Starting from some algorithmic stable currency FRAX, Frax Finance has now developed a complete set of DeFi products, including: stable currency FRAX, time-weighted average AMM Fraxswap, lending market Fraxlend, algorithmic market maker AMOs, encrypted native CPI stable currency FPI, cross-chain Bridge Fraxferry, with the recent upgrade of Ethereum Shanghai approaching Frax has launched ETH liquid mortgage derivatives frxETH.
Frax, a rising star in the liquid staking space, saw the amount of ETH staked rise 23% over the past week, driving FXS higher. In this article, PANews will analyze what is special about Frax’s liquidity staking solution.
Liquidity staking solution with the highest yield
Take Lido and Rocket Pool, the main Ethereum liquidity staking schemes, as examples. When users stake through Lido, they will receive stETH at a ratio of 1:1. Lido distributes staking rewards to all users who hold stETH through rebace. The amount of stETH held will gradually increase over time. When users pledge through Rocket Pool, they will receive rETH, and Rocket Pool’s pledge rewards are directly accumulated in rETH, so the amount of rETH received when staking will be slightly less than the amount of ETH pledged, and each rETH can also be redeemed when redeeming Return more ETH. What they have in common is that the agreement fairly distributes rewards to all holders of liquid mortgage derivatives.
When users pledge ETH through Frax, they will receive frxETH that is soft-pegged to ETH at a ratio of 1:1. Like Lido, the issued frxETH (or stETH) and the pledged ETH in the protocol are always equal. But holding frxETH will not directly receive ETH staking rewards.
If you want to get staking rewards, you need to stake frxETH again to get sfrxETH. Over time, sfrxETH will accumulate more frxETH, and when users redeem, each sfrxETH will get more frxETH. If only some users pledge frxETH, then these users can obtain a higher rate of return than other liquidity staking schemes.
According to statistics from Chaineye, as of January 18, the average rate of return for staking through Frax in the past 7 days was 7.2%, while Lido’s APY was 5.7%.
Why would anyone be willing to hold frxETH which is riskier than ETH without staking returns? Because Frax holds the most governance token clCVX locked in Convex, and Convex controls half of Curve voting rights (veCRV), Frax is able to use these advantages to create better revenue scenarios.
The Frax official website shows that a total of 83,851 frxETH has been minted so far, of which only 27,843 frx are pledged in the sfrxETH contract, accounting for 43.6%, and more frxETH exists in Curve’s frxETH/ETH pool. The current yield of sfrxETH is 6.63%, and the yield of frxETH/ETH pool in Curve is 9.23%.
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