[FIP - 341] Frax Singularity Roadmap Part 1

Author
Sam Kazemian & various Frax contributors and community members

Motivation
The Frax Singularity Roadmap aims to unify all aspects of Frax into a unified vision and roadmap. This is the first in a series of posts outlining the vision. The Frax Singularity Roadmap should be the guiding light of the Frax community.

Post-Singularity Frax Era
The launch of Fraxtal and achievement of effectively 100% CR are milestones that start a new era in Frax. Fraxtal is the substrate that enables the Frax ecosystem; it is the operating system of Frax. Fraxtal completes Frax’s core product offerings – Frax is strategically adding new subprotocols and Frax assets but all the necessary building blocks are now in place. The community can now focus on larger opportunities and paradigm shifting products as well as issuing native Frax Assets across all of the crypto universe.

In order to get here, Frax has generated $45m+ to achieve effectively 100% CR. This was a huge effort on everyone’s part, including a significant sacrifice from FXS holders to improve the overall health of Frax. The FRAX stablecoin has been largely dormant during this process and FXS revenue sharing was cut by 90% to conserve assets. That can now change entirely.

Frax: The Only Full Stack Protocol
Fraxtal is the home of Frax Nation & the Fraxtal Network State. With Fraxtal, the Frax community has a sovereign home, culture, and digital space they can call their own. This is why Fraxtal is being built. Frax already issues its own currencies & is fully governed and owned onchain by FXS stakers. Now, Frax has its own full-fledged network in Fraxtal.

Soon, L3s of Fraxtal will go online. L3s are like fractals and similar to sub-communities that have their own distinct identity & culture but part of the overall Frax Network State. They benefit from earning Frax Asset yields, RWA yields, Fraxtal settlement+security guarantees, and a constant stream of FXTL points to their L3 contract on Fraxtal based on its popularity, usage, and TVL. All this together governed by FXS which represents an interest in the digital nation of Frax.

Fraxtal stands on the shoulders of Optimism to create one of the most developer friendly L2’s on Ethereum. While most L2’s simply mirror Ethereum’s incentives, we’ve gone further and innovated on base incentives to create the most compelling possible experience for developers and users - and we will continue innovating. By owning the entire stack, Frax can introduce features like account abstraction, new precompiles, privacy functionality, aggregated DA, and Superchain interop. These features will dramatically improve the on-chain experience & make Fraxtal the preferred location to hold, stake, and transfer crypto in the coming months and years.

*With the above in mind, centralized exchanges and payment service providers that integrate Fraxtal chain deposits/withdrawals early can get allocations of FXTL points until the program concludes.

Kickstarting Fraxtal
Fraxtal’s innovative Flox Blockspace Incentives have just finished its first epoch of allocating FXTL points to users and popular smart contracts. This makes Fraxtal the only network to automatically distribute rewards block by block to users & developers for using the chain. These incentives run for many years & will become known as a core innovation of Fraxtal as users and developers will become accustomed to earning rewards to use blocksapce, unlike any other network.

The road to $100B+ Fraxtal TVL starts now and with the target of EOY 2026. All Frax Assets including FRAX, sFRAX, frxETH (and new Frax Assets) will be issued on Fraxtal first going forward. The Frax Core Developers are actively moving to issue Frax Assets on Fraxtal including native 4626 yield vaults, minting, and redeeming. When Frax assets reach a new ATH supply, so will Fraxtal TVL. This is a unique synergy only possible because of Frax’s full stack system.
Frax Assets will permeate every chain but the base contracts and assets will exist on Fraxtal mainnet.

Fraxtal’s Fractal Scaling Roadmap
Fraxtal is targeting 23 L3s in the next 365 days to kickstart the Fraxtal Nation community. Frax has always taken a positive sum approach and directly supports the community and builders that integrate with us. We believe 23 L3s is the perfect number of chains that we can actively support with direct developer access/incentives/investment and more. The first two L3s are already in the works and we expect to fill the remaining spots in the coming months! L3s wil not only earn FXTL points through Flox, but the 23 L3 slots are for official partners that will get additional support from the Fraxtal Core Devs and large allocations of FXTL total supply.

If you are deploying any form of L3 or appchain and want to explore joining the Fraxtal Network State early, reach out to the Frax Core Developers & our strategic rollup-as-a-service provider partners: Conduit.xyz, Gelato.network, & Caldera.xyz to express your early interest.

Overview of Frax Assets
Frax is the only protocol in all of crypto that has 4 separate tokens/assets in the top 200. This number will only increase as will the rank of Frax Assets. Thus, it’s important to have a current overview of all Frax Assets & their utility, pegs, and design specs.

