Research Summary
The report discusses the increasing interest of Decentralized Autonomous Organizations (DAOs) in Real World Assets (RWA) to diversify their yields. It focuses on the strategies of platforms like MakerDAO and FRAX to integrate RWA into their treasuries. The report also introduces the Frax Improvement Proposal 285, which introduces a new token, Staked Frax (sFRAX), into the ecosystem. The report further explores how Frax plans to tap into RWA and the potential implications of these developments on the DeFi sector.
Key Takeaways
DAOs’ Interest in RWA
- DAOs’ Diversification Strategy: More DAOs are gravitating towards Real World Assets (RWA) to diversify their yields, especially in the wake of plummeting DeFi yields following the Luna-USDT crash.
- MakerDAO and FRAX’s Approach: Platforms like MakerDAO and FRAX are integrating RWA directly into their treasuries to secure sustainable fixed-income yields. MakerDAO, for instance, boosted its Dai Saving Rate (DSR) to about 8%.
Frax Improvement Proposal 285
- Introduction of sFRAX: The Frax Improvement Proposal 285 introduces a new token, Staked Frax (sFRAX), into the ecosystem. Users can deposit FRAX and receive sFRAX in return, which accrues interest on their token holdings.
- Benefits of sFRAX: sFRAX offers a low-duration savings option for retail users, protocols, bridges, or cross-chain apps holding sFRAX. It aims to become “the best place for single-side stablecoin yield on-chain”.
Frax’s Approach to RWA
- Frax’s RWA Custodian: Frax has appointed FinresPBC as its RWA custodian, which maintains US dollar deposits in FDIC Insured IntraFi savings accounts and earns interest on them. The yield is passed back to the Frax DAO.
- Frax’s RWA Products: To access these yields, Frax has created sFRAX and Frax Bonds (FXB), with sFRAX serving as the zero duration part of the yield curve and FXBs as further out.
Implications for DeFi
- Impact of sFRAX: While sFRAX is not a major technical breakthrough, its impact and implications will be significant in the DeFi sector. It offers the best yield with the least amount of overhead for token holders.
- Future of DeFi: With DeFi yields getting pulverized after the bear market, protocols are now looking at off-chain sources of revenues to make their treasuries more sustainable. This could potentially lead to the birth of a hybrid off-chain/on-chain system fully integrated with the “real world”.
Actionable Insights
- Investigate the Potential of RWA: With DAOs increasingly interested in RWA, there is a need to explore the potential of integrating RWA into DAO treasuries for diversifying yields and securing sustainable fixed-income yields.
- Consider the Benefits of sFRAX: The introduction of sFRAX offers an enticing low-duration savings option. Its potential to become “the best place for single-side stablecoin yield on-chain” should be considered.
- Monitor the Impact of sFRAX on DeFi: The implications of sFRAX on the DeFi sector should be closely monitored, particularly its potential to offer the best yield with the least amount of overhead for token holders.
