Hey gromies, I have been doing some research on FPI lately due to the attraction of inflation pegged yield (7% APY in Q4 2021). After doing some reseach I would like to share it with the wider community and discuss if GRO should farm FPI in order to improve our yield exposure.
Create strategy to directly invest into FPI.
To expand GRO’s on-chain yield source during this extended bear market, we have explored the option of investing into FPI, a product from FRAX protocol:
FPI offers US inflation pegged yield, which realised 7% APY in last quarter in 2021. Anyone can mint and redeem FPI with FRAX based on the latest peg price with by paying a fixed 30bps fee.
FPI is 100% collateralized by FRAX, with yield backed by AMO strategy earning and FPIS auction. It has a current circulation of 77m and a track record of pegging since launch in early 2021.
As we continue to dip in the bear market, the realised yield of GRO protocol has been quite weak in the last quarter. It is due to the weakness in price of $CRV and $CVX, as well as a general stagnation of stablecoin inflow.
This goes hand in hand with the yield in the wider stablecoin landscape, with reference to weekly report from Serenity Fund:
In such a macro environment, FPI offers an attractive yield that is pegged to the US inflation, which realised 7% APY in 2021. Anyone can mint and redeem FPI with FRAX based on the latest peg price with fixed 30bps fee.
If GRO incorporates this strategy into the core protocol, let’s say, replacing FRAX/3CRV with FPI, the total system yield can improve by +1.25% (assuming 25% of system exposure improves APY from 2% to 7%).
Since currently all strategy contracts are investing into metapool (pool with 3CRV on one side), investing into FPI would require some additional strategy development and testing from the Product Groda.
This is a preliminary discussion post that if supported, would lead to a proposal that whitelists FPI into the GRO strategy list, and sponsor the Product Groda to develop the necessary smart contract and monitory tool to incorporate exposure to FPI into the G2 protocol.
- Offers an attractive yield source that is pegged to the US inflation rate
- Yield is supported by FPIS liquidity.
- 70m+ circulation with track record of pegging to target price
- Marginal additional risk as GRO protocol is exposed to FRAX already.
- Redemption NOT fully decentralised (details refer to the research article)
- Concern over the sustainability of underlying yield sources
- Lack of clarity surrounding the accounting during the migration to the current ControllerPool.
Poll coming after thorough discussion