RWA is coming soon —— Frax’s future product planning and potential impact
During the CRV turmoil, FXS was well evaluated by the market due to FraxLend’s dynamic interest rate design to protect borrowers; at the same time, Frax Protocol founder Sam’s governance proposal to promote the RWA business on August 4 also attracted some market attention. This article aims to sort out Frax's future product planning (FRAX V3, frxETH V2 and Fraxchain) and analyze its possible impact.
1. Frax V3 — — Focus on the development of RWA business (launch in August)
At present, Sam, the founder of Frax, initiated a proposal on the governance forum to expand the RWA business through FinresPBC, which will be launched in August. The main points are as follows:
1. FinresPBC is a non-profit company established at the beginning of this year, so all income generated by the assets held by it on behalf of Frax Protocol will be returned to the agreement except for the company's operating costs;
2. FinresPBC does not participate in the development, operation and governance of the Frax protocol, nor does it participate in any other profit-making activities (mortgage, loan, pledge or other commercial activities) to ensure the simplicity and stability of the business;
3. The current cooperative bank of FinresPBC is Lead Bank, which provides compliant financial services for the Crypto protocol. FinresPBC is also actively expanding more Crypto-friendly financial partners;
4. The future business operation scope of FinresPBC includes: minting/redempting USDP and USDC; obtaining USD deposit income in the IntraFi savings account insured by the Federal Deposit Insurance Corporation of the United States; purchasing U.S. treasury bonds in a separate account to earn interest;
5. FinresPBC will publish asset details, reserve reports and operating costs every month. FinresPBC can provide 7*24-hour access to managed assets for the Frax protocol, and at the same time use the reserve fund to repurchase and destroy FRAX or mint USDP and send USDC to Frax Protocol AMO on demand.
More architectural details for the FRAX V3 business have not been officially disclosed, but some information released by the team in Telegram, forums, and interviews is summarized as follows:
1. Sam pointed out that the operating expenses of FinresPBC will be significantly lower than that of Maker or other RWA agreements. If FinresPBC holds assets of 500 million U.S. dollars for Frax Protocol, the annual cost is expected to not exceed 200,000 U.S. dollars.
2. In an interview with Ourodoros Capital on July 28, Sam mentioned that Frax V3 will be launched within 30 days. Considering that FinresPBC and the basic bank relationship have been established, it is speculated that its RWA business should also be launched in August. At present Waiting for the DAO to vote on the proposal and determine the initial parameters.
3. Launch FraxBonds in FRAX V3: Frax Protocol will issue 4 bonds in a row to allow anyone to buy them. After the bonds expire, they will be automatically converted into FRAX stable currency. Through FinresPBC, there is no upper limit for the scale expansion of FraxBonds; at the same time, FraxBonds will be For standard ERC20 tokens, Frax Protocol will deploy liquidity in Curve so that they can be traded in the secondary market.
4. The Borrow-AMM design for FRAX liquidity in FRAX V3 does not require price feeds from oracle machines, eliminating the risk of oracle machines.
Possible impact:
1. The scale of the FRAX stablecoin is currently being squeezed by Maker's vigorous promotion of the RWA business, and it has declined. In particular, the current deposit rate of Maker DSR is as high as 8%, and some market participants have turned to holding Dai to earn interest. The reason why the current return in DSR is much higher than that of U.S. Treasury bonds is that there is a scissors gap between the scale of Maker’s purchase of treasury bonds and the interest rate of Dai deposited on the protocol side, and this rate of return does not seem sustainable at present. The specific details of Frax’s RWA business have not been disclosed, but due to its similarity with the ETH pledge business structure, combined with the currently known information, it is speculated that Frax’s RWA business can be obtained due to the superimposition of Crv incentives due to the government bond yield when the early business scale has not yet started. Very high yield to complete product launch. In the medium and long term, if, as Sam said, the operating cost of FinresPBC is much lower than that of competing products, the Frax RWA business may have long-term competitiveness, which will help expand the market share of FRAX stablecoins.
Frax's market value recently dropped from 1 billion to 813 million
2. Maker has made a lot of profits through the US bond RWA strategy and repurchased MKR on the chain, which has become the main reason for the recent rise of MKR. As Frax is currently partially mortgaged on stablecoins, the protocol income is used to increase the mortgage rate CR of FRAX stablecoins. If the RWA business can bring additional income to the Frax protocol to speed up collateral replenishment, the protocol revenue will flow back to veFXS holders or be used for The repurchase of FXS will support the price of FXS. At present, the mortgage rate of FRAX is 94.5%. Frax Protocol holds USD 280 million in idle USDC. Calculated at a 5% rate of return, it can generate USD 14 million in revenue per year, accounting for 75% of Frax’s current annualized revenue.
