Frax is a pioneer stablecoin protocol that has established a proven, sustainable model for pegged stablecoins, that is also on-chain and transparent, unlike USDC or USDT. They have also expanded to provide Frax lend and Frax swap, and are soon planning to release their latest innovation: frxETH, a liquid ETH staking derivative.
In episode 18 of the Flywheelpod, hosts Dave and Kiet welcome Jack Corddry, a core developer at Frax. He goes over all of the details of frxETH, and explains what the future has in store for Frax.
Read our notes below to learn more.
The problem with PoS ETH
Many people can’t afford to run their own ETH validator with 32 ETH on beacon chain.
There are technical steps involved in setting up a validator.
How Can Frax Solve This?
Liquid staking derivatives (LSDs) are similar to stablecoins in that they are meant to be pegged to the original asset.
Rather than deal with manually setting up a validator, frax plans on providing two tokens that users can hold:
frxETH: functions as a stablecoin pegged to ETH, similar to Wrapped ETH (WETH)
sfrxETH: token which accrues ETH staking rewards.
Over time users can redeem sfrxETH for an ever increasing amount of ETH due to the staking reward accrual.
sfrxETH has a less stable peg, as it changes with the staking rewards.
Other protocols that have a one-token model make sacrifices to their tokenomics e.g., stETH is a rebasing token which can cause smart contract logic complications.
frxETH will be compatible with the DeFi services Frax already provides, including Frax lend and Frax swap.
How frxETH works
Frax based pool gives other protocols deep liquidity.
Frax has CRV and CVX reserves which will help them build liquidity pools with higher yield for ETH.
frxETH also receives higher yield because it earns incentivized rewards from frax lend, frax swap.
Users can send their ETH to frxETH minter and receive frxETH in return.
sfrxETH is a softer peg than FRAX original stablecoin, because ETH validator withdrawals still have not been made live.
frxETH Revenue
Initial ETH staking yield, which is locked until ETH withdrawals are active.
In-house ETH nodes have performed very well.
Will focus more on running MEV-boost alongside ETH validators.
Tips in MEV, users can specify an address that this gets sent to.
Frax will charge less fees than protocols such as Lido.
frxETH Roadmap
Down the line, frax could collateralize frxETH with rocket pool ETH.
Frax ETH based pool could become a liquidity hub for staked ETH.
The more LSD competition, the more secure ETH network is.
Team will continue to develop the fee structure.
Frax wants to be a one-stop shop for DeFi.
Frax will gain ownership of ETH by providing ETH DeFi services.
Frax is changing governance structure: a timelock for transactions will be implemented which gives the community a voice over these decisions while they are in queue.
Whats next for Frax?
Immediately focusing on frxETH, could launch within a week.
Down the line will build out more features including:
Frax oracles.
Swap router upgrades.
Frax ferry: aims to simplify the cross-chain bridging issue for Frax assets.
A Frax bridging solution would make it easier to deploy Frax on other chains.
Challenges for Frax
There is currently a core problem with ETH that prevents LSDs (including sfrxETH) from being able to track ETH validator performance onchain, which forces them to rely on oracles or centralized entities for data.
Frax is changing governance structure, however, acting via the more centralized multisig has allowed the protocol to act very quickly in certain situations which has been of great benefit.
Some people in DeFi just aren’t aware of the solutions that Frax already provides.
Some people also focus on FXS price over the services that Frax provides.
What’s it like working with the Frax team?
Team mostly works on their own tasks and shares their progress twice a week.
Team has a roadmap to accomplish and builds accordingly.
Each Frax service has their own team dedicated to it, but everyone helps give feedback on new developments.
Team is constantly having their work audited to make sure user funds are always safe.