Matching incentives for Frax assets on Osmosis with Picasso

Proposal Discussion Liquidity Incentives
1

This proposal would allocate 52,845 OSMO over 6 weeks to match 97,74 FXS and 9,068,080 PICA emissions for 3 new pools enabled by Picasso’s Ethereum IBC bridge.

Background

Picasso Network is on the brink of launching an Ethereum IBC bridge, marking the inaugural integration of Cosmos with Ethereum through the Inter-Blockchain Communication protocol.

This milestone marks a significant evolution within the DeFi ecosystem, enabling Ethereum, the original home and a foundational pillar of DeFi, to interoperate with other IBC-connected chains.

In light of this, we’d like to propose incentivizing liquidity through specific asset pools—sFRAX/OSMO, sfrxETH/OSMO, and FXS/OSMO—aiming to catalyze mutual growth and alignment between these ecosystems and advance the notion of cross-ecosystems.

The initial set of pools created are:

  • sFRAX / USDC (yield bearing)
  • sfrxETH / OSMO (yield bearing)
  • FXS / OSMO (cross-pollinate for alignment)

Choice of Pools

  1. sFRAX/USDC

sFRAX: sFRAX is an ERC4626 staking vault in the Frax Protocol that offers weekly yield distributions in FRAX stablecoins to stakers. It represents pro rata deposits in the vault, with an APY aimed at tracking the U.S. Federal Reserve’s Interest on Reserve Balances (IORB) rate. The vault’s yield is derived mainly from real-world asset strategies, managed by Frax’s partner custodians

  1. sfrxETH/OSMO

sfrxETH: sfrxETH, or Staked Frax Ether, is an ERC-4626 vault in the Frax ecosystem that allows holders to accrue staking yields from Frax ETH validators. By depositing frxETH into the sfrxETH vault, users can earn yield, with the vault’s frxETH balance increasing over time as staking rewards accumulate.

  1. FXS/OSMO

FXS: FRAX share is Frax Protocl’s native governance token used for staking and governance actions surrounding the FRAX stablecoin.

These assets are chosen to offer users yield-bearing assets as well as FXS to encourage the cross-pollination between Cosmos and Ethereum DeFi ecosystem.

Justification for Spend

$65k worth of OSMO (52,845 ) to match the $65K worth of FXS (97,74) and $65k of PICA (9,068,080) at the time of posting.

The new IBC connection offers a key infrastructure to enable a truly cross-ecosystem DeFi industry. The spend incentivizes both liquidity and users from Ethereum - specifically Frax to port over to Cosmos.

This synergy benefits both ecosystems and positions Osmosis as a pivotal hub for Ethereum’s blue-chip DeFi assets and yield-bearing products, enhancing its appeal and functionality within the broader DeFi industry.

About FRAX

Frax emerged as a leader in the DeFi space, renowned for its innovative approach to stablecoin design launched in the DeFi 1.0 era. Since then, the project has evolved into a comprehensive ecosystem, underpinning a self-sustaining DeFi economy with its stablecoins functioning as the pivotal currency. Frax DeFi infrastructure includes FraxSwap, FraxLend, as well as offering frxETH and sfrxETH. On the Horizon, Frax will be launching their own dedicated L2 roll-up Fraxtal.

About Picasso

The Picasso Layer 1 (L1) is a Cosmos SDK blockchain that acts as an Inter-Blockchain Communication (IBC) Protocol hub between Cosmos and non-Cosmos IBC-enabled chains. The broader Picasso Network facilitates generalized restaking via its Picasso Restaking Hub, which is connected to IBC. Generalized restaking can be done from any chain to provide crypto-economic security to any chain. Accounting for this is handled by the Picasso L1. Through this infrastructure, Picasso aims to deliver ecosystem-agnosticism to DeFi.

Deployment Mechanism

This proposal requests 52,845 OSMO to be transferred to the Builder Multisig.

150 OSMO will then be used for gauge creation, which returns to the Osmosis community pool.

The remaining 52,695 OSMO will be automatically distributed to the mentioned pools over a 6 week period.

Target On-Chain Date: 5th April 2024

4 Likes
2

@JohnnyWyles incentive matching can still be part of the incentive program I guess?
Do we still have a policy on incentive matching?

@Hugh_Flood are sFRAX. sfrxETH and such already live on the Ethereum chain? Are there key figures regarding usage? I am in the current form not convinced on matching the incentives tbh.

3

It isn’t part of the incentive program, but more of a one off spend similar to the TIA and DYDX spends.

I personally think that the spend with all 3 is probably quite high, but since it is short term allocation, Frax is a well known project, and this would likely be the first major listing for Picasso’s IBC connection to Ethereum it is worthwhile.

sFRAX is relatively new and a yield bearing stable coin.
sfrxETH has been around for ages, and is a similar model to wstETH that we recently had listed.

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4

The incentive program does not have a tool to do matching anymore in exceptional cases like we did in the past?

We are already a bit past the desired on-chain date for the proposal, what are the plans @Hugh_Flood ?

5

Hi, so we’re going to set up pools and look to move forward on this shortly

6

I am curious why these pools are being setup as classic xyk & stable swaps? Not utilizing CL is a signifigant loss in liquidity efficiency. I don’t believe OSMO incentives should be committed to these assets unless the main pairs are established as CL pools, or at the very least Astroport PCL pools. imo its just unnecessarily wasting incentives on inefficient pairs & should not be encouraged. These incentives are meant to help bootstrap liquidity for a new set of asset derivs and facilitate efficient trading on Osmosis. Using classic & stable swap pools for their base liquidity pairs is counterproductive . I don’t consider the added complexity for external teams to manage CL liquidity as a valid excuse. If that is the case, I think these assets should not receive an OSMO incentive spend.
They are already relatively underutilized assets within their native ecosystem, and will likely have underwhelming volume and limited use cases on Osmosis.

If these pools are not intended to serve as the main pairs / base of liquidity, I apologize. The 0% swap fee set on the sfrxETH.pica/OSMO pools makes me think it could just be someone fooling around.

Also think that sfrxETH should be paired with ETH/USDC & sFRAX paired with USDC rather than OSMO. Automatically pairing everything with OSMO is thankfully a thing of the past & pairing with ETH/USDC will be more efficient for routing / cheaper swaps.

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