Frax Finance, the decentralized finance (DeFi) platform, has been making significant strides in the crypto space, and its native token, $FXS, holds immense potential for investors in 2023. With an expanding ecosystem of DeFi products, Frax Finance is poised to become a central player in the DeFi landscape. Here are five key reasons why this emerging platform demands attention and how you can leverage its offerings.
What you'll learn 👉
1. frxETH & sfrxETH: The Power of Staking
The LSD narrative has captivated the crypto world, and Frax Finance’s frxETH has emerged as the clear winner. Staking APR for frxETH is an impressive 6-10%, surpassing its closest competitor by approximately 5%. The frxETH token is backed 1:1 with ETH, without any rebasing attributes or staking yield accrual. Once withdrawals are enabled, frxETH will function similarly to wETH, while offering compatibility with various DeFi applications, including the ETH/frxETH Curve pool.
Additionally, Frax Finance, being a significant holder of $CVX, enables users to earn a high yield of around 10% on Convex Finance, leveraging Curve swap fees, $CRV, $CVX, and $FXS.
2. FRAX & FXS: Evolution of Stablecoin and Liquidity Engine
Frax Finance initially introduced $FRAX as a fractionally algorithmic stablecoin, requiring users to deposit $USDC and burn $FXS to mint $FRAX. Since then, the platform has enhanced its model with FRAXV2, transforming $FRAX into a robust liquidity engine accompanied by an array of products.
These include Algorithmic Market Operations (AMOs), FraxSwap, FraxLend, FraxFerry (native bridge design), ETH liquid staking, and FPI (a stablecoin pegged to the US inflation rate). With approximately 90% collateralization and the support of AMOs and substantial protocol-owned liquidity, every $FRAX on the market can be redeemed for $1, ensuring the stability of its peg. Furthermore, the revenue generated from these products directly benefits $veFXS holders.
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3. AMOs & FXS1559: Enhancing Flexibility and Value Capture
FRAXV2 introduces a novel approach to manage the Collateralization Ratio (CR) of $FRAX while generating increased revenue through AMOs.
Four types of AMOs stand out: Investor AMO utilizes idle $FRAX collateral across DeFi applications, such as Convex, Aave, and Compound, to earn yield; Liquidity AMO deploys $FRAX into FRAX/Stablecoin liquidity pools on other DEXs, earning revenue from swap fees; Lending AMO lends out $FRAX on approved DeFi lending protocols, enhancing $FRAX flexibility; Curve AMO deploys $FRAX and $USDC into Curve Finance liquidity pools, increasing protocol-owned liquidity.
Moreover, FXS1559 acts as a utility and value capture mechanism for $FXS. Any revenue beyond the $FRAX collateralization ratio is distributed to $veFXS holders, encompassing yield, transaction fees, and interest generated by AMOs.
4. Curve & Convex: Strategic Collaborations for Stability and Liquidity
Frax Finance stands as the largest holder of $vlCVX, granting the platform significant voting power over $CVX and $CRV emissions. This influential position enables Frax Finance to offer some of the highest stablecoin yields, bolstering $FRAX with deeper liquidity on Curve. The collaboration with Curve extends further with the creation
of the FRAXBP (Frax basepool), which solidifies Frax’s liquidity. When launching on Curve, stablecoins are required to pair up with one of two basepools: 3CRV (USDT/USDC/DAI) or FRAXBP (FRAX/USDC). Due to Frax Finance’s substantial CVX holdings, bonding with the FRAXBP typically offers higher yields compared to the 3CRV basepool, driving increased demand for $FRAX.
5. Roadmap: Ambitious Goals and Expansion Plans
Frax Finance sets its sights on reaching a market cap in the trillions and becoming the base risk-free asset in DeFi. In a recent interview with Flywheel Finance, Frax Finance’s founder, Sam Kazemian, expressed the primary goal for the next six months as the growth of infrastructure surrounding $FRAX to strengthen its use cases. Additionally, the team envisions opening a Fed Master Account (FMA) in the long term.
This strategic move would involve depositing dollars directly into the Fed treasury’s ledger, providing access to US Treasuries. With the ultimate audit capability offered by the FED, $FRAX aims to become one of the closest alternatives to a risk-free dollar. While this ambitious goal may take a few years to materialize, the Frax team plans to release an upcoming roadmap, offering further insights and potentially introducing new features such as Frax on Cosmos, frxETH basepool, and frxBTC.
In light of these developments, how should investors position themselves? Consider locking up $FXS for $veFXS to earn real yield from AMOs, frxETH, and other offerings. However, given the market’s current uncertainties, some investors may opt for a spot $FXS position to allow for profit-taking. It’s important to conduct further research on Frax Finance’s additional offerings, such as FPI and FraxLend, as there is much more to explore in this rapidly evolving ecosystem.