All Frax Assets should be usable as the gas token on Fraxtal as the chain matures.
Potential new Frax Assets coming this year include: frxNEAR, frxTIA, frxMetis & more.
FRAX, the flagship dollar-pegged stablecoin of Frax Finance, is now effectively fully collateralized allowing us to enter the new FXS tokenomics era described below.

FXS Singularity Tokenomics
All roads lead to FXS and it is the ultimate beneficiary of the Frax ecosystem. Now that 100% CR has been effectively reached, FXS can receive all utility and benefits of the entire Frax stack. We propose that the protocol fee switch be turned back on, with 50% of the yield flowing to veFXS and the other 50% used to buy FXS and other Frax assets to pair in the FXS Liquidity Engine (FLE). The FLE will allow Frax to continue building its balance sheet while dramatically increasing liquidity for FXS and paired Frax assets. According to Defillama, even without counting multiple sources of revenue like Fraxtal chain fees and the Fraxlend AMO, Frax makes over $40m of revenue annualized as of this writing.

veFXS Revenue Share+Fee Switch Turned ON
veFXS stakers will get total protocol fees at the passing of this proposal added to the veFXS yield distributor on Ethereum mainnet as well as veFXS yield distributor contract on Fraxtal soon after.

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FXS Liquidity Engine (FLE)
The FXS Liquidity Engine is a protocol owned liquidity Schelling-point of pairs of every Frax Asset against FXS. Revenue allocated to the FLE is used to buy back half FXS & half Frax Assets to increase the liquidity depth of the pair. The amount allocated to the FLE is based on the trailing price of FXS. If FXS 30-day trailing price is lower than the prior month, then 25% of protocol revenue is allocated to the FXS Liquidity Engine instead of veFXS. If the 30-day trailing price is higher than the prior month, then 25% more of protocol revenue is distributed to veFXS instead.
The long term goal is to increase the utility, liquidity, and lending credit to FXS to unprecedented levels as revenue comes in block-by-block.

Powered by Fraxswap+BAMM, these will be the initial FLE POL pairs:
FXS-frxBTC pair (more on frxBTC timelines & info in Singularity Part 2)
FXS-sfrxETH pair
FXS-sFRAX pair
FXS-FPI pair
FLE gauges will be releasing soon to power different FLE pairs including bespoke FLE pairs. FLE gauges that go live with this vote: FXS-frxETH, FXS-FRAX.
This liquidity engine is entirely on Fraxtal mainnet and nowhere else so Frax profits directly increase Fraxtal TVL, liquidity, & lending capacity in real time.

Frax Finance revenue to FXS and the FXS Liquidity Engine is not cyclical and generates consistent revenue through all market cycles to increase POL constantly in all macro conditions. When volatile assets go down in value, revenue from FXBs and (s)FRAX should increase revenues. Thus, the FLE should be a constant, direct value add to FXS holders and stakers alike.
Note: there are certain strategic assets that will be kept on the balance sheet/treasury including CVX (staked as vlCVX), cvxCRV, cvxPRISMA, & cvxFXN, among other assets that will be added as “strategic assets” in future governance votes. These strategic assets will not be sold or distributed to veFXS holders nor sold to power the FLE.

FPIS Resolution
There is a tremendous amount of mental overhead that goes into having a separate token and alternate governance process. For all of Frax’s existence, FXS had been that token until FPIS was released in 2022. To unlock FPI’s growth potential, simplify Frax’s structure and reduce developer and community overhead, we propose that FPIS be absorbed into Frax. Additionally, this brings onto the Frax balance sheet $4.5m of additional profits/assets to bolster the treasury. The important outcome is that the entire Frax community is singularly aligned behind FXS and the success of Fraxtal. Thus, to simplify this resolution, we propose lowering the FPIS to veFXS conversion by 67% to the new 1 FPIS→1.33 veFXS for a 4 year lock and will decay to 0.33 veFXS at the end of the lock period. The conversion of FPIS on the unlock date of March 22, 2028 will be at 2.5 FPIS to 1 FXS if not relocked. This number was reached after careful consideration of all reasonable & civil community feedback both on Telegram & in this thread, especially of long term FXS and FPIS holders that received the FPIS airdrop and staked to keep long term alignment with all of Frax’s core protocols. This ratio is also exactly the rate that will NOT create any new FXS inflation above the 100m total supply due to 16.4M FXS in the community governed treasury. This merge will distribute less than the idle amount of FXS located there and does not count supply reductions over 4 years due to buybacks through the FXS Liquidity Engine. Even if 100% of all FPIS 4 year locks unlock without relocking (a highly unlikely event), there will not be an FXS supply increase above 100m ever due to this merge. The result being a merge of two tokens, unifying the community, and keeping FXS supply under 100m. This final ratio dramatically lowers the governance & utility power of FPIS while still merging it into a single FXS token distribution and creating zero new inflation of FXS tokens. Lastly, veFPIS also qualifies for the April 3rd FXTL points snapshot at the 1.33 rate.

