The Temple Flywheel: Part II
STAX: The Liquidity Layer for Temple FRAX Gauge
The TEMPLE Team is eager to add value to token holders, the FRAX ecosystem, and build confidence in our faithful community. We can achieve these goals by leaning into what is working and building on top of it. The FRAX ecosystem flywheel (Part I here) is still spinning, but we want to rev it up to the next level. But first, we need to introduce STAX Finance, TempleDAO’s next major release.
What is STAX?
STAX Finance exists so you can enjoy maximum FRAX/TEMPLE gauge rewards without having your capital locked for three years. In essence, STAX is a reward boosting liquidity layer for the FRAX/TEMPLE gauge.
Why is this needed? Because FRAX gauges are time-dependent, unlike Curve gauges. While LP can be staked on Curve and removed at any time, FRAX incentivises locking of LP for up to 3 years. Locking can deliver up to 3x the yield, increasing returns from say 40% to 120% pa. Boosting with veFXS can increase yield even further.
So you want high yield but don’t want to lock your capital for 3 years (21 DeFi years)? STAX fixes this by providing liquidity for max-locked Frax gauge positions staked through STAX.
How is this achieved?
- You provide $TEMPLE and $FRAX to STAX.
- STAX generates LP on the Temple AMM with provided tokens.
- STAX takes the remaining LP tokens to dynamically add depth to the xLP/LP liquidity pair, providing exit liquidity.
- STAX max-locks most of these tokens in the Frax gauge to generate rewards.
- You receive xLP tokens, a liquid 1:1 mirrored asset to the LP tokens.
- You stake xLP tokens on STAX to receive Frax rewards ($FXS and $TEMPLE).
- You become an enjoyooor of max-locked yields while simultaneously maintaining your liquidity, courtesy of a xLP/LP secondary market.
- You may also receive $STAX rewards in the future.
Sounds good? Liquidity as if you didn’t lock your LP, but with a much higher yield! Naturally, the reluctant staker traumatized by lockooor’s regret will wonder: “How can I be sure the xLP tokens will be liquid?” This brings us to the next piece of the puzzle.
TempleDAO Will Support Its LP Peg
The idea of a wrapper for illiquid positions is not new. The challenge is how to maintain parity to the native asset. We believe that TempleDAO can be the buyer of last resort to support the peg of its own native LP token to the synthetic xLP asset on STAX. The reason is that the Protocol does not need to max-lock its LP tokens and can always provide the necessary liquidity to maintain the peg rebalancing operations (i.e. buy xLP on Curve and stake). The Protocol is glad to swap the unlocked LP token for xLP which gives relatively higher FXS rewards compared to the native asset. Furthermore, STAX can direct a portion of its platform fees to the xLP/LP pair to incentivize LP farmers to enter the stableswap position.
In short, we see STAX as a TVL blackhole to drive FRAX liquidity into the FRAX/TEMPLE pair and sustain a prominent position in the FRAX ecosystem. In this product vision, STAX becomes the place for best-in-class Frax ecosystem yields, with the deepest liquidity and highest boosted rewards.
How TempleDAO & STAX Will Create a FRAX/TEMPLE LP Blackhole
- Sustain current bribe cadence to maintain sticky TVL.
- Pull from FRAX reserves and pair with TEMPLE.
- Mint the xLP token (mirrored asset for the TEMPLE/FRAX LP).
- Launch FRAX/TEMPLE LP and xLP pair on Curve.
- Back the TEMPLE/FRAX xLP/LP peg as a buyer of last resort using protocol-owned unlocked LP tokens.
- Further incentivise LP providers to stake into FRAX/TEMPLE gauge via $STAX.
Narrator: “But wait, there’s more!”
Safe Leverage Through Deep and Diversified Liquidity
Leverage has been a recurring topic of conversation within the Temple community, and for good reason. Having Temple assets as approved collateral in a credit facility vastly enhances the value proposition and utility overall–for both the DAO and the community. Let’s explore this side of things.
Deep liquidity is the key to TempleDAO’s leverage strategy. By aligning ourselves with FRAX and other premier stablecoins such as FEI, the native TEMPLE and the Temple LP token become blue chip collateral assets on Fuse lending pools. Anyone–particularly TempleDAO–who deposits the native LP token will enjoy a high loan-to-value (LTV) ratio on our custom Fuse pool. This will bring additional stability and sustainability to our leverage because the collateral is only 50% exposed to TEMPLE price.
Credit Facility For TEMPLE Instruments
Once STAX 0.1 launches, we hope to capture $50-$100M in FRAX gauge TVL. A liquidity pool of this magnitude is very deep for a non-stable coin. From here we add a few final pieces to reveal the big picture:
- Add TEMPLE and FRAX/TEMPLE LP into our custom Fuse pool as approved collateral and include TEMPLE/FEI shortly thereafter
- Enable LP token and TEMPLE borrowing at 60–80% LTV
- Work with partners and lending programs like FEI Turbo to supply liquidity (see our comprehensive partnership with Fei protocol here)
- Reset Threshold price minting on the Temple custom AMM (50–100% of upward slippage from buy pressure goes straight to Treasury)
Where this all leads…
TempleDAO is poised to attract liquidity providers in a sticky and non-dilutive way and generate deep liquidity north of $50M TVL. Users will be able enjoy best-in-class FRAX yields through the FRAX/TEMPLE LP. Although bribes have initially set the flywheel in motion, they are not critical to sustaining TempleDAO’s dominant position in the FRAX ecosystem.
TEMPLE is a first-in-class token that offers low volatility with a guaranteed price floor that rises over time, making it an ideal collateral and pairing partner for stablecoins. Through a custom Fuse pool on Rari Finance, TempleDAO will facilitate and manage lending against robust assets such as FRAX/TEMPLE, FEI/TEMPLE, and native TEMPLE. The custom Rari Fuse pool is also the primary source of liquidity through potential lending partnerships.
The Temple custom AMM and its threshold price mechanic will prevent an ICHI-like debt collapse by sending new buy pressure directly to the Treasury as intrinsic value to raise the IV floor and control runaway price. Our stable coin partners will receive enhanced monetary velocity and increased demand from their TEMPLE pairings and mitigated debt risk.
The Temple Core Product will also benefit from this flywheel as the more people lock and deposit TEMPLE into STAX LP farms, the more natural leverage enjoyed by the Core vault stakers since the LP farmers have no claim to Core vault yields.
TL;DR The TEMPLE community wants to:
- Earn best-in-class yields from TEMPLE staking vaults.
- Deposit into an LP position to reap max rewards through STAX.
- Enjoy maximum leverage on TEMPLE and TEMPLE LP assets.
Through STAX, the Temple flywheel will achieve all of the above.
Are you feeling bullish, anon?