The current mortgage rate of FRAX is 94.5%
2. frxETH V2 — — focus on decentralization and the ability to attract pledges (launch in 50 days)
Sam mentioned in the Twitter space that frxETHV2 will be launched in about 50 days; in the current frxETH V1, the user's ETH is pledged by the node operated by the team, and the agreement pumps 10%. The advantage of frxETH V1 is that it takes advantage of Curve’s ecological governance rights to guide the liquidity of frxETH very well. At the same time, the design of the dual currency model of frxETH and sfrxETH allows the Frax Ether system to have the highest rate of return in the market. This has helped Frax Ether rank among the top three LSD protocols as a latecomer in the LST field.
frxETH V1 pledge flow chart:
In the frxETH V2 version that Frax protocol will launch in the future, the team will devote itself to solving the centralization problem while ensuring high annualized returns. The overall design logic of frxETH V2 is similar to that of Rocket Pool, but it has its own special features. The key differences are:
1. The ETH deposited by users in Rocket Pool will be accumulated in the deposit pool, and no income can be generated before the verification is activated, which will drag down the overall rate of return of rETH. Currently, the deposit pool has an upper limit of 18,000 ETH; In the design of frxETH V2, user deposits will be allocated to Curve AMO first, and then allocated to Lending Pool by Curve AMO when the node needs ETH pairing on the user side. In this way, since the idle ETH can earn transaction fees and mining rewards in Curve AMO, its overall income compared with Rocket Pool will increase.
2. After the Atlas upgrade, Rocket Pool's node pumping rate is basically fixed at 14%, while frxETH V2 intends to determine the node pumping ratio through market adjustment. In frxETH V1, Frax is the most efficient and stable node operation team in the market, and it will also join frxETH V2 to compete for node pumping in a market-oriented way. The introduction of the competition mechanism and the addition of efficient teams are expected to further benefit users, allowing users to obtain higher rates of return.
Frax Ether is currently the most efficient pledge
Product flow chart of frxETH V2
Regarding frxETH products, apart from the focus on frxETHV2, we also need to pay attention to the launch of the redemption function. At present, while sfrxETH has the highest rate of return in the whole market, its growth rate of 4.56% in the past month lags behind Lido+5.17% and Rocket Pool’s +7.47%. This amplifies the concerns of whale and some users, making them turn to Lido or Rocket Pool.
3. Fraxchain —— Focus on its ecological development and frxeth consumption precipitation (online in early 2024)
Fraxchain is a Layer 2 network based on Ethereum. It plans to adopt the hybrid rollup scheme (the combination of op rollup and zk rollup), which can provide developers with the easy coding environment brought by op and provide users with the final certainty and security brought by zk. sex and decentralization. As the top three LSD protocols, Fraxchain and frxETH will also have a synergistic effect. Fraxchain uses frxETH as the GAS fee, and the resulting holding of frxETH will reduce its conversion to sfrxETH, which will help the Frax protocol to provide the market with Higher pledge income to compete for market share. In the plan, the complete DeFi product matrix of the Frax protocol will be migrated to Fraxchain in the future to reduce Gas and bring initial traffic and funds to Fraxchain. It should be noted that the positioning of Fraxchain is not an application chain. While supporting Frax's current stablecoin ecosystem, it also aims to expand the ecosystem and increase adoption to better give back to the protocol's native ecosystem.
In general, Frax has a lean and strong team with strong individual combat capabilities, efficient execution and fast product landing, which deserves corresponding attention when FRAX V3 and frxETH V2 are launched.
LD Capital is a leading crypto fund who is active in primary and secondary markets, whose sub-funds include dedicated eco fund, FoF, hedge fund and Meta Fund.
LD Capital has a professional global team with deep industrial resources, and focus on developing superior post-investment services to enhance project value growth, and specializes in long-term value and ecosystem investment.
LD Capital has successfully discovered and invested more than 300 companies in Infra/Protocol/Dapp/Privacy/Metaverse/Layer2/DeFi/DAO/GameFi fields since 2016.
website: ldcap.com
twitter: twitter.com/ld_capital
mail: BP@ldcap.com
medium: ld-capital.medium.com
