Gauge

Gauge weighted system for controlling FXS emissions & FRAX expansions

Curve Finance introduced the gauge system for their CRV token emissions. Users lock their veCRV to vote on "weights" of different Curve liquidity pools. FRAX is introducing a similar system for any FRAX pair across various protocols. The FRAX gauge system allows FXS holders to stake for up to 4 years to generate veFXS and vote where future FXS emissions are directed. Users can vote for FRAX gauge weights with their veFXS balance. They can distribute their voting power across multiple gauges or a single gauge. This allows veFXS holders who are the most long term users of the protocol to have complete control over the future FXS emission rate. Additionally, the gauge system lowers the influence of FRAX pairs where the majority of rewards are sold off since those LPs will not have veFXS to continue voting for their pair. This system strongly favors LP providers who continually stake their rewards for veFXS to increase their pool's gauge weight. Essentially, FRAX gauges align incentives of veFXS holders so that the most long term oriented FXS holders control where FXS emissions go until the full community FXS allocation is distributed. Gauge weights are updated once every week every Wednesday at 5pm PST. This means that the FXS emission rate for each pair is constant for 1 week then updates to the new rate on each Wednesday. Any user can change their weight allocation every 10 days.

After all FXS has been distributed, the gauge system will transition to controlling FRAX stablecoin expansions as rewards for LPs. This switch from FXS to FRAX rewards will not occur for a few years until FXS emissions are nearing completion and allows the stablecoin to build trust, confidence, and Lindy effect first. Additionally, veFXS stakers can feel confident staking the maximum duration of 4 years knowing that the gauge program is not temporary and won't be deprecated when FXS rewards end. The gauge weights will simply transition to distributing FRAX stablecoins as rewards perpetually.

veFXS Boosts & Locked LP Boosts

Users who stake LP tokens in a gauge weight contract earn further boosts to their APR based on the amount of veFXS they have. Additionally, users that lock their LP tokens within the staking contract for a specific period of time will earn a further additive boost on top thus enabling stacking of both boosts for maximal APR. See the veFXS spec page for an explanation of how boosts are calculated.

Gauge Agnostic Pairs

FRAX gauges allow veFXS stakers to directly control the FXS emission rate to any pool that integrates FRAX. There is no restriction on which protocols or pairs can have a gauge weight other than they use FRAX stablecoins and pass the gauge governance vote. While Uniswap V3 stablecoin range gauges will be the debut gauge (and Curve's FRAX3CRV pool), any FRAX pool (including cross-chain pools) can be added as a gauge in the future. The veFXS gauge system is completely agnostic compared to Curve's because FRAX gauges simply require the stablecoin being in the pool while Curve requires that all gauges be a Curve pool. Essentially, veFXS gauges are the money layer gauge weights of DeFi while Curve gauge weights are the DEX layer weights. Since veFXS stakers can control emissions into any protocol that integrates FRAX, many protocols and communities might compete for controlling the future cash flow of an algorithmic stablecoin protocol.

It's important to note for any smart contract (non-EOA wallet) to stake veFXS, they must be whitelisted by a governance vote. For a full list of benefits of holding veFXS such as AMO profits and farming boosts, see the veFXS full specs.

Removing USDC Collateral Dependency

The gauge platform is the first phase in removing all "fiatcoin" dependence from the Frax Protocol through a system of dynamic liquidity incentives where any potential FRAX pair can be rewarded to create the exact balance of liquidity needed. Additionally, since gauges can be deployed for any protocol (and in the future to any cross-chain liquidity pool) the Frax Protocol has no claims on any of the underlying collateral in any gauge pools so blacklisting FRAX system contracts or preventing interaction with FRAX contracts will not have any effect on the stability of the peg. This system is conceivably as distributed as possible while retaining the ability to incentivize stabilization of a censorship resistant digital asset. A wide array of gauges on multiple protocols (and chains/L2s) is required to reach sufficient decentralization where it would be infeasibly difficult for a central actor (such as a fiatcoin issuer or state actor) to prevent pseudo-anonymous users from adding liquidity to gauge rewarded pools.