The world’s first fractional stablecoin and crypto native consumer price index!
#Frax Finance is a multi-chain stablecoin protocol. Frax Finance is also the first protocol capable of providing all three DeFi financial services in an all-in-one platform.
Frax Finance: The overview, updates, and a possible price prediction for the future! Find more on the following video:
#Frax initially works using a fractional algorithm system where a portion of the FRAX stablecoin is collateralized by the dynamic ratio of the FXS token. Currently, the Frax protocol is starting to migrate to a 100% collateralization for FRAX, similar to USDC or USDT.
#FXS is the governance token of Frax Finance, which plays an important role in maintaining the stability of the Frax stablecoin and earning profits for the protocol.
#One of the unique features of Frax is AMO or Algorithmic Market Operations which autonomously performs various open market operations according to its algorithm. AMO aims to benefit the protocol and maintain the stability of FRAX. FXS token holders have the power to control what AMO does and determine the allocation of its profits.
#The Frax Finance ecosystem is divided into several financial products: Fraxswap, Fraxlend, Fraxperry, and Frax ETH.
The Frax Finance Stablecoin Protocol, also known as Frax, is a stablecoin protocol that issues decentralized stablecoins and contains subprotocols to support them. Frax currently issues 3 stablecoins. FRAX, a USD pegged asset.
The Frax Price Index (FPI) stablecoin, the first stablecoin pegged to a basket of consumer goods created its own unit of account separate from any nation-state-denominated money.
FraxEther (frxETH), pegged to ETH for use as a replacement for WETH in smart contracts. The Frax Protocol also has 3 subprotocols within it that integrate its stablecoins: Fraxlend, Fraxswap, and Fraxferry.
The FRAX Token
The FRAX token is the native stablecoin of the Frax Finance ecosystem. Because anyone can mint and redeem the FRAX token at any time, supply and demand are balanced by arbitrageurs on the open market. Accordingly, when the price of one FRAX token exceeds the price target of $1, users can use $1 of value to mint FRAX tokens that can be sold at a higher value.
The only way to mint FRAX tokens is by locking up value. However, the backing of the FRAX token varies during different phases. During the collateral phase, the FRAX token uses 100% collateral. However, during the fractional phase, part of the value entering the system for backing comes from FXS tokens, which the protocol then burns and removes from circulation.
The FXS Token
FXS is the value accrual and governance token of the entire Frax ecosystem. All utility is concentrated into FXS.
The FXS token is the utility and governance token of the Frax Finance ecosystem. Unlike many decentralized finances (DeFi) protocols that adopt a traditional decentralized autonomous organization (DAO) model, Frax Finance follows a more streamlined governance approach that aligns with Bitcoin’s ethos.
This approach results in fewer protocol parameters for FXS token holders to debate changing. They can influence the addition of new collateral pools or adjustments to existing ones. Additionally, FXS token holders have the power to vote on proposals to modify fee structures and the collateral ratio rate.
Initially, the FXS token supply is 100 million, but it is likely to adopt a deflationary mechanism with the growth in demand for minting FRAX tokens.
Moreover, the market cap of the FXS token has a positive impact on the stability of the FRAX token. This dual-token framework enables maximum value accumulation while maintaining the stability of the stablecoin protocol. By staking FXS tokens, holders can engage in platform governance, and receive yield farming boosts, and veFXS token rewards.
The veFXS Token
Inspired by the Curve Finance veCRV mechanism, the veFXS token model is a vesting and yield system.
By locking up FXS tokens, stalkers receive veFXS tokens, with the number of tokens proportional to the duration of the stake. For instance, locking up 100 FXS tokens for four years yields 400 veFXS tokens.
However, the veFXS token is non-transferable and cannot be traded on liquid markets. Instead, it operates as an account-based point system that reflects the vesting period’s duration relating to the locked FXS token balance for a specific wallet address. As the FXS lockup expiry date nears, these balances decrease linearly, which aims to incentivize long-term staking.
Governance
Frax Finance employs a simple governance system that is a derivative of the Compound Finance governance structure.
To vote on proposals that alter the protocol, FXS token holders must stake their tokens. Through locking up FXS tokens, users receive veFXS tokens, which are vital for casting votes.
Farming
Frax Finance offers liquidity programs and staking incentives through liquidity pools on the Uniswap decentralized exchange (DEX). Each liquidity pool will have unique incentives and emission rates for various pairs.
