Frax Finance has been one of the hottest decentralized finance protocols of 2023. As stablecoins and liquid staking narratives gain traction, native tokens have been on a wild ride.
Frax is using the bear market to double down on the creation and development of its products. Additionally, DeFi protocols aim to provide a decentralized alternative to the congested centralized stablecoin market.
Its FRAX coin lies somewhere between ultra-collateralized stablecoins like USDC and DAI and algorithmic ones like UST.
On January 16th, a DeFi researcher highlighted a new development from the project team.
a partially collateralized stablecoin
Frax uses a two-token system similar to that used by the now-defunct Terra/Luna ecosystem. The volatile FXS token absorbs the volatility of the FRAX stablecoin.
However, mining FXS also requires a variable percentage of USDC, depending on the current collateral ratio (CR). This differentiates it from LUNA because “partial collateralization allows for growth. It also buffers against death spirals,” said the researcher.
During low peg trust, a higher percentage of USDC can be used. During periods of high confidence, such as a bull market, a higher percentage of FXS may be used to mint FX.
Furthermore, Frax is also deeply integrated with the Curve Finance stablecoin arbitrage protocol. It has established strategies such as the 50/50 FRAX/USDC Frax Base Pool, allowing Curve entrants to add their own coins instead of using the existing 3pools.
However, the product driving momentum at the moment is its liquid bet derivative, frxETH. It functions similarly to Lido’s stETH or Rocket Pool’s rETH. Additional returns are possible in addition to the prizes at stake. This is because users can lend frxETH to the Liquidity Pool on Curve to earn trading rewards.
In addition, frxETH can be converted to sfrxETH (staked frxETH) for additional staking rewards. These higher yields are more attractive than directly staking ETH.
FXS Doubles a Fortnight
Liquid Staking Derivatives has boosted the price of its native token, Frax Shares, this year. FXS has almost doubled in price over the past two weeks.
At press time FXS was trading at $9.09, after gaining 3% on the day and bucking the intraday market trend. Remarkably, it is up 120% from $4.13 earlier this year.
FXS has been one of the best performers of 2023. However, it is down 78.7% from its January 2022 all-time high of $42.80.
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