Protocol Uses & DAO to DAO Swaps
Using Fraxswap for critical system functionality and market operations
Fraxswap is specifically designed for use in the Frax Protocol’s critical system functions through TWAMM orders. The motivation for building Fraxswap was to create a unique AMM with specialized features for algorithmic stablecoin monetary policy, forward guidance, and large sustained market orders to stabilize the price of one asset by contracting its supply or acquiring a specific collateral over a prolonged period. Specifically, Frax Protocol will use Fraxswap for: buying back and burning FXS with AMO profits, minting new FXS to buy back and burn FRAX stablecoins to stabilize the price peg, minting FRAX to purchase hard assets through seigniorage, and many more market operations in development. Fraxswap is a fully permissionless AMM which means other protocols can create their own LP pairs in any token and use Fraxswap for the same (or other novel) use cases.
Ideal Fraxswap use cases by other protocols, stablecoin issuers, & DAOs include:
1.) Accumulation of a treasury asset (such as stablecoins) over time by slowly selling governance tokens. 2.) Buying back governance tokens slowly over time with DAO revenues & reserves. 3.) Acquire another protocol's governance tokens slowly over time with the DAO's own governance tokens (similar to a corporate acquisition/merger but in a permissionless manner). 4.) Defending "risk free value" (RFV) for treasury based DAOs such as Olympus, Temple, and various projects where the backing of the governance token is socially or programmatically guaranteed.
To use Fraxswap for monetary policy, the best method is to create a token pair and add protocol controlled liquidity. Then, TWAMM orders can be placed in any size in either direction as desired for forward guidance and rebalancing of the DAO's net assets. See the technical specifications section to understand slippage calculations and liquidity optimizations for TWAMMs.