What is FPI ?
- FPI is an instrument that is inflation-pegged, 100% collateralized by FRAX, with yield backed by AMO strategy earning and FPIS auction in case of deficit.
What does it offer?
-
FPI offers US inflation pegged yield, which realised 7% APY in Q4 2021.
-
It is implemented by a peg price that is updated MONTHLY when inflation rate is announced by US government: https://www.bls.gov/cpi/
-
FPI peg price appreciation is smoothed out and increased per second in contract implementation. (check currPegPrice in CPITrackerOracle: https://etherscan.io/address/0x66B7DFF2Ac66dc4d6FBB3Db1CB627BBb01fF3146#code)
-
The TrackerOracle is owned by Frax Multisig:
-
Oracle job is maintained by Chainlink Operator with jobId: 0x3163333039643432633730383462333462316163663161383965376235316663
How to mint and redeem FPI?
-
Anyone can mint and redeem FPI with FRAX based on the latest peg price with fixed 30bps fee, FRAX is hard-pegged to 1 USD (some checks to make sure FPI is closely pegged in market AMM during mint & redeem).
-
FPI has a cap of 150m total circulation. This parameter is configurable by FPI Multisig.
Treasury Backing
-
Currently there is no AMO borrowed asset through the smart contract AMO functions, FPI is backed by:
-
12.5m FRAX in the FPI ControllerPool, for immediate FPI redemption.
-
67m worth of LP position in the FPI Multisig. 66.5m in Curve & Convex and 0.5m in Uniswap.
-
2.5m Frax in the FPI multisig.
-
-
totalling 82m which matches the 77m circulating FPI valuation with latest peg price at 1.065 (as of Jan 2023). Meaning FPI is 100% backed by FRAX, even though the treasury has some exposure to FPI itself that contributes to an inflated total supply. (meaning that 82m Treasury actually “OWNS” some FPI itself)
-
One thing that is concerning to the decentralization is that there is a backdoor recoverERC20 function in the FPI ControllerPool. It allows the Multisig to pull any token out (INCLUDING FRAX). The actual AMO operation is mainly conducted through this method, instead of the pre-defined AMO operation in the smart contract.
How does FPI Treasury upkeep the yield?
-
The realised yield in Q4 2021 was around 7% APY, which is considerably higher than the risk-free rate of other stablecoins. The FPI Treasury achieves this by:
-
farming CRV and CVX on the Convex LPs (yes which comes from FXS emission/bribe)
-
collecting 0.3% upon minting/burning FPI
-
By AMO operation if someone purchases/sells FPI with premium on the market. (no AMO deployed atm)
-
-
If the above does not generate enough yield, FPIS would be sold for FRAX to cover the gap, FPIS is the governance token of FPI. There are 1.3m FRAX in the FPIS/FRAX AMM atm.
 https://docs.frax.finance/frax-price-index/overview-cpi-peg-and-mechanics
Lack of Clarity in ControllerPool Migration
Accounting during migration to current ControllerPool:
- FRAX Multisig transferred (transfer, not buying FPI or anything) 7.5m FRAX to the current FPI ControllerPool in the beginning; However, on that time there were 18m FPI in circulation. https://etherscan.io/tokencheck-tool


- There were still 2.7m FPI in fpis.eth which was the initial holder upon initial mint (https://etherscan.io/address/0xf2c4592813b5b3f79ac522e4efb2c19a666e937c), at the time of this transfer. Even discounting 2.7m there were 18 - 2.7 = 15.3m FPI outstanding. This leads to a gap in the reconciliation during the migration. Would need more background from the FRAX team on when they later sent back enough FRAX to maintain the 100% collaterialization.
Is FPI riskier than FRAX?
FPI risk in additional to FRAX:
-
Robustness of yield source
In 2021, the APY of FRAX/FPI was quite high as the curve bribe is in unit of FXS and FXS had huge momentum and liquidity. No AMO or FPIS auction was needed to happen. But now the yield of FRAX/FPI is on sub-2% APY level as the price of FXS enters into bearish territory together with the wider market, it causes concern over the need to leverage AMO and even selling FPIS to cover the deficit in order to maintain the higher inflation-pegged yield. -
Decentralisation:
As mentioned above, even though the circulating FPI is 100% backed by treasury, the fund is split into a multisig and a smart contract respectively. Only the fund in smart contract is immediately and permissionlessly redeemable. In order to enable a whale to withdraw, manual intervention from the FPI multisig is needed to send back the fund. Further, there is an recoverERC20 function that enables the FPI multisig to pull FRAX out.
Summary:
FPI is an instrument that is designed to be pegged to the US inflation rate. It has the below pros and cons:
Pros:
-
Offers an attractive yield source that is pegged to the US inflation rate
-
Can be easily minted by and redeemed for FRAX by paying fixed 30bps fee
-
Yield is back-stopped by FPIS liquidity.
Cons:
-
Redemption NOT fully decentralised;
-
only some funds stays in the ControllerPool smart contract,
-
a major part remains in the Multisig and invested in the Curve & Convex Pool. This part is subject to centralisation risk.
-
-
There is a lack of clarity surrounding the accounting during the migration to the current ControllerPool.
-
Concern over the robustness of yield sources
Appendix:
-
FPI stats: https://stats.frax.academy/
-
FRAX Risk Assessment:
 https://cryptorisks.substack.com/p/risk-assessment-frax-governance
-
FPI Multisig:
 https://debank.com/profile/0x6a7efa964cf6d9ab3bc3c47ebddb853a8853c502
-
There were legacy FPIControllerPools which could mint FPI before the current FPI ControllerPool went into production. so the current contract is started with non-zero FPI circulation.
 https://etherscan.io/address/0x94cff60496c71a0302ababa0da1a1f21626f9613#code
 https://etherscan.io/address/0x309ac8840f9b4c7eeb5bab1e89669d8dbb86c060#code
-
There is a TWAP AMM (FRAX/FPI) price in UniswapV3 is monitored in the ControllerPool SC against the peg_price. This is used as a check against the peg_price from CPITracker.