SECTION 1: APPLICANT INFORMATION
Provide personal or organizational details, including applicant name, contact information, and any associated organization. This information ensures proper identification and communication throughout the grant process.
Applicant Name: @Frax.Finance
Project Name:
Frax Finance
Project Description:
Frax provides well-known DeFi infrastructure protocols such as stablecoins and ETH staking.
Team Members:
Sam Kazemian: Core Team Member / Co-Founder
Travis Moore: Core Team Member / Co-Founder
Drake Evans: Core Team Member
Justin Moore: Core Team Member
Dennis: Core Team Mamber
Alex: Core Team Member
Nader Ghazvini: Core Team Member / Head of Governance and Integration
Project Links:
Website: https://frax.finance/
Documentation: https://docs.frax.finance/
GitHub: https://github.com/FraxFinance/frax-solidity
Analytics Dashboard: https://facts.frax.finance/
Contact Information:
TG: https://t.me/fraxfinance
Twitter: https://twitter.com/fraxfinance
Email: nader@frax.com
Do You Acknowledge That Your Team WIll Be Subject to a KYC Requirement?:
Yes
SECTION 2: GRANT INFORMATION
Detail the requested grant size, provide an overview of the budget breakdown, specify the funding and contract addresses, and describe any matching funds if relevant.
Requested Grant Size:
1,500,000 ARB
Grant Matching:
Yes, Frax will continue to incentivize pools alongside the ARB provided by this grant.
Grant Breakdown:
This grant is to incentivize users of both Frax stablecoins and staked ETH tokens, so that the Frax ecosystem’s extensive mainnet user base is attracted to try out Arbitrum’s growing DeFi ecosystem.
Incentives will be divided between sfrxETH, frxETH, FRAX, and FPI (Frax’s unique flatcoin) with a target of utilizing all of the funds no later than January 31, 2024. In order for incentives to boost usage, but not attract the most mercenary “hot money”, the rewards program under this grant plan will target a total yield of 120% the unsubsidized yield on each pool.
The list of currently incentivized pools for Frax products can be found here. Currently, there are 40 pools across 6 Arbitrum protocols being incentivized. Frax Finance, however, is AMM/paired-token agnostic and actively seeks additional partnerships in the Arbitrum economy. If your preferred protocol or token is not present on this list, then please reach out on the Frax Finance forum to discuss possible collaborations (please wait until after the close of the vote to approve this grant).
Funding Address:
TBD; see “Funding Address Characteristics” section.
Funding Address Characteristics:
The funding addresses will be automated incentive distribution contracts, which must be deployed. If funding for this grant is made available before these can be deployed, then the fallback address for receipt of grant funds will be 0xe61D9ed1e5Dc261D1e90a99304fADCef2c76FD10. This address is a 3 of 5 Safe, and currently performs ministerial functions for Frax Finance on Arbitrum.
Contract Address:
TBD; see “Funding Address Characteristics” section.
SECTION 3: GRANT OBJECTIVES AND EXECUTION
Clearly outline the primary objectives of the project and the Key Performance Indicators (KPIs) used to measure success. This helps reviewers understand what the project aims to achieve and how progress will be assessed.
Objectives:
Leverage the Frax brand to entice new users and new assets to Arbitrum, provide a healthier competitive landscape for Arbitrum stablecoin and staked Ether markets, and establish permanent capital flows into Arbitrum from Ethereum.
Frax Finance has one of the most widely recognized brands in DeFi. While it started as – and is most associated with – being a stablecoin, it has grown into a suite of products that provide infrastructure for DeFi protocols. Today, Frax products include stablecoins, bridging, lending, oracles, swapping, and a liquid staked ETH product.
Frax has products necessary for a healthy DeFi ecosystem – FRAX stablecoin for liquidity and transactions, and sfrxETH for yield-bearing collateral securing Arbitrum’s L1 – as well as the co-incentives and commitment to keep the Arbitrum markets for those products competitive.
Frax has users present on more than a dozen chains. Arbitrum, however, has become the hub for Frax activity outside of Ethereum mainnet. This grant will help encourage migration of existing Frax users and their assets from other chains to Arbitrum, increasing both the number of users and the amount of assets actively interacting with Arbitrum.
