Before we get started, this is not a recommendation or endorsement to buy any token mentioned.
In 2020, one of the bolder stablecoin projects to go live with a new protocol that would miraculously survive both the bull market and current bear market was FRAX by Frax Finance. The FRAX stablecoin has boasted an all-time-high circulating supply of $2.9B in March 2022 and remains at over $1.018B in supply as of January 2023. Although I’ll cover their newest pegged ETH token frxETH, it’s worth digging briefly into their impressive suite of DeFi products launched over the years.
FRAX: Named after this hybrid fractional-reserve system, the first and only stablecoin with parts of its supply backed by collateral (ie USDC) and parts of the supply algorithmically stabilized.
Fraxswap: The first AMM with time weighted average market maker orders used by the Frax Protocol for rebalancing collateral, mints/redemptions, expanding/contracting FRAX supply, and deploying protocol owned liquidity on-chain.
Frax Price Index (FPI): A crypto native CPI-pegged stablecoin, the first pegged to a basket of consumer goods creating its own unit of account separate from any nation state denominated money.
Fraxlend: A permissionless lending market for the FRAX and FPI stablecoins allowing debt origination, customized non-custodial loans, and onboarding collateral assets to the Frax Finance digital economy.
A Four-Token System: FRAX being the stablecoin pegged to $1 per token. Frax Share (FXS) is the governance token of the Frax ecosystem of smart contracts which accrues fees, seigniorage revenue, and excess collateral value. FPI is the inflation resistant, CPI-pegged stablecoin and lastly, FPIS is the governance token of the Frax Price Index and splits its value capture with FXS holders.
Gauge Rewards System: Similar to the gauge system by Curve with veCRV, the Frax community can propose new gauge rewards for strategies that integrate FRAX stablecoins. FXS emissions are fixed, halve each year, and flow to different gauges based on votes of veFXS stakers.
In October 2022, Frax launched a liquid staking system for ETH called frxETH. frxETH is loosely pegged to ETH so that 1 frxETH always represents 1 ETH and the amount of frxETH in circulation matches the amount of ETH in the Frax ETH system. When 1 ETH is deposited to the frxETHMinter, 1 frxETH is minted. However, holding frxETH on its own doesn’t entitle you to the staking yield the same way stETH holders earn staking yield with stETH in a wallet.
Instead, the frxETH tokens can be used to provide liquidity for the frxETH/ETH pool on the Curve AMM, currently netting about 9.14% APR by staking the Curve LP tokens in the newer Convex Frax booster (similar to Convex Curve booster but recently deployed to support the Frax Gauge system).
The easier way to earn rewards on the liquid staked ETH backing frxETH, is to simply exchange frxETH for staked frxETH, or sfrxETH tokens.
sfrxETH is an ERC-4626 vault designed to accrue the staking yield of the frxETH validators. frxETH can be exchanged for sfrxETH by depositing it into the sfrxETH vault, which allows users to earn staking yield on their frxETH. As validators accrue staking yield, an equivalent amount of frxETH is minted and added to the vault, allowing Frax users to redeem their sfrxETH for a greater amount of…
DeFi Dad is one of the earliest power users of DeFi, having worked with early Ethereum startups going back to 2018, including Zapper.
