AMP to utilize FRAX-as-a-Service from Ondo Finance
Amp has joined FRAX-as-a-Service to establish a brand new ~$20m FRAX-AMP liquidity pool on Uniswap by utilizing Ondo Finance vaults. This will be the deepest $AMP liquidity pool on any DEX. Amp will provide $10m worth of $AMP to the Ondo vault, with Frax providing the stablecoin side of the pair.
What is AMP?
$AMP is a universal collateral token designed to facilitate fast and efficient transfers for any real-world application.
When using $AMP as collateral, transfers of value are guaranteed and can settle instantly. While the underlying asset reaches final settlement (a process that can take anywhere from seconds to days), $AMP is held in escrow by a collateral manager. Once the transaction successfully settles, the $AMP collateral is released and made available to collateralize another transfer. Amp exists to serve as universal collateral for anyone and any project.
What is FRAX-as-a-Service?
Frax-as-a-Service (FaaS) is an offering from Frax and Ondo to make it possible for projects to increase liquidity in their native tokens on decentralized exchanges by providing liquidity themselves.
With FaaS, a project deposits its token into an Ondo liquidity vault with a flexible duration. Ondo and Frax match those deposits with an equivalent amount of $FRAX to form a liquidity pair. In exchange for providing $FRAX, the Frax DAO receives a fixed 5% APR return on its provided liquidity.
Ondo provides several advantages over existing liquidity solutions. With Ondo, token issuers earn trading fees and rewards which reduce (or even negate) impermanent loss (IL) risk and the cost of capital. With small adjustments, Ondo vaults are well-suited to facilitating direct listings, establishing the first liquidity for a token. Direct listings could eventually replace or complement IDOs.
How will it work?
Frax Finance will provide $10m of $FRAX and invest that into an Ondo Fixed tranche pool. Amp will invest $10m of $AMP into the Variable tranche pool. The Ondo Vault will then pair the assets together to create a FRAX-AMP liquidity pool (total LP $20m) on Uniswap V2. After a fixed duration, Ondo will withdraw this liquidity and pay back Frax Finance its $FRAX (covering any IL risk for Frax Finance from the $AMP supplied tokens) plus a fixed yield of 5% APR. Amp will then receive the remaining assets paid out in $AMP.
Vault Durations and Fees
Number of vaults: 2 vaults of $10m total liquidity, $5m AMP and $5m FRAX in each
Duration: March 16 to June 14
The purpose of launching with vaults of different durations is to stagger the redemption of these vaults. At redemption, the liquidity from one vault is removed, then the Ondo smart contracts will either buy $AMP with $FRAX, or sell $AMP for $FRAX to obtain precisely the amount of $FRAX owed to the fixed tranche investors.
Background on Frax
Frax is the first fractional-algorithmic stablecoin protocol. Frax is open-source, permissionless, and entirely on-chain — currently implemented on Ethereum and other chains. The end goal of the Frax protocol is to provide a highly scalable, decentralized, algorithmic money in place of fixed-supply digital assets like BTC.
Summary
By partnering with Ondo finance, Amp and Frax will expand both their visibility and the accessibility for both $AMP and $FRAX tokens by utilizing a capital-efficient mechanism. Amp will pay a fixed fee to Frax Finance of 5% APR, pay any potential IL that they may suffer during rebalancing, and collect any excess fees (including staking rewards where applicable).
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