At the same time, increasing the already-growing presence of both FRAX and ETH staked through Frax will be beneficial to the Arbitrum economy, which is at risk of becoming subject to a de facto stablecoin duopoly and staked ETH monopoly. Frax Finance has a long history of proactively working with integration partners and putting user experience first, and Arbitrum needs a decentralized stablecoin that won’t neglect or ignore the ecosystem. FRAX rounds out a healthy stablecoin ecosystem for users wishing to diversify from only USDC and USDT.
Frax Ether is the third-largest staked ETH token that isn’t controlled by an exchange. Arbitrum benefits by encouraging staked ETH to be imported, because it is a yield-bearing asset that sources the yield directly from Ethereum while also securing the chain Arbitrum is rooted to. sfrxETH present on Arbitrum creates a constant capital flow from Ethereum to Arbitrum, increasing the total assets on the chain, while also being packaged in a form that allows for ongoing DeFi activity.
Source: Frax Facts
At present and historically, sfrxETH yields more than alternatives, making it an ideal asset to incentivize to migrate to Arbitrum. Whenever a sfrxETH is bridged to Arbitrum, that initiates a passive, automatic capital flow (denominated in ETH) into the Arbitrum economy.
Once mainnet frxETH and FRAX users experience the low costs, exciting new DeFi protocols, and ease of using Arbitrum, we are confident those users will not only domicile their frxETH on Arbitrum over mainnet, but also migrate their other assets to Arbitrum.
Key Performance Indicators (KPIs):
The following critical milestones will determine whether this grant has met its goals.
| Milestone Goal | Milestone Metric | Source of Truth |
|---|---|---|
| Increase FRAX usage | > 10 million FRAX bridged to Arbitrum in 30 day period (~triple current volumes) | Frax Facts |
| Increase FRAX usage | > 60 million FRAX locked in DeFi smart contracts (~triple current levels) | Frax Token |
| Create capital flows to Arbitrum equal to or greater than grant funds | Staking yield on Frax Ether on Arbitrum > 480 ETH (equivalent market price to requested grant) in 12 months | TBD |
How will receiving a grant enable you to foster growth or innovation within the Arbitrum ecosystem?:
The grant will have three goals, both of which will increase the size and resilience of Arbitrum’s ecosystem.
The primary goal is to leverage Frax Finance’s extensive community to encourage migration of users and assets to Arbitrum. Frax’s brand and multichain user base make it an ideal way to introduce users to Arbitrum. The incentives from this grant, along with Frax Finance co-incentives, serve to entice users to take that first step onto Arbitrum.
The second goal is to create a more healthy, sustainable competitive landscape for both stablecoins and liquid staked ETH. The “Rule of Three” is widely accepted in business and economics schools as the number of major suppliers needed for an efficient market. FRAX, which actively engages with the Arbitrum ecosystem and puts its own incentives in place, makes an ideal decentralized stablecoin to complete that trio with USDC and USDT. Frax Ether is the obvious choice to complete a similar trio in the market with stETH and rETH, as the third largest liquid staking provider not controlled by an exchange with a competing chain.
The final goal is to use Frax Ether to increase the overall usage of staked ETH, which passively and reliably imports capital to Arbitrum, which is hungry for more capital, from Ethereum, where capital is relatively abundant. This is in many ways similar to how recent “tokenized tbill” offerings on mainnet import capital from the USA to Ethereum. As capital flows from Ethereum to Arbitrum, that capital can then be put to work, often by improving access to and depth of local credit markets.
Justification for the size of the grant:
The size of the request is to ensure subsidized pools have a yield that is modestly above the natural yield. Incentives will target a total yield of 120% of the unsubsidized yield on each pool through January 31, 2024.
This is to create a policy of modest incentivization spread across the ecosystem. The goal is not to provide such a large shock to rates that it results in only the most mercenary capital chasing yield, as opposed to “fence sitters” who can be convinced to try the Arbitrum ecosystem and Frax products with only marginal increases in yield.
Excess grant funds will be returned to the Arbitrum DAO Treasury address (0xf3fc178157fb3c87548baa86f9d24ba38e649b58) as the sunset of the grant plan.
