Welcome to the second issue of Cryptovestor's Alpha Corner.
This week we delve into some interesting tidbits related to Frax v3's DSR-like product.
When I first learned about Frax v3, Sam K. hinted in TG that Frax holders would benefit from a share of the revenue stemming from interest income. Well, this got me thinking; how would this work?
While I understood how FXBs would capture yield through discounted issuance, I was unsure about the FRAX stablecoin itself. Could Frax offer a staking mechanism? Or a DSR-like module? Where would yield come from? Obviously, it would come from FXBs, but the mechanism eluded me.
As it turns out, my speculation wasn't baseless.
Sam K. confirmed there would be a way to stake FRAX and get back a yield-bearing token similar to sfrxETH. In this case, we will call it sFRAX, analogous to MakerDAO's sDAI.
Frax is not just introducing FXBs, it's developing a way to stake FRAX and earn yield without directly buying or holding FXB tokens.
This would be a zero-duration deposit vault like Makers DSR.
I'm tempted to label it the Frax Savings Rate (FSR). Cute, right? Although it's uncertain if the term will gain official acceptance, from a marketing perspective the acronym is intuitive, bears resemblance to the well-known DSR and would create some friendly competition.
Time will tell if the name sticks. But if FSR does get adopted, remember where you heard it first.
Details on how the FSR will function remain vague, but one thing stands out: Sam has suggested an introductory interest rate for the FSR at a whopping 10%.
Yea that's right, I'll say it again, TEN PERCENT and it will go lower as utilization increases.
For perspective, when Makers' DSR rate was increased from 3% to 8% All of Defi just about flipped out. Utilization maxed out in a few hours and the DSR rate was back at 5%.
Now imagine the FSR starting at 10% and, with increased utilization, settling at a 5% base rate, equivalent to the present fed funds rate produced by FXBs. It's revolutionary! That's mind-blowing!
The impending shift might prompt a considerable migration from Maker's DSR to Frax's FSR. But I'm not rooting for DAIs death, lord knows good things don't happen to mortals who proclaim such things.
But will there be some capital flight from one module to the other? Yea probably, but let's think positive sum as Sam would say. This very well might attract new capital to Defi! Yeah, I said it. I think the Frax FSR powered by FXB tokens is the pin in the grenade that is going to unleash more capital on-chain. Once that pin is pulled there is no going back. Frax will dominate and a new bar will be set for on-chain yield, and it won't be ETH LSDs, it's going to be Frax's FXBs and its new FSR module. Frax FXBs are a 0 to 1 innovation the likes of which we have not been seen in defi since probably Uniswap's release in 2020. Couple this with a Paxos deal which has practically been confirmed by Sam although specific details have not been released yet, and you have a major event on the horizon.
I also have a sneaky suspicion Paypal's PyUSD is also involved somehow. Recently a PyUSD/Fraxbp pool was created on Curve. Paxos is working with both Frax and Paypal, so are there synergies between the two? Ofcouse there are, but its just not clear exactly how so yet. Maybe paypal wants to hold FXBs as backing for their new stable, maybe they want to learn about bribing curve pools, maybe they want to create a new basepool with Frax. Maybe all of the above?
Finally, I leave you with this last bit of alpha. Coinbase recently released a video with its top 10 projects it would like to see created. And number 1 on their list was a flatcoin. Whats a flatcoin? Well its a stablecoin that retains its purchasing power as inflation rises. So think $1.00 deposited today will be worth $1.10 if we have 10% percent inflation. Well Frax already has this product like this with FPI. Myself along with several other fraxamilists took to X and started to spam coinbase in the replys about what Frax is building. What was the result? Well a few hours larer Sam confirmed he was in talks with coinbase specifically about FPI!
Lots of positive things in the works for Frax. I will be here to try to uncover them and give you my perspective as Frax continues to grow.
Follow me @Cryptovestor77 on X for 24/7 Alpha on the Curve and Frax Ecosystems.
