One of the most popular decentralized finance protocols in 2023 has been Frax Finance. Its native token has experienced a rapid rise as the narratives surrounding stablecoin and liquid stake gathers momentum.
The bear market has allowed Frax to focus on creating and developing its goods. The DeFi protocol offers a decentralized alternative to the crowded centralized stablecoin market.
Its FRAX stablecoin sits between algorithmic currencies like UST and over-collateralized ones like USDC and DAI.
A DeFi researcher noted the new findings from the project on January 16.
Frax has been building out a suite of unrivaled products during this bear market When bullish narratives of stablecoins, LSDs, meta-governance combine with: A Fed Master account $frxETH Basepool Does this = moon for $FXS?
Fractional Collateralization Stablecoin
Like the now-defunct Terra/Luna environment, Frax has a two-token system. The unreliable FXS token absorbs the volatile FRAX stablecoin.
However, depending on the existing collateral ratio, the minting of FXS now needs a certain percentage of USDC (CR). Because “fractional collateralization allows for expansion,” it differs from LUNA in this way. According to the researcher, it serves as a safety net against death spirals.
A bigger percentage of USDC might be employed when peg confidence is low. A more significant proportion of FXS can be utilized to mint FRAX during times of high trusts, such as bull markets.
Additionally, Frax and the Curve Financial stablecoin trade protocol closely integrate. It has developed tactics like the 50/50 FRAX/USDC Frax Basis Pool that can Curve newbies to couple their coins rather than using the preeminent 3pool.
However, its liquid stake derivative, fixed, is currently gaining traction. It functions similarly to the stETH or rETH of Lido or Rocket Pool. Beyond staking incentives, other returns are also feasible. This is so that users can utilize Curve to earn trading incentives by lending frxETH to liquidity pools.
Additionally, for increased staking incentives, fixed can be turned into sfrxETH (staked revised). This more significant income is more alluring than just staking ETH.
FXS Multiplies In A Week
This year, the value of the native token, Frax Share, has increased due to the liquid staking derivatives. Over the previous two weeks, the price of FXS has nearly doubled.
Related Reading | Report: The $65 Billion Secret Credit Line Between Alameda And FTX
Just before publication, FXS was traded at $9.09, up 3% daily and defying the daily market trend. Surprisingly, it has increased by 120% since it was $4.13 at the start of the year.
One of 2023’s top performers has been FXS. It is still down 78.7% from the $42.80 all-time high it reached in January 2022.