Execution Strategy:
Frax incentive structure is designed to directly correlate with the TVL and trading volume of pools and vaults within the ecosystem. This means that as TVL and trading activity increase, so do the rewards for liquidity providers, creating a mutually beneficial relationship that stimulates liquidity growth and ecosystem expansion. Moreover, during the initial month following the creation of a new pool or vault, Frax Finance will match the incentives provided by partners for the pool or vault.
Frax contributors have developed an automated incentive distribution contract. The contract is programmed with the reward calculation for targeted pools, and allows for distribution of incentives to avoid error-prone manual processes. An example is this contract for FRAX on Arbitrum : 0x9cF1b09a30dbDED5Aa0B270901A9B8ab0b4C9f29
Grant Timeline:
Funds will be distributed as incentives in a linear fashion to the selected pools. The use of an automated incentive contract is intended to remove the need for further team efforts.
If this proposal is greater than 1M ARB, please provide details on any funding tranches or milestones your application aims to abide by:
Milestone Descriptions:
| Milestone Goal | Milestone Metric | Source of Truth |
|---|---|---|
| Increase FRAX usage | > 10 million FRAX bridged to Arbitrum in 30 day period (~triple current volumes) | Frax Facts |
| Increase FRAX usage | > 60 million FRAX locked in DeFi smart contracts (~triple current levels) | Frax Token |
| Create capital flows to Arbitrum equal to or greater than grant funds | Staking yield on Frax Ether on Arbitrum > 480 ETH (equivalent market price to requested grant) in 12 months | TBD |
| Follow up report on results | Provide a report summarizing the results of the grant program within 30 days of program winding down | Arbitrum governance forum |
SECTION 5: PROTOCOL DETAILS
Provide details about the Arbitrum protocol requirements relevant to the grant. This information ensures that the applicant is aligned with the technical specifications and commitments of the grant.
Is the Protocol Native to Arbitrum?
Frax is deployed to many chains, but Arbitrum is the largest focus of the Frax ecosystem outside of Ethereum mainnet.
On what other networks is the protocol deployed?
Ethereum, Arbitrum, BSC, Fantom, Moonriver, Moonbeam, Optimism, Avalanche, zkSync, Polygon and Polygon zkEVM.
What date did you deploy on Arbitrum?
Frax products have been present on Arbitrum since September 2021. The Arbitrum chain was launched around August of that same year.
Protocol Performance:
FRAX has successfully transitioned from a partly backed to a fully backed stablecoin over the prior year, and now boasts a surplus buffer (9%) larger than that publicly attested to by USDP (3.5%), GUSD (2%), DAI (0.9%), USDC (0.3%).
Source: Frax Facts
Frax Ether, which comes in both staked (sfrxETH) and unstaked (frxETH), has quickly become the fifth-largest liquid ETH staking solution. Excluding cbETH and wBETH, both of which are controlled by centralized exchanges with chains that compete with Arbitrum, Frax Ether is the third largest liquid ETH staking solution.
Source: DefiLlama
Protocol Roadmap:
Frax Finance has several discrete goals to consolidate its integration with and support for the Arbitrum economy. We envision Arbitrum as a developing market that will rival the current activity of Frax products on Ethereum over the next few years.
Expand Liquidity:
Our initial focus will be on expanding FRAX, frxETH, sfrxETH, and FPI liquidity within the Arbitrum ecosystem, strengthening our presence in this network. Arbitrum is already by far the largest non-Ethereum market for most Frax products, and this grant will allow for the
Introduce New Lending Pairs: Following liquidity expansion, we plan to introduce new lending pairs to diversify our offerings and cater to a broader range of DeFi users.
Full Protocol Deployment: Ultimately, our goal is to deploy all our new sub-protocols on Arbitrum, harnessing its scalability and efficiency to offer our services at full capacity in this growing ecosystem.
Audit History:
Frax contracts have been audited multiple times, including 4 audits by Trail of Bits. A complete list of audits can be found here.
SECTION 6: Data and Reporting
Provide details on how your team is equipped to provide data and reporting on grant distribution.
Is your team prepared to create Dune Dashboards according to program requirements for your incentive program?
Yes, or an alternative dashboard with substantially the same information.
If not, how does your team plan to report grant data?
Frax Finance provides a robust and user-friendly dashboard for all parts of the Frax ecosystem on its main app, or with more in-depth details on the Frax Facts dash.