ON–115: DeFi (Part 2)

Coverage on MakerDAO, Aave, Lido, Instadapp, and Frax.

Apr 1, 2022

At launch, most flashloans used a combination route of Maker and Compound. After enabling Balancer’s flashloan routing, most flashloans on Instadapp now utilize Balancer.

Polygon flashloan volumes were made up of about 40% USDC and 42% DAI, while ones on Ethereum mainnet were composed mostly of USDC at 62%. ETH flashloan volumes have grown in the past two weeks. Some users are leveraging ETH against stETH on AAVE.

Frax’s hybrid-algorithmic stablecoin model utilizes collateral to partially back the supply of minted FRAX, while leveraging an algorithmic mechanism to dynamically change the collateral ratio (CR) required to maintain a stable peg. As shown in the graph below, the lowest CR Frax’s hybrid mechanism has been able to achieve is ~83%, and has never needed to be over-collateralized (unlike other stablecoin protocols such as Maker’s Dai) — in fact, the protocol has never required more than an ~88% CR to safely maintain its peg.

With the passing of FIP-38 by the community, establishing a Frax and Ondo partnership, the green light was given to develop a Frax-as-a-Service (FaaS) offering. FaaS is a service for DAOs that offers a way to bootstrap initial DEX liquidity for their native token — by borrowing FRAX (at a 1:1 ratio based on the number of native tokens deposited into the vault by the DAO) to supply the stablecoin portion of the trading pair, DAOs can seed DEX liquidity for their native token quickly and with higher capital efficiency. FaaS benefited Frax by offering a growth channel strategy that became a successful catalyst, as seen in the graph below, growing Frax supply by 68% since the proposal was implemented on Dec. 23rd 2021.

Curve continues to be the ideal infrastructure partner, benefiting Frax across several facets of its protocol. By focusing liquidity efforts around Curve, FRAX has fostered extreme degrees of deep on-chain liquidity, and with it the ability to absorb large amounts of selling pressure without deviating from its peg. Another benefit stems from Frax’s ownership of nearly 60% of the liquidity in the pool, earning the Frax Treasury farming yield gains derived from CRV and CVX emissions. Lastly, Curve’s pool design offers an ideal foundation on which FRAX can run its Algorithmic Market Operations (AMOs) controller. The FRAX supply held by this AMO is counted as collateral toward the FRAX supply. As users swap 3CRV for FRAX 1:1, the FRAX supply expands, being automatically collateralized; however, as the pool begins to become unbalanced, Frax’s Curve AMOs kicks-in to mint FRAX directly into the pool until the supply of FRAX equals the supply of 3CRV.

Instadapp (cont.)