Since the launch of Frax initial product in December 2020, the project has continued to innovate while adapting to new DeFi trends and narratives, always one step ahead. From algorithmic stablecoin to Layer 2, passing by RWA-based strategy and ETH derivatives, it makes no doubt that the project was able to adapt and develop its product market fit in the crypto space.
Following the recent release of FRAXTAL mainnet, let's take a look at the latest news from the offices of the DeFi giant.
Fraxtal
Fraxtal is an EVM-compatible rollup built on the Optimism Superchain stack, guaranteeing full EVM equivalence, Ethereum alignment and security, using frxETH as gas currency and facilitating the deployment of dApps.
As a modular rollup, Fraxtal will feature several infrastructure and middleware components, including an in-house data availability module developed by the Frax Team. Which according to Vitalik is a necessary component for the roll up security, “The core of being a rollup is the unconditional security guarantee: you can get your assets out even if everyone else colludes against you. Can't get that if DA is dependent on an external system.”
Reminder:
Monolithic blockchain: Transaction execution, consensus, and data availability all handled on the same layer. Nodes in a monolithic chain are responsible for executing consensus, ensuring data availability and validating transactions.
Modular blockchain: separating the execution layer (where transactions and state changes are processed) from the consensus and data availability layers.
To incentivize and bootstrap utilization of the chain, Frax opted for the latest DeFi meta based of point systems, delaying the linear liquidity mining incentives for a larger airdrop event. Instead of accruing tokens in real time, you accrue points that will equate to a pro rata allotment of an airdrop at a future date in time.
Theoretically, by issuing token rewards in a single disbursement, as opposed to gradually at set intervals, all participants have an even playing field. Early participants are discouraged from dumping their tokens as they are rewarded, progressively lowering the value of expected rewards over time, which dissuades newcomers from also deciding to participate if they don’t have first mover advantage.
FXTL can be accumulated by interacting with smart contracts, using on-chain applications, and holding specific tokens (presumably FRAX, veFXS and frxETH) on Fraxtal.
“This is much more powerful than “gas rebates” or “sequencer fee sharing” because projects earn much more rewards per $ of gas spent on their contracts than any fee sharing program can match.”
Fee switch
https://twitter.com/fraxfinance/status/1761102567667548277
Following the fee switch proposal posted on Uniswap governance, many DeFi 1.0 protocols have experienced a surge in interest from the market participants. Amidst the numerous catalysts in action for the FRAX ecosystem, and despite the Uniswap proposal getting rejected, Sam Kaz Frax’s founder expressed in the community chat his will to let Frax governance vote a similar fee switch proposal.
As the FRAX Collateral Ratio (CR) approaches 99.8%, conversations are emerging about how to best utilize the earnings generated by FRAX. Initially, as mentioned previously, redirecting fees back to veFXS holders has been a primary consideration. However, a critical aspect often overlooked is that upon reaching a 100% CR, the FRAX treasury will no longer need to engage in TWAP selling of FXS to bring the CR up. This change, combined with the fee switch, should positively influence FXS's price action in the forthcoming weeks.
Furthermore, Sam has hinted about a whole new framework regarding the FXS called singularity. This proposal is set to “address what everyone has wanted and provide unifying direction and full sense of purpose and utility.”
Vote incentive boost
Asymmetry is an innovative, high-yield DeFi option for LSTs and LRTs with real yield backing. Users deposit ETH, and the platform manages the rest, using Frax’s sfrxETH and Convex vlCVX and delivering 10+% APY—triple the typical staking rewards. Look forward to additional features such as restaking through Eigenlayer and new leverage opportunities soon.
afETH is a hybrid LST combining 70% sfrxETH and 30% vlCVX, offering the market's highest yield for an “LST”.
sfrxETH stands out as a premier choice for those seeking high-yield Liquid Staking Token (LST) strategies, offering one of the highest yields in the market. This impressive yield is attributed to its unique combination of frxETH and sfrxETH components.
Unlike frxETH, which on its own does not qualify for staking yields, sfrxETH operates as an ERC-4626 vault designed specifically to capture the staking yields from Frax ETH validators. This setup ensures that while all frxETH are actively employed by Frax ETH validators, only sfrxETH holders benefit from enhanced APRs. Moreover, the introduction of FRAXTAL and the adoption of frxETH as a gas token are expected to further increase sfrxETH yields, widening the gap between frxETH and sfrxETH supply.
afETH could definitely become a blackhole for the most degens sfrxETH holders looking to get an extra yield on top of their position.
Moreover, by leveraging Convex's vlCVX, afETH integrates the vote incentive mechanism, significantly amplifying buying pressure on CVX and effectively reducing its circulating supply. While an increase in vlCVX supply might dilute the impact of a constant volume of voting incentives, the demand afETH generates for CVX is expected to maintain the value of rewards per vote.
This strategy acts as a significant boost for FRAX, which ranks as the third largest holder of CVX. The integration heralds a continuously improving cycle for the FRAX ecosystem, promising enhanced benefits and ecosystem growth.
Overall, Frax has not only survived the bear, but kept innovating and building top tier products on the DeFi stack, entering into a new up trend cycle with a solid toolsuite to promote and generate significant revenues to redistribute and bolster the ecosystem APRs.