Desc: This controller mints FRAX into money markets such as Compound or CREAM to allow anyone to borrow FRAX by paying interest instead of the base minting mechanism. The cash flow from lending can be used to buy back and burn FXS (similar to how MakerDAO burns MKR from stability fees). Essentially the Lending AMO creates a new avenue to get FRAX into circulation by paying an interest rate set by the money market.
- The AMO can increase or decrease the interest rate on borrowing FRAX by minting more FRAX (lower rates) or removing FRAX and burning it (increase rates).
- This also effectively makes the cost of shorting FRAX more or less expensive depending on which direction the protocol wishes to target.
- Additionally, the fractional-algorithmic design of the protocol allows for unmatched borrowing rates compared to other stablecoins.
- Because the Frax Protocol can mint FRAX stablecoins at will until the market responds with pricing FRAX at $.99 and recollateralizing the protocol, this means that money creation costs are minimal compared to other protocols.
- Ironically, the lending rate on their own token is something other stablecoin projects have difficulty controlling. Frax has total control over this property through this AMO.
Specs
- Decollateralize - Mints FRAX into money markets. The CR does not lower by the amount of minted FRAX directly since all borrowed FRAX are overcollateralized.
- Market operations - Accrues interest revenue from borrowers.
- Recollateralize - Withdraws minted FRAX from money markets.
- FXS1559 - Daily interest payments accrued over the CR. (currently in development)