Increase Liquidity on Ethereum Curve Part 2: The MIM and FRAX Partnerships

Disclaimer – I am a member of the TFL team.

Context

Last week, I discussed the importance of UST liquidity on Ethereum, specifically with respect to the Wormhole UST - 3CRV Curve pool and a proposed community plan to significantly bolster liquidity in this Agora post.

On Ethereum, the largest source of stablecoin liquidity comes from the Curve 3Pool (3CRV) which has over 4B in combined liquidity between DAI, USDC, and USDT. The most important note here is that all three of these are relatively centralized stablecoins. Over the past three months, we have seen a rapid increase in stablecoin market share by decentralized stablecoins; UST market cap has grown from 2.5B to 8.3B, Abracadabra’s MIM 0 to 3.7B, and FRAX 0.68B to 1.3B.

To create sufficient liquidity between the most prominent decentralized stablecoins in crypto, the Terra community should enter into strategic partnerships with MIM and FRAX. Strong liquidity between these three stables is important as defi begins to transition from centralized to decentralized primitives throughout all chains and applications.

To grow MIM, FRAX, and UST liquidity, the Terra community can provide joint incentives via Votium on MIM-UST and FRAX-UST pairs. As discussed in the proposal linked above, Votium continues to be the optimal method of incentivizing Curve liquidity due to its capital efficiency (please check out the post for a refresher on Convex, Curve, and Votium).

These partnerships are optimal for UST growth since as compared to the UST-3CRV pool which is entirely incentivized by the Terra community pool funds alone, matched SPELL and FXS incentives from Abracadabra and Frax allow for half the amount of LUNA incentives from the community pool yet cumulatively equal the same total amount.

Under this proposal, UST funds withdrawn from the community pool would be swapped to LUNA before each gauge vote via TerraSwap/Astroport to not dilute the LUNA supply.

Proposal 1: MIM-UST Incentives

The MIM-UST Curve pool has nearly $630M in liquidity and $105M in daily volume, mostly due to Abracadabra’s UST Degenbox strategy, placing it as the 3rd-most used Curve pool.

Abracadabra has committed 6.6% of weekly SPELL emissions to Votium UST-MIM incentives. Currently that equates to roughly 153,000,000 SPELL per gauge vote which at current price of $0.0174 is worth $2,600,000.

Under this proposal, the Terra community would provide an additional $1m in LUNA incentives per gauge vote for the next 6 months.

Total funds for Proposal 1: $12m UST swapped to LUNA (~172k LUNA at current price of $69.69) via TerraSwap/Astroport over 6 months.

Proposal 2: FRAX-UST Incentives

This Convex / Curve pool does not yet exist; however, the Frax team is currently working to push it through Curve voting and have it created.

Similar to Proposal 1, Frax plans to provide $500k in FXS Votium incentives for the UST-FRAX pool. The plan is to match incentives with an additional $500k in LUNA incentives per gauge vote for the next 6 months.

Total funds for Proposal 2: $6m UST swapped to LUNA (~86k LUNA at current price of $69.69) via TerraSwap/Astroport over 6 months

fin

All funds withdrawn from the Community Pool will be kept in a multisig wallet: terra1jrhxdtwxrsxw3t2al6t3sga89974juhpccuxct
The multisig will be controlled by 5 members with 4/5 quorum required: @JeremyDelphi, a member of the TFL Finance team, myself, @Papi, and @lejimmy

This marks the beginning of a long, symbiotic, glorious relationship with MIM and FRAX.

tldr

  • Proposal 1: $12m UST swapped to LUNA (~172k LUNA at current price of $69.69) via TerraSwap/Astroport over 6 months for MIM-UST incentives.
    • Abracadabra to provide additional 153M SPELL incentives per gauge vote (~$2.6m)
  • Proposal 2: $6m UST swapped to LUNA (~86k LUNA at current price of $69.69) via TerraSwap/Astroport over 6 months for FRAX-UST incentives
    • Frax to provide additional $500k FXS incentives per gauge vote.
7 Likes

I like the partnerships and the incentives to grow UST on Ethereum, good job.

