Proposal to Add FRAX as Deposit Asset

samkazemian · February 16, 2021, 2:40am

Abstract

Stablecoins are one of the largest categories in both market share and opportunity in crypto. USDT currently sits #3 in market cap with nearly $40 billion and growing with USDC and DAI catching up. As users look for a stable unit of account and medium of exchange to transact, many will also prioritize an uncensorable stablecoin that allows users to transact their stablecoins in privacy. Already stablecoins such as USDT and USDC are listed on Tornado Cash yet there will always be an inherent risk that they will be forced to blacklist the protocol’s smart contracts. We propose adding FRAX, the first fractional-algorithmic stablecoin protocol. FRAX is currently the only algorithmic stablecoin which has kept a very tight peg (see below). As the founder, I can also commit to having our project build a “Frax Tornado Mint” feature within the Frax protocol so that minted FRAX stablecoins are directly minted into the Tornado anonymity set. This would exponentially expand the anonymity guarantees of FRAX and make Tornado our premier anonymity partner.

FRAX 30d price. Source: app.frax.finance

Proposal

Add FRAX to the list of supported tokens that users can choose to deposit on Tornado Cash.
Add 1000 FRAX and 100000 FRAX deposits as starting points. No other deposit size should be added if this proposal is accepted. These 2 deposit amounts should capture the entire market of FRAX from small payments to large movement of funds without fracturing anonymity sets into smaller deposit sizes. More could be added later if demand justifies.
The Frax Protocol core team (including myself) will commit to building a “Frax Tornado Minter” function into the protocol level which would allow a user to mint FRAX which is immediately deposited into Tornado, the note passed to the user on the front end, and the FRAX withdrawable at a later time. This would mean that FRAX expansions can directly fuse into Tornado anonymity sets, helping expand the privacy guarantees of FRAX and also growing Tornado’s volume proportionally to FRAX’s expansion. We currently have over 80m FRAX in circulation with 500,000 to 1m FRAX minted per day during growth phases.

Background

FRAX is the first partially-collateralized stablecoin implementation on Ethereum which aims to provide a highly scalable, decentralized, algorithmic currency. The FRAX protocol is based on 2 tokens: FRAX as a stablecoin and FXS as a seigniorage-governance token. FRAX is backed by collateral in proportion to Collateral Ratio (CR). When the price of FRAX is above $1 the CR decreases and when FRAX is below $1 vice versa which leads to a market set collateral ratio that is as capital efficient as possible. FRAX is always mintable or redeemable for $1 equivalent. For more technical breadth, please see docs.frax.finance.

Since its inception, the FRAX model has proven to be resilient and has always maintained its peg of $1. What makes FRAX unique compared to other stablecoin models is that it is robust enough to expand and contract with demand, keep a tight peg, and the first protocol to not be fully collateralized while doing so. This is opposed to USDT & USDC which is vulnerable to custodial risk and DAI which is dependent on the over-collateralization of assets.

Benefits

Allows users to execute transactions of a successfully working algorithmic stablecoin that is based on a fractional-algorithmic model
Unlike USDT or USDC, there is no central authority that can directly censor FRAX transactions or blacklist contracts.
FRAX team is a highly pro-cypherpunk, veteran team that has deep beliefs about privacy and anonymity and is looking for a highly technical privacy-solution project like Tornado to collaborate with.
FRAX team is willing to build a “FRAX Tornado Minter” into the protocol to mix expansions of FRAX directly into the anonymity set.
Expose Tornado Cash to a new community of users who otherwise would not have used the protocol
FRAX community has expressed interest in incentivizing Tornado deposits with their FXS governance token. After implementation of the Frax Tornado Mint feature, it would be an elegant privacy preserving solution to incentivize using the Tornado minter with FXS tokens. The minting user would remain private while also being rewarded for adding to the anonymity set.
First step in establishing a relationship between FRAX and TORN, paving the way for future collaborative activities that have yet to be conceived of

Thanks to Tornado & Frax community member Dave Liebowitz (https://twitter.com/davesaidthat_) for help preparing this proposal.

Specifications

Website: https://frax.finance/
Dashboard: https://app.frax.finance/
Docs: https://docs.frax.finance/
Staking and Lock-up data: Frax Finance
Contract address: 0x853d955aCEf822Db058eb8505911ED77F175b99e
Github: GitHub - FraxFinance/frax-solidity: Solidity implementation of the Frax Protocol

Right now there’s basically only DAI as a privacy-friendly stablecoin, however Maker DAO has had its issues in the past and as someone pointed out above they added centralized collateral for DAI.
Since FRAX is inherently different from DAI (most importantly for its algorithmic nature), I personally see no harm in an integration with Tornado Cash.
Team might look fresh but Sam Kamezian the founder isn’t new to the panorama (cofounded Everipedia and the Prediqt network).