sFRAX & sfrxETH Updated Yield & sfrxETH LRT Functionality
At the conclusion of this governance proposal, sFRAX will be set to a 50% cap rate with 5.4% IORB floor rate. This means that sFRAX APR will have a max rate of 50% at the passing of this proposal and a floor rate of the IORB rate compared to the current model that has the IORB rate as the top cap rate. This new system allows sFRAX to become the benchmark DeFi rate to all integrators of sFRAX. Users who currently hold sFRAX now or mint/swap into sFRAX will start receiving the new cap rate immediately after the epoch that this proposal is passed in governance. In order to keep sFRAX at 50% cap rate, Frax will add sUSDeFRAX POL through the Curve AMO. Thus, this proposal is also for a 250m ceiling cap of sUSDeFRAX Curve AMO.

sfrxETH will have new higher APRs with the advent of Frax Ether v2. In v2, sfrxETH APRs can be as high as the interest rate anyone wishes to pay to borrow validators which means that sfrxETH APRs can and likely will approach, then surpass liquid restaking tokens. sfrxETH will be the standard benchmark of ETH yield based on a fully collateralized LSD design. Additionally, Frax Ether v2 will have direct restaking support officially turning sfrxETH into a liquid restaked token (LRT). This governance proposal greenlights EigenLayer restaking pods and direct EigenLayer deposits for sfrxETH. This allows sfrxETH holders to enjoy higher than average LSD yield, FXTL points if held/used on Fraxtal, as well as EigenLayer points. Frax is also working with EigenLayer to design a Fraxtal AVS that uses both FXS and sfrxETH restaking making Frax one of the only full stack integrations on each level of EigenLayer and giving FXS chain-level staking utility. In the singularity era, sfrxETH will be the leading LRT of DeFi.

Gradually and then Suddenly: The Full Stack
It’s been a long road culminating in the launch of Fraxtal and achieving 100% CR on FRAX. Frax’s strategy has been to build core pieces of infrastructure internally which in the short term takes a significant investment of time and energy. If the community zooms in too closely, progress can feel static and individual pieces disjointed. Indeed some have said Frax does too many things, but the reality is if the community zooms out now, they will begin to see the giant flywheel that’s just been completed. We’ve just shipped one of the most innovative L2’s in the space and closed a $45m asset gap to weatherproof FRAX’s balance sheet. Frax Ether v2 is close to release and will offer the most compelling LSD+LRT experience while sFRAX yields will be among the most competitive and reputable yields in DeFi. Protocol fees can once again flow to veFXS and power an FXS liquidity blackhole on our own chain. Frax Assets will also flow to every major chain and capture mindshare & monetary premium for Frax.

Now, the foundation is in place for Frax and others to build upon and scale quickly upwards. Fraxtal will be at the center of this growth with FXS as the ultimate beneficiary of everything Frax achieves. We’ve built this foundation for the landscape that we see tomorrow, not the one we lived in yesterday. Rather than pondering theoretical new markets and writing whitepapers, Frax has been and always will be shipping live products and seizing markets before others know they even exist. This speed and safety will be enabled by the foundation that we’ve built to date. The Singularity phase of Frax begins now.

Part 2 of this roadmap will be posted at a future date after this proposal is voted on in governance.

Redoing my calculations from the previous FPIS merger proposal just for context.

There’s currently 45M FXS, or $335M of value currently locked, accounting for 98M veFXS. If FPIS were to be converted 1:1.33, that means that 40M FPIS worth $55M of value would actually be backing 53M of new veFXS, shrinking the current veFXS holders, which would hold 86% of the value locked, down to only having 65% of the governance power and profit distribution entitlement. In comparison, previous FPIS holders would only provide 14% of value locked, but have a disproportionate 35% of all the veFXS governance power, and all the protocol profits that come along with it. More importantly, converting 40M FPIS into 40M more FXS and insta locking it to 1.33x veFXS, would still increase the supply of FXS from 100M to 140M. This means that the current FXS market cap of $745M would instantly result in a new FXS price of $5.32 at the time of the merger based on today’s price. This is equivalent to a 29% dilution of FXS to acquire FPIS.

If there’s any erroneous assumptions please bring it to my attention and I will edit this comment.

