In the latest episode of Flywheelpod, Frax Core Dev Jack Corddry sat down and explained a ton about the upcoming launch of Frax’s Ethereum staking derivative. Here’s a summary of all information we learned from that episode.
All ETH PoS staking derivatives are just “stablecoins.” Frax is really, really good at creating and managing stablecoins. So Frax to enter the staking derivatives game is not that much of a jump.
Frax’s Ethereum derivative has a two token design:
FrxETH - An Ethereum pegged derivative asset.
sFrxETH - The staking accrual token.
Converting your ETH to FrxETH does not mean that you are generating yield. Its similar to WETH, an ERC-20, which allows users to access DeFi from Frax and other protocols. When you convert to FrxETH, your ETH is staked in a validator to earn staking yield.
WETH is lazy, FrxETH works.
Virgin WETH, Chad FrxETH
sFrxETH is an ERC-4626 vault. You deposit your sFrxETH to the vault and it receives rewards. When you want to withdrawal back to FrxETH, you receive your ETH plus the staking rewards earned during that time period.
The point of the two tokens is to have FrxETH always be 1:1 against ETH and let sFrxETH vary in price based on staking returns. Functionally, the system is similar to Compound’s ctokens, where the ctokens accrue interest and increase in price.
Other design like Lido’s stETH is a rebasing token, which are notoriously hard to integrate with smart contracts. Lido does provide a wrapper for stETH, but FrxETh will work immediately at launch.
Upon launch FrxETH will be added to Curve ETH/FrxETH pool for liquidity and trading. Additionally it will be added to Fraxlend. This will allow FrxETH access to lending, leverage and trading from Day 1. It’s the DeFi Trinity stack.
Get ready for the FrxETH base pool :0 It can be the liquidity hub for all staking derivatives. What happens when FXS is used to bribe the FrxETH metapools?
The yield for sFrxETH is expected to be higher than most all other staking derivatives. With other derivatives your just earning staking fees and block proposer rewards. With FrxETH its also hooked into Fraxlend, Curve, Fraxswap, etc.
Frax will provide high yields to the ETH/FrxETH curve pool. All of the FrxETH in that pool will also be staked and locked for various time periods. All of the FrxETH will also be in validator nodes earning yield that will go to sFrxETH. This means that sFrxETH stakers should get higher than normal yields because not all the FrxETH is locked up in the staking contract.
All of the FrxETH validators are going to be run in house. Testing of the nodes has been ongoing since Summer 2022. Frax has consistently been in the top 1% of validator connectivity and yield. Additionally sFrxETH will earn yield from tips and MEV boost.
Frax has pre-setup around 10k validators to satisfy the needs of unlimited demand for FrxETH at launch.
Frax plans to charge as little as possible to run the validators to maximize yield for sFrxETH. Jack said that fees could potentially charge less than 10% for MEV, meaning actual fees would be somewhere between 5-10%.
Its a pseudo way to bribe more ETH yield!
Can we say FrxETH AMOs? So much to come, but FrxETH is poised for greatness.