Gearbox V2 AllowedList Alpha: The FRAX of Life. User guide-teaser 👨‍🌾
Hello gearheads and degens… We’re on the cusp of Gearbox V2 and Leverage Ninja mode. Gearbox V2 includes not only a bunch of awesome new features, but it also means new assets, pools, and vaults being added to the AllowedList… This unlocks [kek] many ways you can interact with leverage whether you’re a farmer, gigabrain arbitrageur or a degen trader.
BOOOOOOORIIIIING… wait, wait a second!
Although the text below might seem heavy and complex — the real alpha is brought to you, Leverage Ninjas, in the form of organic APYs. That’s right, no pool 2s in here. Only the Curve & Convex & Yearn & Uniswap & the likes of giant DeFi protocols with semi-sustainable yields ⚙️ Teaser picture:
Gearbox V2 will initially launch in Leverage Ninja mode: the leverage side (not the pool side, that’s open to everyone) will be temporarily restricted to a set of degen wallets who will help v2 test in prod a bit. That is, so we can see the system run live with real assets for some amount of time before opening to all.
Adding FRAX to the AllowedList of Gearbox
We’re discussing the potential addition of FRAX to the AllowedList as an asset. Before we dive into all the good stuff that it will enable, let’s first briefly talk about what FRAX is. Put simply, the AllowedList is the list of governance approved tokens and smart contracts that can interact with Gearbox’s Credit Accounts. If an asset or contract is not on the AllowedList, then you cannot interact with it in a Gearbox Credit Account.
In reality it’s actually a little bit more complicated than that. Gearbox was built to be super modular and composable, so theoretically there can be multiple different pools of assets for lending (e.g multiple pools for DAI), each with its own Credit Manager, which each has its own AllowedList for assets and contracts… But if you want to learn about this in detail, it’s probably best to read the docs (fyi, V1 info is outdated).
Just a quick note — everything discussed in this article is subject to DAO approval. If the DAO views any of the new proposed additions to the AllowedList as too risky or insufficiently researched (or anything else), then the information in this article will change. Go discuss these things:
What is FRAX and how does it work?
FRAX bills itself as the first “fractional-algorithmic stablecoin”. FRAX aims to be pegged to the US Dollar and is (currently) 90% backed by USDC, somewhat. If you’re interested in the mechanism design of FRAX, you can read their docs, but the short version is that FRAX supply started off as 100% backed by USDC, and over time the collateral ratio increases and decreases based on how well FRAX is holding to the peg.
The part of FRAX that is algorithmic is “backed” by FXS, which is the governance token for the FRAX ecosystem. So when FRAX is at 100% collateral ratio, you can redeem 1 FRAX for 1 USDC, when FRAX is at 90% collateral ratio, you can redeem 1 FRAX for 0.9 USDC and $0.1 worth of FXS.
The cool thing about FRAX is that as the collateral ratio is lowered, it becomes more and more decentralized, but the whole system is designed to avoid LUNA/TERRA style vicious cycles of collapse. For example, if people begin losing confidence in the algorithmic portion of the system, FRAX will automatically adjust such that more and more collateral (in USDC) is required. This in turn helps to restore confidence in the peg.
What does this enable in Gearbox?
FRAX will then be added as an asset to the allowedlist, which opens up a range of new potential strategies for Gearbox users of all kinds. Don’t forget, any asset in your Gearbox Credit Account acts as collateral for leverage as well — everything can be cross margined within a Credit Account.
Adding FRAX in the AllowedList asset allows us to the do following:
- Gives users a new stablecoin to use that has its own place on the decentralization/collateralization spectrum (roughly speaking, USDC → DAI/FRAX → LUSD) depending on their decentralization preference.
- Allows users to use FRAX as one half of a pair when degen trading — e.g if you want to go short ETH but you are someone who avoids using USDC and DAI, you can borrow ETH from Gearbox, sell it into FRAX instead of another stablecoin, and your position will be short ETH/FRAX rather than short ETH/USDC or ETH/DAI.
- Enables new pools and vaults, such as the FRAX/3crv pool, the Yearn FRAXcrv vault, and the FRAX Convex pool, which can all generate additional leveraged yields on stables. This will likely be the most popular usage of FRAX for the typical Gearbox user.
- Opens up potential leveraged arbitrage opportunities for sophisticated users if FRAX depegs downwards (you can borrow USDC at high leverage, ape into FRAX, wait for peg to recover, sell FRAX).
Don’t forget though that if FRAX depegs, depending on how much leverage you have on your Credit Account, you can get liquidated — there is no reward without risk (as a leverage user). Passive LPs have nothing like that to worry about.
Removing complexity and putting Credit Accounts in perspective
Gearbox leverage is like a leveraged smart contract wallet. Whatever you did with Curve & Convex farming before using your Metamask — is mostly possible with the same assets but with more capital -> capital efficiency!