Travis mentioned that “If there is strong resistance to 1:1 it can be 2:1 or 3:1 or something. Depends on what passes”. Instead of limiting the proposal to a single ratio, we could include multiple options for the community to vote on. This way, we can gauge the level of support for different ratios like 1:1, 2:1, 3:1, or others that the community might prefer. By presenting a range of choices, we can find the most widely accepted balance between competing interests.

This Singularity Roadmap is a step forward for the Frax protocol and one I wholeheartedly support. In particular, the introduction of the FXS Liquidity Engine (FLE) reflect a nuanced understanding of the market dynamics and a commitment to fostering a sustainable ecosystem. It is not just a plan for growth and innovation; it is a blueprint for resilience and sustainability in the DeFi space. It’s with great enthusiasm that I endorse this proposal and look forward to the continued success and evolution of Frax under this visionary lead.

As for the merge, I’m looking forward for it to happen as soon as possible: FPI growth potentials depend on the success of the merge. My vote is once more with the team.

It’s

4 year lock:

1 FXS → 4 veFXS
1 FPIS → 1.33 veFXS

The proposal did not mention anything about conversion from FPIS to FXS.

However, from the above, you can extrapolate that

3 FPIS – > 3.99 veFXS

therefore, 3 FPIS = 1 FXS in terms of veFXS vote power.

so probably 3 cvxFPIS = 1 cvxFXS

I have good understanding that people feel the ratio is somewhat unbalanced. Personally, I feel with regards to normal backwardation, voting power and revenue being supressed and the team holding a good amount of tokens that it can pass as proposed. If any changes should be made, I suggest that the Core Developers and Contributors (FPIS token distribution) FPIS tokens gets locked 50% 4 and 8 years respectively to secure ongoing commitment. I think this is a fair proposal, as the team (as earned) stand to profit the most from the proposal.

There is only 27,487,474 FPIS circulating FYI

There are a lot of exciting things proposed here, many of which the community as a whole seems to be in favor of. But I think it’s clear that there are still many with concerns about the FPIS merger.

I’m not going to argue against it specifically here, but only to suggest that the singularity roadmap proposal and the FPIS Merge discussion be separated. There are clearly some changes here that could benefit the protocol and would be great to get in motion as soon as the vote could pass. But holding these changes contingent on a controversial FPIS merger also being accepted and passed seems messy, if not a bit disingenuous.

Amazing proposal @samkazemian.

It’s unfortunate that all people seem to want to talk about is the FPIS merge portion. I can understand the feeling of not wanting to be diluted in the future and as an FPIS and FXS holder I can understand both sides.

I don’t think the majority cares about the potential revenue dilution as much as they do about the optics and eventual possible dilution of total FXS supply. With this in mind I’d like to propose the following:

3 FPIS → 1 FXS, veLocked 4 years with no reduction in voting power.

I had originally planned to propose to also include a reduction of voting power/multiplier but after some discussions decided to keep it simple and stick with a straight conversion.

This means that assuming an FPIS circulating supply of approximately 30 Million, after 4 years 10 Million FXS would be unlocked if not relocked, only diluting the total supply of FXS by 10%.

While this may still make some people upset, I think this is the best compromise we can make to still move forward and put this behind us. I believe this proposal will have majority support to bring this over the finish line.

Lets make Frax whole and push the protocol into the next chapter of success, fulfilling Sam’s and the team’s grand vision.

The previous proposal specified “Burn 30,000,000 FPIS tokens in the Frax Finance treasury. Burn all 29,278,846 FPIS in the Frax Price Index Treasury,” which I took to mean that the remaining 12M left of team vesting would be unlocked and added to circulating since otherwise they probably would have added it to the burn along with the treasury, but could be wrong so yeah we’d definitely need further clarification on that. In this case 40M FPIS is what’s getting converted, not just 28M.

With this is mind, I am countering the @Westwood 3:1 proposal to 4:1 instead. I’ll redo the numbers to account for this conversion ratio.

There’s currently 45M FXS, or $335M of value currently locked, accounting for 98M veFXS. If FPIS were to be converted 4:1, that means that 40M FPIS worth $55M of value would actually be backing only 40M of new max locked veFXS without any governance dilution because I also agree we shouldn’t complicate things more than they have to. This would only shrink the current veFXS holders, which would hold 86% of the value locked, down to having 71% of the governance power and profit distribution entitlement. In comparison, previous FPIS holders would provide 14% of value locked, but have a 29% of all the veFXS governance power, and all the protocol profits that come along with it. Converting 40M FPIS into only 10M more FXS and insta locking it into regular max locked veFXS, would only increase the supply of FXS from 100M to 110M. This is equivalent to only a 9% dilution of FXS to acquire FPIS.

