Replace Frax in Arbitrum GLP with other stablecoins

Frax, based on the past performance of the GLP pool, seems to be extremely underutilized, being well under 1% for the majority of the month of January 2023. Attached below (Couldn’t upload the spreadsheet or 2 screenshots due to new user limits so see the first 2 comments) is the calculation of borrowing rates and an excel based calculation of the 60, 30 and 7 day average borrowing rates for the 4 different types of stablecoins in the GLP pool (USDC, USDT, FRAX, and DAI).

In addition to being underutilized, Frax is majority backed by USDC, which means that it is essentially a USDC wrapper. Why not simply replace that with 100% USDC or any other stablecoin which will generate much more interest and return for both GMX and GLP holders? If the $9,015,599 in FRAX (As of the time of writing this proposal) was replaced with Dai, it would make $921,574 more over a period of the year, $1,855,771 more if it was USDC, and finally $2,186,643 more if it was USDC.

Seeing that FRAX has nearly no viable benefit from being in GLP (as its not really decentralized nor lucrative to hold), I would strongly advocate for replacing it with other stable coins in a proportional matter, moving to allocate the $9,015,599 of FRAX within the GLP proportionally (35% eth, 39% USDC, 15% WBTC, etc.), or 100% to more “decentralized” options such as DAI, if decentralization is the final goal. Thanks for reading, open to hearing counterarguments and answering any questions.



Appreciate your data-driven approach to this. It may also be a sensible moment to consider reactivating MiM in GLP, as its held its peg well throughout many volatile months.

Was there a historical reasons Frax was introduced?

If the goal is to have a crypto-native decentralized stablecoin in the protocol, then I would argue in favor of having that be LUSD. The OP is right, there is an under-appreciated risk of FRAX’s reliance on USDC for it’s peg. Circle could at any point and time blacklist FRAX and all of their relevant smart contracts if they wanted to. Liquity’s LUSD is a much more decentralized and crypto-native stablecoin that I think would be a better choice.