Thanks for the comment @patria. This proposal only updates FRAX’s interest rate model and does not change its collateral status. FRAX would remain an isolated asset such that a FRAX depeg would not directly affect the Euler protocol.
Thank you for working on this proposal @Shippooor. We can see the obvious benefit this brings. We do though have a small concern in treating IRM and RF for Frax at similar levels to fully collateralized stables like USDC, USDT, LUSD, DAI, etc. This would signal the risk of each of these stables are the same and can lead to complacency.
Current RF for the above markets as below:
We think FRAX RF should be either maintained at 0.23 or lowered to 0.15.
Also looking at the RF for the stables above, we consider the right approach would be to conduct a thorough review of RF (and other parameters) for all stables and propose changes to all of them as part of one comprehensive review of stables on Euler that is then put to vote.
This would help compare risk, liquidity, mechanics, utilization, etc for the full offering of stables as each offer their own design representing different risk profiles. For example, LUSD might have lower onchain liquidity then FRAX or DAI, but is fully redeemable at anytime, and hence has lower depeg risk then the other two.
Again, this is not to take away anything from the work by Warden on this proposal and we are thankful for the insight and the initiative shown here.
Hey @shaishav0x I think you have a valid point that we should re-evaluate the reserve factors for all currencies on Euler such that they are all in line. The main objective of this proposal is to increase utilization for FRAX by making the IRM more appropriate. A lower RF for FRAX won’t make a meaningful difference given it’s not heavily utilized for now. It will only mean the protocol will generate less fees from the FRAX market. I agree with you that a review of RF for all currencies is needed and will post a proposal in the coming weeks to do that. Thanks for your input.