The reason why I think this 4:1 conversion is more fair and equitable even though it’s diluting the current holders of FXS backed veFXS from 86% down to 71% of governance power is because the current average lock time is only 1.54 years and should be taken into account. For reference, if the current 98M of veFXS maxed out their lockup they would have 245M veFXS, so a 40M veFXS dilution would result in a total of 285M, and they would still keep 86% of the governance power to align with the 86% of value that is currently backing their veFXS position. This means that if a current veFXS holder wanted to retain the same relative amount of governance power they could just max lock their own veFXS to increase their position in the same relative amount.

I am also open to allowing FPIS holders to have the options of a 8:1 conversion for a 2 year lockup instead of 4 years, or a no lockup option at a 12:1 rate. If people were to take either of these alternate options, it would require minting less overall FXS and thus result in a lesser dilution. I believe this would be in FXS holders best interest to consider but we can debate those options once we agree on the underlying default max locked conversion ratio.

As a alternative to the team proposal, I support this idea. It is easy to understand, and seem to be around equally fair depending on what value is put in 2nd airdrop, voting power and revenue. It also seems to have support in Telegram.

Hope for the voting part of the proposal that the two alternatives can be put against each other.

The 1.33 veFXS would decay to 1 FXS after four years, resulting in 1:1 FPIS <> FXS conversion. So 1 cvxFPIS would eventually also be just 1 cvxFXS as well. Travis himself clarified this in the Telegram group Telegram: Contact @fraxfinance

Westwood’s proposal was under the assumption of a 28M FPIS conversion, not a 40M one as is actually the case. Which is why I recommended a 4:1 conversion instead and did the math to justify why it also just makes more sense.

Personally think the 4:1 conversion is too much to ask, considering the forced lock of 4 years. Not everything can be solved with math optimalization. It’s also somewhat rewarding the devs for the work they do. 3:1 is no problem, even though I lose some more on it. Hell, I even agree with the 1:1 proposal with 1.33 veFXS.

I think no matter which one of these it will be, its just another speedbump we soon are over and the future is a straight line we can give full speed ahead on. (Aka, everyone wins in the long run anyways)

Just to clarify, a 3:1 conversion for 28M FPIS results in a 8.5% dilution to FXS. In comparison, a 4:1 conversion for 40M results in a 9% dilution to FXS. This means that the 4:1 conversion actually results in a 6.6% better deal towards the devs and holders of FPIS compared to what you thought they were initially getting at the 3:1 conversion for just 28M. Just wanted to clarify that misunderstanding so we’re all on the same page.

To Date, I feel that Frax has remained 10 steps ahead in every aspect on-chain, (as stated) often building things in DeFi to take full advantage of new tech before it ever even materializes.

The Singularity Proposal is bullishly visionary and im thrilled to see the goal(s) and gameplan(s) of the team spelled out.

This is the

/M2_Fraxtal_Era

Nevertheless, as before, there is a lot of dispute around the 1FPIS–>1FXS proposition, for many legitimate reasons.

However, when I tend to disagree with the Team on a particular instance, I fall back to

“[have] Faith in Frax”.

Therefore, I am willing to compromise my feelings and slightly diminish my personal position as outlined by @Westwood and @hollowgrahm for the good of the protocol.

I support the merger amendments put forth by both @Westwood and @hollowgrahm , though I lean more towards @hollowgrahm version.

Additionally, personally, I believe offering multiple lockup-length / conversion rates for FPIS–>FXS would attract a larger supportive audience for the proposal

For instance

10:1 no lock - no gov cap
8:1 1yr lock - no gov cap
6:1 2yr lock - no gov cap
5:1 3yr lock - no gov cap
4:1 4yr lock - no gov cap,
3:1 4yr lock - 3 veFXS max power (-25% veFXS)

All that being said,

Hats off to the team for all your work.
Thank you for the opportunity to be part of the best STACK in DeFi.

What ever ratio it comes to at the end. I think if people are afraid of dilution at the end of the 4 years lock, we can always vote to buyback and burn the surplus of newly minted fxs. I believe after 4 years the frax ecosystem should be well established and buying back the excess supply of fxs to burn should not be a problem then. So we should focus on finding middle ground on the ratio.

Personally I don’t see the problem with allowing 3:1 ratio at 40 million cap as well. But thank you for responding.

Can we agree on, if there is no conclusion on the fpis merger is made after the discussion period. We can separate the merger on a stand alone proposal and push the rest of the singularity proposal through to vote?

The singularity should be voted on as a unified voice including all aspects. There is no reason to break out the merger into a seperate proposal: we will move forward together.