Research Summary
The report discusses the launch of FRAX v3 by Frax Finance, a DeFi protocol with a wide range of products. The new version of their native stablecoin, FRAX, is backed by real-world assets (RWAs) as collateral, a shift from the previous crypto collateral and FXS backing. FRAX v3 also introduces sFRAX and Frax Bonds (FXBs), enabling FRAX holders to participate in both the short and long ends of the yield curve. The report suggests that the success of FRAX v3 can be gauged by the growth of FRAX market cap and the proliferation of sFRAX as collateral.
Key Takeaways
FRAX v3: A New Era for Frax Finance
- Introduction of Real-World Assets: FRAX v3 marks a significant shift in Frax Finance’s approach to collateral. The new version of their native stablecoin, FRAX, is backed by real-world assets (RWAs), moving away from the previous crypto collateral and FXS backing.
- Integration of sFRAX and Frax Bonds: FRAX v3 introduces sFRAX and Frax Bonds (FXBs), enabling FRAX holders to participate in both the short and long ends of the yield curve. sFRAX yields change with the overnight repo rate, while the yield on Frax Bonds changes with the interest rate on the underlying bonds of matching duration.
- On-Chain Governance: FRAX v3 ushers in full on-chain governance using fraxGov, meaning Frax will no longer be subject to multi-sig trust assumptions.
- Initial Success: The first iteration of FRAX v3 has shown promising traction, with sFRAX yielding 7.37%. This confirms the report’s thesis that the yield-bearing dollar has strong product market fit.
- Future Indicators of Success: The report suggests that the success of FRAX v3 can be gauged by the growth of FRAX market cap and the proliferation of sFRAX as collateral. The launch of FXBs and their use as collateral will also be key performance metrics.
Actionable Insights
- Monitor FRAX Market Cap: The growth of FRAX market cap will be a simple metric to track to gauge the success of FRAX v3. An increase in the market cap indicates a positive response to the new version of the stablecoin.
- Track sFRAX Proliferation: The proliferation and growth of sFRAX as collateral will be key to understanding the impact of FRAX v3. A rise in the use of sFRAX as collateral suggests a successful integration of the new feature.
- Watch for FXBs Launch: The yet-to-be-launched Frax Bonds (FXBs) will be another important factor to monitor. Their supply expansion and use as collateral will provide further insights into the performance of FRAX v3.