Therefore, I support the idea of adding FRAX as a deposit asset.

ethdev · February 16, 2021, 8:52pm

I don’t particularly care much about FRAX, but if market demand exists for a tornado pool for any token, then that’s really all that should matter to TORN holders

That said, I am skeptical of FRAX because I’m not personally familiar with its protocol. I wouldn’t feel comfortable or confident voting on a proposal to add it without actually having some kind of provable market demand available as a data point. Bc after all, there is no way to know on a forum what is noise and what is signal. Who is a shill and who is a real user

I propose a trustless, market based approach to solve this problem:

franzhine · February 16, 2021, 9:35pm

@ethdev
+1
a meta-protocol with pre-commitment pools seems like a great idea to screen out non-legit users.

samkazemian · February 16, 2021, 10:12pm

It’s good to get various opinions, especially critiques so we can have good feedback to improve our proposal and address any concerns. It would help more if you actually looked into FRAX a bit more before having such a strong negative opinion because you’ve gotten some factual details wrong.

the devs aren’t known

First of all, FRAX is the only algo stablecoin with a non-anon team (unless you count AMPL/rebase coins). ESD, Basis Cash, etc are all anonymous. We are not. We are known in the community and most of us have been veterans in crypto for years. So, I’m not sure what you mean by the devs aren’t known. We’re the most known algo stablecoin in terms of being transparent and having a public team and point of contact with.

Why would anyone in their right mind use this instead of DAI

You can ask the $80m+ FRAX minted and being used in circulation that question. Growing numbers don’t lie. A lot of FRAX is used for farming right now but integrations like lending/borrowing on CREAM, SushiSwap’s Onsen menu, etc are happening every week. FRAX is quickly becoming the algo stablecoin to watch in the space. Hard to argue about that. Yes, we are very new but in the 2 months we’ve been out, we have kept our peg as tight as DAI. We aren’t saying to include FRAX in place of DAI. Of course DAI has deeper integrations in all of defi and a much larger supply. But FRAX is quickly showing itself to be a more interesting, more capital efficient, just as stable, and innovative protocol than Maker. Like we said in the propsoal, we are very interested in minting FRAX expansions directly into the Tornado anonymity pool to increase the set size with FRAX supply increases. This is something novel and new which Maker won’t be doing. As a newer, more nimble team, we are interested in innovating together and pushing the boundaries of stablecoin privacy which we’re very excited about. To us, privacy is extremely important. As you can tell, I’m a big fan of Tornado, taking the time to respond to everything here in our proposal.

Why the hell did you pick the scammiest domain name out there. The rug rate on .finance domain has to be over 70%

Do you live under a rock? Go tell this to compound.finance yearn.finance etc. I think you should do some more research and we’d be more than happy to take legitimate feedback to improve our proposal, but random troll comments like this isn’t worth anyone’s time to take seriously.

DeFiDave · February 16, 2021, 11:01pm

Frax Tornado Mint is an awesome idea that increases the utility and demand of both projects. I’m proud to have helped out with this proposal and support it 100%.

samkazemian · February 16, 2021, 11:32pm

This is actually a pretty neat idea and as a fan of Tornado (entirely separate from Frax), I think it’s a great addition to the protocol. It sort of reminds me of Curve’s metapools that combine the 3Pool with a metapool.

This is like the Tornado version of a Curve metapool. In any case, if this metapool idea is adopted, we’d love to support our FRAX metapool and are confident it can definitely get a sizable amount of precommitments. Our community is very privacy oriented just like you guys. That’s why I think there’s genuine interest here.

ethdev · February 17, 2021, 12:55am

Thank you

Great to hear your support. Perhaps FRAX can be the first token to exercise the proposal if/when it is passed then

I’m continuing to flesh out the (pre)commitment pool protocol here:

Any and all contributions/feedback are welcomed

gewitet · February 17, 2021, 9:11am

Hello everyone, I have been trying to understand more about this new stablecoin for a couple hours now and to me it does seem like this could end up like DAI in theory.

I see that at the time of this comment over half of the TVL is in USDC which can be frozen by Coinbase and almost 11 million out of the total 84 is from thin air.