Holders of veFXS tokens will receive farming boosts in these liquidity pools, which will grant additional rewards for external farming and staking opportunities proportional to their veFXS balance. Therefore, the veFXS token helps assign voting power to FXS token holders in the long run while encouraging staking.
Algorithmic Market Operations (AMOs)
Frax v2 introduces multiple AMO modules, each with its own specific tasks. These modules are designed to maintain the value of FRAX, generate profits and revenue for the protocol, and enable Frax to adjust dynamically to changes in market conditions.
Investor AMO: Seeking stable interest in AAVE, Yearn, etc protocols using idle USDC collateral. Frax governance can choose the protocols that the Investor AMO can use to earn interest.
Curve AMO: Deploy USDC and/or Frax collateral to Curve, Convex, and StakeDAO to deepen the liquidity pool for Frax-based assets.
Curently, the Curve AMO also runs bribe operations on Curve involving CVX tokens. This operation generates profits for FXS holders.
Liquidity AMO: Provides liquidity for FRAX-based pairs on Fraxswap, Uniswap, and other AMMs. This operation also accumulates a small profit through interest from being a liquidity provider on AMMs such as Uniswap.
Lending AMO: Mint FRAX into loan market applications with over-collateralization (collateral that exceeds the borrowed value) requirements so that the CR of FRAX is not affected.
Frax Finance Subprotocols
Fraxswap
Fraxswap, based on Uniswap V2 code, is the first automated market maker (AMM) with a time-weighted average market maker (TWAMM). TWAMM is particularly useful for large purchases or sales as it spreads them out over a longer period of time to avoid significantly affecting the price.
Through TWAMM purchases, the Frax protocol uses this feature to balance the FRAX peg and return protocol profits to FXS holders.
Fraxswap will be utilized by the Frax Protocol for various tasks such as buying back and burning FXS from AMO profit, printing new FXS to stabilize FRAX, and making purchases or sales based on market conditions.
Fraxlend
Fraxlend is a lending platform that offers loans for multiple ERC-20 assets within the Frax ecosystem. The service is non-custodial and lenders receive a token, which accrues interest from the loan. The platform leverages oracle technology to offer the best pricing for both borrowers and lenders, with interest rates determined through algorithmic calculations.
Fraxferry
Fraxferry is a secure platform that facilitates the transfer of Frax-based tokens across multiple blockchains. Compared to other bridging technologies, Fraxferry’s technology is more secure, albeit slower in processing token transfers. Frax developed this platform to address concerns around bridge exploits, which are common occurrences in the crypto industry.
Frax ETH
Frax started offering ETH staking services in October 2022, with frxETH being a stablecoin that maintains a price peg to the ETH asset. However, staking interest in ETH is only possible if frxETH is locked and exchanged for sfrxETH, an ERC-4626 token that earns interest from the Frax ETH validator and additional profits. With its incentive program, sfrxETH can potentially provide a higher APR compared to other liquid staking platforms.
Frax Finance Unique Value Propositions
The platform provides three types of stablecoins and has various incentives for participating users.
Frax Finance has several protocols that can meet the needs of DeFi users such as stablecoin protocol, AMM, and lending protocols.
Incentive mechanisms that benefit FXS and FRAX token holders through various AMO operations. FXS token holders can also manage all operations performed by the Frax AMO through a decentralized governance system.
Frax Finance provides users with a wide range of profit-making options, including frxETH, which can earn more liquid staking interest than other platforms.
Price Prediction
Based on our analysis by cryptocurrency experts regarding the price of FXS, FXS is expected to reach at least 150$ in the near future.
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Frequently Asked Questions
Is Frax Finance a good investment?
Whether a high-risk asset like Frax Finance is a suitable investment for you would depend on your risk tolerance, investing goals and timeframes, experience in cryptocurrency markets, and other personal circumstances. Always conduct your own due diligence before investing. And never invest money that you cannot afford to lose.
Will the FXS price go up?
Based on our analysis by cryptocurrency experts regarding the price of FXS, FXS is expected to reach at least 150$ in the near future.
Should I invest in Frax Finance?
Whether Frax Finance is a suitable investment for you would depend on your risk tolerance, investing goals and timeframes, experience in cryptocurrency markets, and other personal circumstances. Always conduct your own due diligence before investing.