Convex’s eagerly anticipated FRAX expansion dropped last Friday. Here’s the recap some of you were also eagerly anticipating!
CONVEX FINANCE
Just as Convex revolutionized staking on Curve, their empire is officially extending to the FRAX ecosystem. Read the full announcement for details.
The announcement means that a chunk of FXS will accrue to vlCVX and cvxFXS stakers.
Does this mean big money for flywheelers? Initially, not so much. Per the announcement, the initial three pools this affects currently have relatively small liquidity in DeFi terms.
The bull case for Convex would be a longer term play in this case. The addition of $FRAX pools on Convex could theoretically incentivize the creation of more $FRAX pools. Pools with exposure to $FRAX are now eligible to receive $CRV, $CVX, and $FXS emissions.
Indeed, the above Discord conversation kicked off some healthy brainstorming. The three surviving members of 4pool may form a FRAX/USDT/USDC base pool in the near future.
Winthrop and C2tP did not respond to request for comment.
The recent slump in the DeFi market following last week’s Terra implosion has taken a heavy toll on the tight-knit Convex community.
In the prior Votium round, Terra had contributed nearly $5MM in bribes. Although most bribers appear to be continuing their activity despite the bear market and a decline in bribe efficiency, losing Terra is causing a big hit. The round is still open, but overall rewards look to be maybe half the prior week.
For flywheel maximalists like myself, is there any hopium to snort? For my sake, I expect some short term lethargy, but remain bullish long-term (not financial advice).
The nearly instantaneous erasure of Terra has crypto users understandably terrified at the moment, evidenced by last week’s flight from USDT. We sympathize with anybody who is unstaking their assets to keep them protected while they watch to see if the storm passes. The fear of contagion spreading and entire protocols disappearing overnight is a real risk in DeFi. Temporarily sacrificing a few percentage points worth of yield to ensure your entire position doesn’t disappear is a rational move. We have a longer article in the works on risk factors to be aware of in DeFi, but the short version is that we have no objections to anybody who chooses to sit out at the moment.
Yet we also expect that greed will take over before long. Degens might conclude that more sidelined users equals greater profit for remaining users with a higher risk tolerance. Holding stables has a guaranteed -EV due to inflation. Once users judge the panic has subsided and risk of a -100% collapse is lessened, we expect they’ll resume their hunt for yield farming opportunities.
If they do, we’d also expect Convex would be among their top choices. A protocol that earns yield from revenues, as opposed to token emissions, is a rare gem in DeFi. Sidelined observers who see bribe revenues persisting, and the overall architecture expanding, might soon FOMO back in.
Keep an eye on the unlocks occurring towards the end of June, when major protocols will have the first opportunity to jump ship. We’ll go on record predicting the Terra panic has subsided by then, and that most or all locked protocols conclude there’s no better alternatives and opt to relock (still not financial advice).
Final hopium would be that smart builders know a bear market is the best opportunity to ship. Talented builders will see Terra’s collapse as an opportunity: a vacuum they can fill. We note Velodrome has already announced an airdrop to $CVX holders. Risk on!
FRAX FINANCE
It’s not just Convex that has been battered by the unforgiving market. $FRAX, has seen its broader ecosystem hit hard by fears of algostables.
FRAX notably has kept its peg throughout multiple market crashes and has far sounder tokenomics than $UST. Nonetheless $FXS, the token underlying $FRAX, has been severely punished.
The FUD may be surpassing the fundamentals in this case. The architecture of $FRAX is complex, and some users may be too put off by the complicated mechanics to understand what’s actually going on under the hood.
Throughout the course of the market dump, the $FRAX community has been innovating in realtime along with changing market trends. The entire discussion around these governance proposals is fascinating and well worth reading through.
One particularly interesting proposal was the heated discussion around moving $FRAX to 100% backing.
The discussion reveals a notable differentiation between the $FRAX tokenomics and $UST. While $UST was awfully far from a stable backing and overly susceptible to a $LUNA price crash, $FRAX is on much firmer footing, which gives the protocol far more strategic options at its disposal.
Bullish giga-brains, a boon to both ops and marketing!
Disclaimers! Author has held (and intends to hold) all $CVX/$FXS positions throughout the crash and moving forward. Author’s only sell was exiting a small $USDN position at $0.98 — overall a gain, but rumors of $USDN backing ratio drying up don’t make it worth sticking around short-term.