Frax Finance has been one of the most popular decentralized finance protocols in 2023. As the stablecoin and liquid staking storylines gain popularity, the native token’s price has risen dramatically.
Frax has been doubling down on product development and building during the weak market. Furthermore, the DeFi protocol attempts to offer a decentralized alternative to the crowded centralized stablecoin market.
Its FRAX token sits between over-collateralized stablecoins like USDC and DAI and algorithmic ones like UST.
On January 16, a DeFi researcher highlighted the project team’s recent developments.
Frax employs a two-token system akin to the now-defunct Terra/Luna environment. The volatile FXS token absorbs the FRAX stablecoin’s volatility.
However, depending on the current collateral ratio, the minting of FXS also necessitates a variable percentage of USDC (CR). This distinguishes it from LUNA because “fractional collateralization enables development. “It also acts as a backstop against death spirals,” the researcher explained.
When peg confidence is low, a higher percentage of USDC can be employed. During times of high confidence, such as bull markets, a greater proportion of FXS can be employed to create FRAX.
In addition, Frax is tightly connected with the Curve Finance stablecoin arbitrage system. It has built tactics like the 50/50 FRAX/USDC Frax Base Pool, which allows Curve newbies to pair their coins rather than using the incumbent 3pool.
However, the product that is now gaining traction is its liquid staking derivative, frxETH. It works in the same way as Lido’s stETH or Rocket Pool’s rETH. Additional earnings outside of staking incentives are also attainable. This is because Curve users can earn trading incentives by lending frxETH to liquidity pools.
FrxETH can also be turned into sfrxETH (staked frxETH) for increased staking incentives. These greater yields are more appealing than just staking ETH.
The price of the native token, Frax Share, has nearly doubled in the last two weeks as a result of the liquid staking derivatives.
FXS was trading at $9.09 at the time of publication, up 3% on the day and defying the intraday market trend. It has grown 120% since the beginning of the year, from $4.13.
FXS has been one of the year’s greatest performances. However, it is still down 78.7% from its all-time high of $42.80 in January 2022.
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