Am I missing something? Is there more to this that i’m not aware of?

I believe this is a big limitation. In a previous proposal everyone was complaining about 1000 USD being way too small right now (it costs a third of that just in ethereum transaction fees).
I would suggest to add 10,000 and 100,000 instead so it makes sense for someone to use it.

I love this, it’s a brilliant idea and it could become the new standard for other decentralized stablecoins in the future.

You kinda went too far here. Frax needs tornado more than Tornado needs Frax, your community would use tornado no matter what if they needed a privacy option on ethereum.

–

I believe at the end of the day, it doesn’t matter if devs are anon or not. Actions speak for themselves and if a product is good it will see huge success no matter what.

$80m is really not a big number these days. I see only a little over 700 address that are holding FRAX right now, I think it’s too early for you guys to add something like this. There is just not enough people who know about this stable to use the full potential of tornado.

–

My opinion:

I believe the project has potential to become a regular stablecoin everyone would use for their trading and to lock their USD value when selling a long term HODL but it needs to be something more than just a ‘DAI killer’ as someone mentioned here.

I know for a fact whales wouldn’t pick a partially-collaterized stablecoin if they had the option to have an over-collaterized one. It just doesn’t make sense from a risk-reward prospective.
I believe the potential is in the team itself, who as they say is privacy friendly and wants to build something to help the average Joe have some sort of privacy even on a blockchain like ethereum.

I am extremely worried about the distribution of the supply right now tho, if it stays like this it wouldn’t make any sense to add a 100,000 FRAX pool since there are only 4 address holding an amount equal or higher than 100,000 FRAX and the rest is in Uniswap pools or other contracts.

Most of what I said could be solved with some sort of incentive for the community to switch from DAI/USDC/USDT to FRAX.
Just throwing this at you guys but what if there was a FXS airdrop that gives you a free airdrop on every FRAX mint f 100,000 USD.
This would incentivize the use of both FRAX and Tornado.cash.

My idea is fairly simple, just give x tokens every time you mint 100,000 or more FRAX and lock these tokens in a verified contract for some time and release them slowly so there is no extreme volatilty in price.

Most people will be against this of course because they don’t have $100,000 to throw around but for you (the team) it would make sense to target whales to quickly increase your TVL and increase adoption.

If you, as a whale, had 8,000,000 DAI would you trust a stablecoin with a total market cap of just over 10x your own amount of money? Let me give you the answer. No, you wouldn’t.

This is exactly why you need to focus on marketing and increasing your TVL before worrying about partnerships with other protocols.

franzhine · February 17, 2021, 1:30pm

@gewitet this is actually a pretty good analysis. On reflection, I think it’s probably good to wait until FRAX gets more users / market before integrating it.

Bitsandmore · February 17, 2021, 3:10pm

What do you propose is the “minimum TVL” before partnering with protocols (Like Tornado)?

gewitet · February 17, 2021, 3:23pm

It really depends on the community of the project itself and the token distribution.

What percentage of the current FRAX user base would use Tornado? 1%? maybe 2?

Who would use the 100,000 FRAX pool if there are only 4 users with that many tokens?

All this above is why I’m a huge supporter of @ethdev proposal that you can read here it would make decisions like this so much easier and fair for everyone.

samkazemian · February 17, 2021, 8:05pm

Thanks for such a thoughtful and well reasoned reply. Here’s what I would respond:

Yes, we currently only support 1 collateral type for simplicity but unlike DAI, we have an active roadmap to move away from USDC and other fiatcoin collateral while DAI seems to be making steps toward more centralized collateral. If you look at the amount of USDC and other fiatcoins DAI has accumulated over time and the introduction of their peg stability module (PSM) you’ll see that DAI is moving toward being more 1 to 1 backed by USDC and other stablecoins that can be swapped exactly 1 for 1 with DAI. There’s over 350m USDC alone in Maker’s protocol and growing faster as a ratio to the other collateral types. While we launched with USDC as collateral to keep the concept of a fractional-algorithmic stablecoin easy to understand, we have plans to move to decentralized collateral like ETH and iETH (onchain hedged ETH positions as the fractional component)+ETH-LP tokens as collateral. So yes, we are taking direct and active steps to diversify out of USDC and entirely agree with you that collateral which can blacklist users is anathema to privacy. Otherwise Tornado should just list USDC only. I actually expect USDC and USDT to blacklist Tornado contracts later after FinCEN guidance comes out.