I’m wondering why we don’t utilize some UST from the Community Pool to continue farming these pools on Convex just like you proposed for the incentives on Part 1 (crv3 + UST wormhole pool). To my understanding, a very large amount of UST is simply sitting in the community pool and could be used for farming to benefit the Terra community by increasing asset value. Even if we don’t sell the incentives, we could use the CRV and CVX to vote for our own UST pools in the future. If the UST funds are needed elsewhere, they are not “locked” for any amount of time and could easily be shifted towards a new initiative.

From your prior proposal the capital gained from farming was even larger than the amount used for bribing voters on Votium because of the 4.65 multiplier on rewards. I think this could be another area to implement the same methods.

If you have other ideas for the community pool or would rather keep a sizable amount dormant in a “safe” place rather than in a farming contract depending on multiple protocols, that is understandable but worth a discussion in my opinion.

Thank you

1 Like

@ezaan oh boy! Here we go again.

More and more UST spread across networks, and this time continued focus on Ethereum.

I have a breif question about the length of both proposals:

What happens after the 6 months, is another proposal posted for continued bootstrapping?

1 Like

Hey everyone!

Wanted to introduce myself here and give direct support to this from FRAX’s side. We’re very happy to work with Terra and all the Lunatics here :wink:

FRAX is very cooperative and not competitive in the stablecoin space. Decentralized stablecoin pegs are stronger together than competing zero sum games where one has to lose. We have excellent relationships with various stablecoin projects such as FEI, Alchemix, and others. We’re excited to incentivize joint liquidity together and build up Curve pools and further build out a diverse ecosystem with you guys on EVM chains starting with ETH itself. FRAX is the largest protocol holder of CVX and our voting power plus incentives are top notch. Our last Convex snapshot vote had FRAX’s Curve pool come in first place by 6.11m CVX votes compared to MIM-UST’s at 2.88m. We’re happy to channel this CVX power to the new UST-FRAX Curve pool together so it benefits both of our projects rather than subsidizing USDT, USDC, and DAI which get free passes on Curve’s 3CRV metapools.

I’m really excited for this to be the start of a deeper relationship where FRAX, as a protocol, buys/obtains LUNA for our balance sheet and also see if there’s interest for Terra to get some FXS on the protocol balance sheet to be incentivized in both protocols’ long term success. This could be a medium term goal after we build out some successful products and joint initiatives together. :slight_smile:

7 Likes

gm gm ser, I think after 5ish months we re-evaluate how successful the campaign was (of course we’ll do this the whole time as well) and decide if we should do another 6 month campaign or allocate new funds if there’s a better opportunity :slight_smile:

2 Likes

Good plan, we can gauge community thought on these ideas soon. Very excited to see these two protocols make it together.

this is great to see. cooperation amongst the leading decentralized stablecoins will be the wave that lifts all boats. FRAX has been a pioneer and forging a bond with LUNA going forward will add robustness to both protocols.

I agree with @fig 's concern. After 6 months will we just continue funding these pools? What are your projections on where liquidity would be/would need to be in order to not need incentives?

What if instead of paying LPs to hold UST-FRAX/MIM positions in Curve, the Terra community pool spent some UST to directly acquire FRAX and/or MIM, and then deposit this Terra-owned liquidity into Curve?

This liquidity would be permanent. We’d never have to revisit this, and we would never have to worry about liquidity going away. And over time, some of these costs would be offset by trading revenue.

And this POL (Protocol owned liquidity) could be coordinated. Maybe we buy some FRAX and MIM to LP into Curve, and then FRAX and MIM protocols would buy some UST, for their own POL.

This way, our expenditure might actually balance out demand for UST, and provide not just 1 but 3 reliable sources of Protocol Owned Liquidity in Curve.

2 Likes

I actually proposed below something similar. Instead of incentivizing pools with FRAX and UST, why don’t you give us some FRAX and we will give you some UST, and we can both own some UST-FRAX liquidity in Curve?

This could be in lieu of or in addition to directly owning each other’s volatile assets directly.

if there are no bribes, there will be no gauge allocation, therefore no incentives.

Really like the plan. 100% support