The Temple Flywheel: Part I
fly·wheelnounA heavy revolving wheel in a machine that is used to increase the machine’s momentum and thereby provide greater stability to the machine.
The general concept of a flywheel existing within the Temple ecosystem aligns perfectly with our core growth vision. Discovering and implementing a sustainable flywheel is something we’ve been diligently working towards, and we’re pleased to reveal the details of this initiative to the Temple community in this two-part Medium series.
Our journey began with a simple question: What is the best way to increase and retain veFXS gauge share for Temple on Frax Finance?
The Pitch.money bribing platform launched in March of 2022. Marketing itself as the Votium for the FRAX gauge, the platform works like this for Temple:
- TempleDAO offers bribes in TEMPLE or FRAX to veFXS voters to send more FXS rewards to our FRAX gauge (FRAX/TEMPLE).
- The weekly vote takes place and if FRAX/TEMPLE reaches a certain threshold of gauge weight relative to the total votes cast, then those veFXS voters who voted for the Temple gauge can claim the bribe. Pitch.money was later updated to a more flexible pricing model where TempleDAO would agree to pay a fixed bribe amount per 1% of veFXS votes up to a maximum.
- The higher the gauge weight, the higher the FXS rewards to TempleDAO since it owned almost all of the Liquidity Pool (LP) tokens in the gauge.
TempleDAO deployed its bribe strategy on March 24th, 2022 quietly, but over the next few days, people began noticing that our gauge weight had grown from 0.7% to 4% by the end of the first week, and then to 10% by the end of the second week.
The higher our gauge dominance, the higher the FXS emission rewards directed to the Temple LP. Suddenly TempleDAO was pulling in 40–50–60%+ APY or more in FXS emissions from our gauge.
Initially, TempleDAO received over 90% of the rewards sent to the FRAX/TEMPLE gauge because it was the dominant LP provider. This was a dominant share of a very juicy weekly FXS emissions yield of ~35% base APY (unboosted).
Whales began to take notice and wanted in on that sweet FXS action. Because we didn’t build a front-end for adding liquidity, they flooded into our Discord server desperately trying to figure out how to deposit their assets into our custom AMM to reap those LP farming rewards.
In order to deposit into this LP, the whale farmer needed to buy TEMPLE. Once they deposit TEMPLE+FRAX into our LP, it benefits them to also vote with their own FXS stack so that they can get a boosted return on their LP position. The price of $TEMPLE increased from $0.65 to $0.70. People didn’t understand why the price was pumping. The FOMO was just starting.
The Temple Flywheel Strategy
- Pump bribes — We sustain weekly bribes on Pitch.money to incentivize FXS whales to vote for the FRAX/TEMPLE gauge.
- Self-interested veFXS Votes increase— veFXS voting for us increases as people buy/lock FXS to get a bigger veFXS boost for their TEMPLE LP position.
- Gauge Emissions Rise — TEMPLE and FXS token price experience buy pressure as demand rises for both. Yields for our LP rise both on a gauge-weight basis and price basis as people add to the LP and lock for an extended duration. Volume on the AMM skyrockets.
The three keys required to make this all work are specific to TEMPLE:
- FRAX gauge listing — Be listed on FRAX and own a significant portion of the Uni v2 LP tokens.
- Ample bribes — Paid in FRAX or TEMPLE, not a useless governance token.
- Robust token price floor and deep liquidity — Mitigate Impermanent Loss for farmers. Bribes don’t tank the token price.
TEMPLE is uniquely positioned with all three attributes.
LP Snapshot (as of April 30th)
Let’s examine the performance of the FRAX-TEMPLE Gauge at the time of snapshot:
- 40–200% APR rewards on our LP
- $40M in LP TVL
- 24% of emissions (20.6K FXS)
At the end of April, TempleDAO had spent less than $500K and suffered almost no dilution to generate over $400K in profits, acquire $25M in TVL, and lay claim to a stunning 24% of veFXS votes.
A Bump In The Road & The Bigger Picture
Of course, the market has a way of disrupting even the best-laid plans. Two things changed in May:
- The bear market deepened and $FXS price dropped from $25➞$7.
- Frax gauge competition heated up as Aave and Convex entered the fray. An additional 34M veFXS votes from those two Protocols completely tilted the field although the total number of veFXS votes for Temple gauge remained the same. As a result, Temple gauge dominance dropped to 15% and unboosted APY dropped to 9%.
Is it Game Over for our Frax gauge yield? Has the Temple Flywheel all but ground to a squeaky halt?
Stay tuned for Part II of this series, where we give an introduction to STAX and how it accelerates the Temple flywheel by:
- Driving massive liquidity depth for TEMPLE.
- Boosting TEMPLE/FRAX gauge yields without sacrificing liquidity
- Enabling safe DAO Leverage
It’s coming sooner than you think. More alfa dropping right around the corner, anon. Be ready.