Sure, I think 10,000 and 100,000 FRAX would be good deposit amounts. We can do that. I was mainly trying to only suggest two deposit amounts so that we do not fracture anonymity set sizes.

Thank you. We have even more ideas and plans that we would be interested in implementing if our two communities decide to work together but one step at a time. I would hope that the Tornado community sees our high level of interest and we embrace working on stablecoin-privacy tech together which can help us both.

I don’t think thinking about it like this is helpful for anyone, certainly not Tornado nor Frax. The “they need us more than we need them” mentality is not how we can build very innovative things together. Yes, Tornado is in a fantastic position to serve the privacy needs of ETH mainnet users, that’s why we love you guys and would like to get FRAX listed so we can start building unique features. I think it’s the fact that we are small but growing fast is what enables us to be able to do many of these things that we are proposing. Try to get the same commitment and interest from Maker (or other stablecoin projects) to build privacy centered, in-protocol features like our Tornado minter and see how far you get. I don’t think you would get much enthusiasm, let alone any kind of commitment. So again, we understand the FRAX project is 2 months old, but it’s important to note the advantages of our nimbleness. We’re not asking to be added to Tornado instead of DAI. We’re asking to be added in addition to DAI. You can think of FRAX as the smaller, yes, but more technologically quick, privacy oriented R & D of stablecoins. We have built the most unique stability mechanism, the most novel idea in fractional-algorithmic that has been quickly copied+inspired other projects, we’re now looking at very new ways to incentivize anonymity sets to transfer stable value. I think this should be embraced and celebrated by a fellow project that has cypherpunk ideals rather than the “you need us more than we need you” attitude. It is indeed true that there are more stablecoins yes than there are good privacy protocols like Tornado. But unless I am mistaken, there doesn’t need to be a lot of upkeep of the FRAX Tornado instance by the community after launch. It is just either used or not used. And we are extremely confident it will be highly used with our motivation to make FRAX a fully decentralized, algorithmic, privacy-enabled stablecoin.

Ya it doesn’t matter I agree. I was just pointing out to the low-effort commenter that if he is using being anon or “not known” as an excuse, it isn’t true because we are known and have positive reputations in the space.

See my reply above about there being certain clear advantages of being smaller and nimble while there are clear disadvantages of smaller mcap which I agree with.

I don’t think I have ever mentioned FRAX being a DAI killer here or anywhere else for that matter. I am anti all of these “ETH killer” “____ killer” marketing schemes. Didn’t seem to work out for any of the “ETH killers” haha. Again, we are proposing to be added in addition to DAI (which is already supported), not added instead of DAI. Like you said yourself, people using DAI will probably not switch to using FRAX any time soon due to smaller market cap so it is not like we are fracturing DAI’s anonymity set. We are our own unique stablecoin (I dare say the most unique one at this time, not necessarily better, but unique). We are very motivated to experiment with privacy incentivization which no other big stablecoin has expressed technical interest like we have. Also, keep in mind the “too small for Tornado” argument is a chicken and egg problem. The more integrations FRAX gets, the more TVL and higher mcap of FRAX due to more utility. I have no doubt that with FRAX being privacy-enabled and our incentivization plans, the mcap of FRAX will grow faster as a result which addresses those concerns.

It’s also worth pointing out that we aren’t actually as small as our current mcap might convey. We are literally a top 10 Uniswap token by liquidity. There isn’t that many tokens between us and DAI on Uniswap, quite literally, we are a few spots away. FRAX is much more liquid and stable than what people might first assume by looking at basic numbers. We have been on the front page of Uniswap since launch with a $1.00 tight peg as the big stablecoins. We are not far away at all in terms of performance or rank:

In any case, I hope my sincere replies as well as the time we’ve taken to be here show our genuine intentions and our respect for the TORN community. We’re very interested in creating something huge that can benefit both communities. Cheers!

gewitet · February 17, 2021, 8:43pm

I don’t think I could of asked for a better reply.

Seeing this kind of effort and how great your mission is as a business but most importantly to build a better option for everyone, puts a smile on my face. I haven’t seen this kind of effort in some time actually.

Thanks for clarifying every point I’ve made above. If you are looking for investors and there is a good enough offer for me, feel free to send me a DM.

Bitsandmore · February 17, 2021, 10:21pm

wait do you mean FXS users? with 100k FXS (in other words whales with close to $1M+ balances) probably not that many but if you are discussing the stablecoin FRAX there would be hundreds of users coming from the community (its a big vibrant community) check out their telegram channel(s) super engaged group there…