As teased in weekly gauge #61, Singularity, Frax’s new roadmap was published this week by Sam. This is a huge step for one of the DeFi kings, in which they are unifying all of their products under the veFXS umbrella and announcing the comeback of revenue sharing for veFXS. Furthermore, he detailed the path forward for these said products and we can expect some interesting development for the pegged assets notably (FRAX and frxETH).
Fraxtal
In the frax news weekly gauge we dived into the initial mechanisms of FRAXTAL, Frax’s very own appchain. With Singularity, Fraxtal marks teh beginning of a new era, positioning it as a complete ecosystem with its core offerings in place.With the advent of Frax Nation & the Fraxtal Network State, they intend to offer a sovereign, cultural, and digital space for the Frax community.
The key strength of this appchain is the Flox Blockspace system, rewarding every user and developers for using the chain. Initially through FXTL points, it will materialize into actual tokens later down the road. To bolster its launch, Frax assets will be issued on Fraxtal from now on, naturally pushing more value into their ecosystem. By owning the entire stack, from asset to chain, Frax can implement some important features such as account abstraction, aggregated DA, privacy functionality and more… With such flywheel, they are aiming to reach a $100B+ TVL by the end of 2026, a bold but attractive challenge.
In order for the chain to scale, Frax will focus on the onboarding of 23 L3 sub-communities within the next year, with support for developers and partnerships, enhancing the ecosystem's connectivity and utility while getting a larger allocation of FXTL points.
However Frax isn’t reduced to Fraxtal, as most of its business comes from its crown jewels, the Frax assets.
Frax assets
Currently, Frax boasts a diverse portfolio of assets, including FXS, FRAX & sFRAX, frxETH & sfrxETH), FPI, FXB, and FXTL points.
With the Singularity roadmap, all these assets now converge to veFXS as the sole governor. This is culminated by the reactivation of fee sharing, with 50% of the generated yield being allocated to veFXS holders, and the remaining 50% used for the repurchase of FXS and other Frax assets. At the moment, the protocol is repurchasing $FXS tokens at a rate of about $25,000 weekly for redistribution to veFXS holders. With an annual revenue of ~$40 million, this buyback rate is expected to see a substantial increase, leading to weekly buybacks of around $380,000 in $FXS tokens. This could result in a real yield of over 10% APR. Along with the strategic deployment of the FXS liquidity engine, the whole mechanism aims to enhance the TVL, liquidity, and lending capacity of the Frax assets and their home chain, Fraxtal.
Additionally, the integration of FPIS into FXS is designed to streamline governance processes and unite the community around Frax’s flagship asset, FXS. This consolidation will allow 1 FPIS to be exchanged for 1.33 veFXS with a four-year lock, ensuring the total FXS supply remains capped at 100 million tokens. This approach prevents any inflation of FXS tokens, supported by the 16.4 million FXS in the community-governed treasury.
This brings us to one of the most noteworthy aspects of the proposal, which has seemingly flown under the radar: the revised yield structure for sFRAX. The proposal aims to set a cap rate at 50%, with a floor rate of 5.4% IORB(Interest rate On Reserve Balance), indicating a significant surge in the APR for sFRAX. This topic has gained considerable attention in the stablecoin sector, especially with the introduction of Ethena, which has offered yields up to ten times higher than its competitors. This development has prompted key players in the market, including Maker, Aave, Curve, and Inverse, to increase their interest rates to align with the new market dynamics. Frax is joining this trend with this proposal, but it distinguishes itself by incorporating the Ethena stablecoin into its portfolio, specifically within its POL, setting a ceiling cap of 250 million for the sUSDeFRAX Curve AMO. While this move may enhance yields, it introduces a level of risk, given Ethena's relatively short history and its reliance on an aggressive mechanism that, in a worst-case scenario, could jeopardize the ecosystem.
Finally, frxETH is entering its v2 with significant changes. First, its yield will rise by enabling the ability to borrow validators versus additional interest rates. Through such system, frxETH becomes competitive with the LRTs. Furthermore, sfrxETH will become a liquid restaking token (LRT), enhancing once more the yield of the sfrxETH. Users will be able to get the native yield, Eigenlayer points, FXTL points and any yield associated with a DeFi strategy they want to follow. Also on the Eigenlayer matter, Frax is working with them to design the Fraxtal AVS which would use FXS and sfrxETH giving FXS a chain-level staking utility and hopefully allowing sfrxETH to become one of the leading LRT.
It is worth mentioning that Frax aims to develop other pegged assets such as frxBTC which will be backed by native Bitcoin aswell as frxNEAR, frxTIA, frxMETIS and more.
Conclusion
The Singularity roadmap encapsulates Frax's journey and strategic pivot towards a more integrated and fullstack ecosystem with Fraxtal at its core. It lays the foundation for future growth, market capture, and a new era for Frax, promising more developments and discussions in the forthcoming Part 2 of the roadmap which will most likely dive deeper into the FXTL point system and frxBTC.