablecoins after UST depeg/Luna disaster.

• It's not always good to buyback and burn governance token, you want to increase balance sheet, put it towards growth etc.

• However, if the market misprices (according to us), the token and is undervalued, compared to other tokens that could be bought and put on the balance sheet.

• Logically, the most useful thing to do is buyback and retire the governance tokens. They think that FXS is undervalued, and it's the best use of protocol profits. FXS dropped 38 ATH to 6.38. FRAX is creating revenue, it's a resilient protocol, going to have more rev bc of swap and lending.

• How has FRAX decided to talk to Yellen and convince about FRAX.

• They have different ethos for marketing: everything is provable on-chain: FRAX team is just 8 to 9 engineers, no marketing team, DeFi focused. There's a lot of FUD, they're not interested on twitter and don't want to convince to be believed, they're on chain and transparent

• They have shown that they are protected from a bank run because of amount of liquidity and locked liquidity and integrations FRAX wouldn't depeg due to current collateral ratio, they can see, everyone can see because we're on chain and transparent. Maybe we made a mistake go verify it.

• 46 million FRAX can still be printed and expanded and would still be impossible to bank run. They run internal tests and are meticulous about keeping it all on-chain, no CEX and market maker relationships - just like Maker. Everything is in smart contracts, there marketing is the tech and keep it on-chain.

• One of the biggest proposals recently is the FraxBasePool: Closest thing to risk-free, because it's with USDC They will essentially own part of Curve as they grow with it. They want to become their meta stable coin, since Curve cannot issue their own stablecoin. They're collaborative, they just want to grow the whole DeFi pie, no competition, no value lost, gain value from both of them.

• Some curve LP tokens lower volatility, some WBTC and ETH They're looking to increase volatile assets that back FRAX, especially during bear market where prices are down. Good time to increase with profits and not with seigniorage to not take asymmetric risks), to create a resilient and strong peg.

• Increasing ETH exposure/backing would also allow FRAX to expand the ability for Frax PoS staking service, a Frax ETH derivative of sorts like Lido. It makes sense to have Frax have the ability to have proof of stake validator infrastructure issue 1:1 FRAX/ETH derivative that can back FRAX. Essentially create more value.

• Sam has been in the industry 7-8 years. They don't do stuff for the fun of it, they want to consider what will stuff look like in a year? How to get their incrementally?

• The staked Lido type system not for profit, they're building full stack economy:

• If they're gonna have liquidity, lending and currency, the last part of that is the actual network, the blockspace, to own a piece of the blockchain, and participate.

• To make the FRAX economy the largest consensus forming Schelling points, to capture the value of those transaction fees.

• Terrible time to take real world risks, but good time to build relationships and infrastructure when things turn around

• They're currently working with goldfinch etc. to talk about how they can do real world lending through them, but market conditions are not great.

• They agree with Maker guys on real world assets: If you're going to have debt denominated in your stablecoin, you need the actual stablecoin to issue credit and debt for actual economic activity, not just degenerate behaviour. There's actually a real use case for DeFi, if FRAX and Maker will ever scale to trillion dollars of supply, there has to be real economic lending in the real world. Hopefully will become a less risky endeavour in a better market value

• The outdated algorithmic stablecoin old system doesn't work.

• Volatile governance token being used to stabilize the other token created out of thin air doesn't work.

• FRAX premise was just that: it doesn't work, we need exogenous collateral, only small amounts of algorithmic.

• They need to build Lindy and almost entirety of it needs to be backed by assets.

• USD doesn't look great. 

• What FRAX is working on is the FPI.

• Pegged to the CPI, inflation resistant dollar. 

• Current unit of account of world is USD, 80%+ trade is denominated in it.

• Whatever will be successor has to be self-sovereign peg or some other stablecoin that has a stability to a basket of assets humans care about.

• Three trillion dollar narratives: BTC, ETH and Stablecoins.