TempleDAO to tap Liquidity-as-a-Service from Ondo Finance, strengthening partnership with FRAX
We are delighted to announce our strategic partnership with Ondo Finance and deeper integration with the Frax ecosystem. This partnership unlocks a capital-efficient means to provide liquidity for $TEMPLE tokens on public Automated Market Makers (AMMs) such as Sushi and Uniswap, while also allowing greater access and visibility to our $TEMPLE token. We will be providing $2.5M worth of $TEMPLE tokens to the Ondo vault, with FRAX Finance providing the stable-coin side of the pair. FRAX Finance will receive a fixed yield of 5% APR, while TempleDAO will retain any trading fees and growth (or loss) in value of the LP itself. Our first Ondo liquidity vaults will be deployed on Uniswap.
A brief background on Ondo
Ondo is a decentralized risk marketplace that lets different sets of investors pool assets together to provide liquidity with different risk profiles. The Ondo protocol manages this risk transfer through vaults with multiple tranches. Ondo vaults exist in isolation from each other to prevent the mixing of risks. Each vault has a Fixed tranche and a Variable tranche, each of which consists of a different asset that is ultimately invested into a single Automated Market Maker (AMM) pool. The Fixed tranche seeks to deliver a stable yield with mitigated downside risk, whereas the Variable tranche seeks to maximize returns by using leverage.
Ondo partners can make ‘subscription’ requests to the Fixed tranche and Variable tranche during the open subscription window. At the close of this window, the Ondo protocol will accept an equal value of Fixed tranche and Variable tranche subscription requests and provide these assets to liquidity pools on AMMs. After a preset duration, the protocol will withdraw assets from the liquidity pools, then pay back Fixed tranche depositors their original principal and preset yield, after which Variable tranche depositors will receive the remaining assets.
Ondo has been audited by Quantstamp, Peckshield, and Certik. You can read more at https://docs.ondo.finance/
How does it work?
Frax Finance will provide $2.5M of $FRAX and invest that into an Ondo Fixed tranche pool. We will invest $2.5M of $TEMPLE into the Variable tranche pool from our treasury funds. The Ondo Vault will then pair the assets together to create a $FRAX-$TEMPLE liquidity pool (total LP $5M) on Uniswap V2. After a fixed duration, Ondo will withdraw this liquidity then pay back Frax Finance its $FRAX (covering any Impermanent Loss (IL) risk for Frax Finance from our supplied tokens) plus a fixed yield of 5% APR. Finally, we will receive the remaining assets paid out in $TEMPLE.
If the LP yields are in excess of the fixed yield for FRAX, then TempleDAO will earn a positive yield on $TEMPLE. Even if trading fees are near zero and the underlying LP is not incentivized, we are just effectively paying 5% interest for the liquidity for users to have access to another trading venue and the increased volume and exposure associated with that.
It’s also important to note that TempleDAO will have the flexibility to route through any path on the AMM during rebalancing where FRAX-TEMPLE LP is created today. Furthermore, we will be able to rebalance through any decentralized exchange in the future.
Vault Subscription Duration and Fees
We will start with four vaults with the following durations:
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 $TEMPLE with $FRAX, or sell $TEMPLE for $FRAX to obtain precisely the amount of $FRAX owed to the fixed tranche investors. To minimize the market impact on the price of $TEMPLE at this redemption, we want to ensure that no single vault represents too large a percentage of the total liquidity in the pool.
We do not expect substantial trading volume to move away from our own custom AMM; we believe this Ondo LP will only expose our token to new investors and net volume will increase, especially given the size of the liquidity pool and potential slippage large orders would incur on this smaller pool. Investors will always find the deepest liquidity and lowest slippage on our own AMM.
Perpetual Vaults are slated for release in the coming weeks, and we will look to migrate to these vaults once available in order to streamline the efficient provision of liquidity on these venues.
By partnering with Ondo finance, TempleDAO will expand our visibility and accessibility for $TEMPLE tokens by utilizing a capital-efficient mechanism that supports an existing ecosystem partner in FRAX Finance. We pay a fixed fee to FRAX Finance of 5% APR, pay any potential IL they may suffer during rebalancing, and collect any excess fees (including staking rewards where applicable).
Link to Uniswap pool:
Link to etherscan: