Alpha Alert: FraxBonds, Frax v3, PYUSD Basepool and More Leaked In Flywheel Spaces

The hour long interview with Frax founder, Sam Kazemian unveiled a host of new information about the upcoming product timeline and features.

Samuel McCulloch
Samuel McCulloch
Aug 8, 2023
Alpha Alert: FraxBonds, Frax v3, PYUSD Basepool and More Leaked In Flywheel Spaces

Who needs a published product roadmap? All you need is Sam Kazemian taking over Flywheel’s Spaces for an hour.

In this alpha packed Episode Sam K talked about the entire Frax universe at length. The whole spaces was a great listen and Flywheel Host DeFiDave is now known as the “ALPHA EXTRACTOR.”

Let’s dig into what we found out.

PayPal USD (PYUSD) Basepool?!?

The first thing Sam K said on the Spaces was that he had just gotten off the phone with Paxos. He couldn’t say why exactly, but he left it to the room to guess..

One thing he did say is that a PYUSD-FRAX basepool is 100% coming and will be deployed as soon as enough liquidity is onchain to support it.

“He who yields most, grows best”

When Sam K was asked about what PayPal will need to do to succeed, he answered back with a question of “Will these stablecoin issuers share the yield?”

MakerDAO is a good example of this with their recent EDSR incentives that sucked in $500m of new capital chasing their higher 8% rates. While it’s only a temporary solution, it does show that on-chain actors are highly sensitive to yield changes. And while most of the new capital in the EDSR is borrowed against massive stETH positions, organic demand was also captured.

Crypto has stagnated this past year due to high interest rates, and zero venues to earn treasury yields on-chain. The landscape is changing now, with Ondo and Open Eden launching yield bearing tokens. However, high rates set a baseline of what investment returns across all of DeFi must be to justify capital allocation.

Frax soon will be able to offer a totally new way to reinvest yield with Frax v3 and FraxBonds.

Frax v3 will have three big additions:

  1. BAMM will be a big part of the lending strategy.
  2. frxGov will control the whole thing - no trust needed in m-sig or signers.
  3. FraxBonds tokens that automatically convert to FRAX stable coins at a specific maturity date and they are deployable from a factory on-chain.

From what we’ve seen of Frax v3 so far, Financial Reserves and Asset Exploration Inc,  a public benefit C corporation, aka FinresPBC will exist solely to pass treasury yield interest income back to the Frax DAO. With Frax’s model, soon all parts of the custody process and stablecoin issuance will be controlled by Frax and the Core Team. Sam K brought up a tweet of tomorrow’s Flywheel Pod guest PaperImperium that explained why Frax’s model was better than MakerDAO’s.

PaperImperium said “Frax is not adding *additional* counterparties who could do fraud. And the core team has a history of presumably NOT doing fraud. Their ‘fraud credit score’ is good.”

Sam K emphasized “You need to control every part of the stack to control your own destiny.” If the Frax core devs are trusted to run Frax Ferry and honestly control the protocol up until now, they should be trusted to run FinresPBC. It keeps the number of trust assumptions at 1, rather than onboard many other third party actors who might not have the protocol’s intentions at heart.

FraxBonds Bring the Yield Curve On-chain

The big alpha from the episode was FraxBonds, which will provide duration exposure to anyone onchain.

Here’s what we learned about the design:

  1. Frax will issue 4 bonds over consecutive years. Anyone can buy the bonds and when they mature, they convert to FRAX stablecoin.
  2. FraxBonds mature on Jan 1 of every year. As soon as the nearest token matures, a new token appears in the factory for minting.
  3. They are infinitely scalable through FinresPBC.
  4. All FXB tokens will be ERC20’s with deep liquidity in Curve, as well as the usual bribes + FXS gauge incentives.

FraxBonds will be an integral part of Frax v3 and if the MakerDAO eDSR experiment shows anything, degens are hungry for on-chain yield. Right now a 2 year bond yield earns 4.57%, roughly equal to the soon to be nuked eDSR. If we stay in a high rate environment, Sam Kazemian believes that we have to adapt and build new venues to capture rates.

Shipping Faster Than Ever

It may be hard to believe, but Sam K said the core dev team would be shipping even more next year than the current and that they planned on shipping “faster than ever before.”

He gave two hints on when future products would see production.

First, he said that frxETH v2 is approximately 50 days away.

Second, he said that Fraxchain is way closer to going to testnet than people expect.

Fraxchain apparently already has Etherscan support, APIs, etc… which will make it usable day 0. He noted that Fraxchain is NOT going to be another appchain.

“Our goal is we want this to be the largest L2. And the way that we're actually trying to do that is by making it that the most useful yield from the fed rate, the best POS [staking] rate for ETH and the best inflation protected rate. All of these extremely useful ways to earn yield is the hallmark and central point of Fraxchain,” he stated.

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