These are not vaults though: YOU decide the risk parameters, the exit time. Sure, there are some security policies in place (AllowedList) not allowing you do the non-permitted operations, but otherwise treat it as your leveraged smart contract wallet. Then, strategies become easier to imagine…
TEASER: how to use FRAX in Gearbox V2
Here are the steps to use FRAX to the MAX in Gearbox v2 with the (currently) most profitable strategy involving FRAX, which is the Convex FRAX pool.
The mockups below are not yet live, but shall be soon!
- Connect your wallet to Gearbox V2
- Open a Credit Account with whatever asset you want (e.g DAI), approve the asset and deposit your DAI into Gearbox.
3. Choose which of the new FRAX strategies in Gearbox V2 that you want to use (curve Frax/3crv pool, Yearn FraxCrv vault, or Convex Frax pool) — we made the UI super easy to navigate so you can do so in just a few clicks.
4. The UI will demonstrate to you the effect that depositing into a strategy will have on the parameters of your Credit Account — your new health factor, new amount borrowed (if any), approximate APY, borrow rate, and liquidation.
5. If there are farming rewards that need to be manually claimed (this will depend on what strategy you’ve decided to use — there are claims with Convex, but not with Yearn for example as they do it automatically) — you can do do that inside the Gearbox UI as well!
6. When you’re happy with your gains and you feel it’s time to withdraw, you can simply click the minus button on the Farm tab in the CA dashboard.
7. This will take you to the withdraw page, where you can choose to withdraw your assets from convex either in their constituent parts or in a specific stablecoin of your choice (you can withdraw in FRAX/USDT/USDC/DAI in roughly equal parts or withdraw all in DAI).
An easier route… Multicall!
Or just go the easy route and take advantage of Gearbox’s multicall: choose the farm destination that’s available, and open -> deposit -> farm without having to go through it all one by one. Checkmate, complexity!
Potential of leveraged farming with FRAX 🔥
As of right now, the yields on the FRAX/3crv pool range from 1.72% to 4.3%, on the Yearn FRAXcrv vault the APY is stated as 0.6%, & on the Convex FRAX pool the APY is stated as 4.26%. Assuming Gearbox has a similar cost of borrow on stablecoins as Aave (currently 1.51%), here are potential APYs:
With 7x leverage (the maximum you can borrow would be 9–10x but we’d generally recommend not to max out your leverage so you have a built in a margin of safety), you could be earning ~20% on your stables: using the highest APY strategy, which is currently Convex FRAX pool + taking into account the cost of borrowing stables in Gearbox itself.
Note that these higher APYs also come with higher risk. If you are using leverage, then there is the possibility of a liquidation. With this Curve + Convex strategy, you would potentially be liquidated if there was a significant depeg event in FRAX price or other stablecoins in the 3crv pool (in this example). The more leverage the use, the less of a depeg you can withstand before being liquidated.
That’s the beauty of Gearbox though — ultimately you choose your own destiny! You can lever up to the level that you want and put your funds in the strategies you want. You aren’t “locked-in” to any particular amount of leverage nor any specific strategies or actions. Ultimately, Gearbox allows you to make your own decisions and live with the consequences.
Potential of adding FXS as a collateral asset on Gearbox is also being discussed. Jump to forum to read more!
Summarize it for me, Leverage Sensei!
- FRAX is an algorithmic stablecoin that’s (rn) 90% backed by USDC.
- In the near future, Gearbox DAO will have the opportunity to add FRAX (and some related pools/vaults) to the AllowedList.
- This enables a range of new cool stuff that you can do — a new stable to use in trading pairs, new leveraged yields farming opportunities, and new leveraged arbitrage opportunities. Composability, sers.
- Rough back of the envelope calculations suggest 10–15% yields on stable farming, which is pretty good (but don’t ignore the risk of liquidation!)
- Gearbox v2 is gonna be rad, GEARRRR up!
Next up, we’ll be talking about a bunch of other new pools that we’ll be adding from everybody’s favorite stable swap provider… So stay tuned for that!
If you would like to join — just get involved on Discord. Discuss, research, lead and share. Call contributors out on their bullshit and collaborate on making things better. Here is how you can follow developments:
- Main website: https://gearbox.fi/
- General Docs: https://docs.gearbox.finance/
- Developer Docs: https://dev.gearbox.fi/
- Mainnet dApp: https://app.gearbox.fi/
- Governance Forum: https://gov.gearbox.fi/t/start-here-forum-rules/
- Blog: https://medium.com/@gearboxprotocol
- Snapshot: https://snapshot.org/#/gearbox.eth
- Github: https://github.com/Gearbox-protocol
- Twitter: https://twitter.com/GearboxProtocol
- And, of course, the DAO notion pages:
