Summary
The goal of this proposal is to suggest a strategy that will safely and consistently reach 40% APY on ~$300mill as suggested by:
While I can’t provide an exact estimate as I cannot test the impact of $300mill, I propose a strategy that might come very close to achieving this goal. Firstly, the funds will get deposited into the G-UNI Dai/Frax LP pool which currently earns ~3.18% APR. The depositor then receives their LP position as an NFT which is a wrapper for the underlying Uni V3 LP position. Then the LP tokens are deposited in Frax Finance’s “Gelato Uniswap Frax/Dai” vault which currently earns ~53% APR (Variable). As you can see we already have a yield of ~3.18% APR + ~53% APR satisfying the yield condition, however, is it consistent? Not necessarily…
Firstly, It is unknown how the yield will change given the $300 mill deposit. Currently, there is only ~$3m TVL so we would expect a large change in the yield, but yearn would essentially corner all the FXS rewards in that pool. A safer alternative could be to instead deposit into the native UNI v3 Frax/Dai or Frax/USDC pool - which currently is supporting $141m at 43.5% APR. However, G-UNI vaults automatically compound LP rewards.
For a consistent APY of 40% to be achieved, we would require an APR of 33.76% compounded weekly or (39.51% APY if compounded monthly - saving on gas fees).
Rewards:
Your APY is paid in FXS Frax Finance’s governance token and the APY of pools is largely determined by how much FXS is allocated to each gauge/ pool. At the moment a total of 175K FXS is paid in rewards weekly split amongst pools decided by their weight (i.e. number of votes). Obviously, this carries some implications and the APY is dependent on the price of FXS which is currently valued at ~$1b. Notably, 76.79% of all circulating FXS is locked ranging from 0 to 4 years and people are incentivised to buy and stake FXS to boost their yield.
Alternative APY Boosts
Frax is unique in the fact that it tries to maximize rewards for users in exchange for stability and liquidity to booth the protocol itself and FXS. The APR’s suggested above are base APR’s, users are able to lock their LP positions for up to 3 years and receive a 3x boost on their base APR i.e, 50% APR → 150% APR. Which can then be compounded as described above :).
Additionally, FXS can be locked for veFXS for up to 4 years similar to CRV. By locking FXS for veFXS an additional boost can be added to APR (2x - i.e, total of 5x (3x + 2x) with max lock on both LP and veFXS). veFXS can also be used to vote for the user’s gauge allocating more FXS to the LP pool increasing APR as well.
While I know time locks are not ideal for Yearn users, it could be set as optional. Yearn could even use it’s treasury (or treasury swap hehehe) to lock veFXS (~15% APR) and corner gauge votes increasing their APY, or find an optimal combination of locked vs unlocked LP positions and estimate time till initial capital is returned.
What is Frax Finance?
Link: https://app.frax.finance/
“Frax is the first fractional-algorithmic stablecoin protocol. Frax is open-source, permissionless, and entirely on-chain – currently implemented on Ethereum and other chains. The end goal of the Frax protocol is to provide a highly scalable, decentralized, algorithmic money in place of fixed-supply digital assets like BTC.”
Market Cap of FRAX (their stablecoin): $950m ($1)
Market cap of FXS (Utility token): ~$1b ($22)
Motivation
The motivation of this proposal to provide a strategy submission to Yearn’s Millenium Prize targeted towards generating 40% APY on $300m. If successful and voted on by the DAO I will receive the prize/prizes outlined in their tweet.
Specification
TL;DR Stake $300m into G-UNI or Native Uni V3 Frax/Dai or Frax/USDC pools → Stake LP tokens into Frax Finance → receive yield → compound → recieve greater yield.
Obviously, this reward would most likely be retroactive in the sense that it will be hard to calculate the effective APY on this strategy. However, if someone has a way to calculate an approximate yield that would be great!
(Note: transaction and gas fees are not accounted for)
Note: I wasn’t too sure where to submit this, despite asking on Twitter. So I thought Vault proposals was the most fitting + Idk how to suggest a correct poll given the uncertainty.
For:
Promising but needs further oversight from Yearn team + community.
Against:
No point progressing.
Poll: