The current GLP stablecoin allocation on Arbitrum consists of :
- 36% USDC
- 2% USDT
- 5% DAI
- 2% FRAX
I would like to propose that we increase the amount of FRAX allocation in GLP to 5% and remove 3% of USDC allocation to make room for this modification.
Frax is an open-source, permissionless, fractional-reserve algorithmic stablecoin protocol.
The current collateral ratio (CR) for FRAX, at the time of this writing, is at 89%.
Current Circle-lead initiatives to freeze assets and censor users should be addressed by decreasing USDC reliance in DeFi with backed, decentralized, stablecoin assets.
To date, FRAX is the second largest decentralized stablecoin. Nansen notes that the current market cap of FRAX is $1.45 Billion. FRAX liquidity on Arbitrum is 18.5million. The implementation of FRAX base pools on Curve continue to greatly increase FRAX liquidity cross chain while the launch of FraxLend and ETH SaaS (Staking as a Service) will also increase collateralization and cross chain utility.
Lastly, given the recent reticence regarding algo-stables, it is worth noting that the risk of FRAX depeg is nearly zero in current market conditions. To wit, there is 1.45B FRAX in existence. Furthermore, $583Million of it is in the FRAX:3CRV Curve pool. If you try to sell $100M FRAX in a single sell order for Tether on Curve right now, you would not even lower the price below $.9990. This doesn’t even take into account any of the hundreds of millions of dollars of liquidity on Uniswap v3, OR the utility of FRAX’s AMO which is designed like Maker’s PSM to repeg FRAX in adverse events.
As such, risk of FRAX depeg is low and safety of the GLP would be intact by increasing FRAX allocation to 5% of the pool while reducing USDC exposure to 33%.
While I dislike the lower collateral ratio of FRAX, i totally agree that giving preference to defi over cefi seems more inline with GMX community values.
This small adjustment would have innocuous impact currently in terms of utilization, and at the same time would send an important high value message that GMX upholds and promotes solid defi standards.
I think this is reasonable, I’m in!
I fully support this proposal!
A 3% does not seem like an irresponsible number. It’s a great start on the path to find other sustainable and working stables other than centralized USDC.
As mentioned by JPFH, it also aligns with the the GMX community values.
We can propose to increase this amount another 2-3% in the near future to bring the total allocation to 7-8%.
Looking forward to increasing $FRAX!
Thank you for this suggestion, I think we could time it with some additional promotional activities to use FRAX, @coinflipcanada is discussing it with the team I believe
I think this is reasonable indeed!
Frax is good coin - safe as DAI imo especially with the RWA risk from DAI - will be good to get them in balance
Thank you for the proposal, as mentioned by X will hopefully be sharing a proposal in the coming days for various potential collaborations with Frax.
Could you please include a link to the current collateral backing Frax, for completeness?
It is currently backed by 93.26% collateral and 6.74% FXS Frax Dashboard
Frax Dashboard with $42mm locked FXS-FRAX LP on Uniswap
That sounds great sir. Thank you very much for everything you and Xdev do. Looking forward to watching GMX grow and hearing about future FRAX integrations.
As a member of the Frax community, I thank CryptoCondom for his support and would love to see this happen. Can be the start of a fruitful relationship between the two protocols.
Seems like a reasonable reallocation of stables for GLP
As it appears in https://stats.gmx.io/ $FRAX is consistently one of the assets less utilised of the whole GLP pool, much less than $USDC. You can see that borrowing rates for $USDC are x5 at least the borrowing rates for $FRAX. It doesn’t make sense to increase $FRAX GLP allocation.
FRAX should incentivise through its community the use of $FRAX at the GMX trading app if they want a larger share. Right now this change is irrational.
GMX is less utilized because it has the least liquidity on Arbitrum of all the stables that compose GLP. I think by increasing the FRAX allocation of GLP, we will see:
- increased liquidity
- a rise in liquidity means that gmx users may benefit from future fraxlend integration for borrowing against GLP or GMX tokens
This is also about swaps not just leverage trading - we want to control the swap market
I think we should also increase USDT allocation to ~5%, just to be more diversified & allow bigger liquidity when trading USDT and DAI is highly correlated to USDC already, plus USDC has had some censorship issues recently.