• FRAX is a hybrid between overcollateralized hard assets redeemable on chain (such as Maker/DAI) and has a partially algorithmic part of supply which stabilized by supply changes and demand.

• Currently the 5th largest stablecoin by market cap (1.5 billion in supply) and $90m in annual revenue. FRAX has never lost its peg, one of the only stablecoins (peg defined by more than a one cent price deviation)

  • All of its collateral and market operations are on-chain

• Lots of products are coming in the next few months to complete Frax's Trinity vision.

• Tornado Cash situation is surprising but also a wake up call:

  • Out of nowhere OFAC designated Tornado Cash's smart contracts as a sanctioned entity

  • Unlike a lot of protocols in DeFi that looks decentralized but isn't, Tornado Cash actually decentralized (no admin keys, no custodial nature)

Circle blacklisted all of the addresses associated with Tornado Cash - There was not a lot of USDC in Tornado Cash, people use Tornado Cash mainly for ETH mixing - Circle blacklisting was a big deal, because what if OFAC says Frax or MakerDAO are next

• There are rumours/proposals that MakerDAO is considering converting their USDC into ETH:

  • Sam is skeptical that this is a serious proposal for Maker

    • Maker is not reactionary and Rune is a good long term planner with a strong vision that can execute with panic and unexpected market situations

    • Would be surprised if Maker actually follows through:

    • However, it's an open DAO so discussions are public

      • Just because people are thinking about it and talking about it doesn't mean it will happen

• It's not helpful for people to say that being backed by fiat is the wrong decision, and that FRAX and DAI should go back to overcollateralized ETH:

  • A system based on overcollateralized ETH doesn't work.

  • People who are building scalable and decentralized stablecoins that are in the top ranks recognize that this system wouldn't work

  • Looking at past data, all stablecoins that are overcollateralized shrink over time and cannot scale

    • DAI and FRAX, the two largest stablecoins, have fiat coin exposure.

      • The other stablecoins (LUSD, RAI, SUSD, FEI etc.)don't add up to 800 million market cap

      • Even if these other stablecoins consider themselves superior because of minimal to zero fiat risk and less trust, reality is that they do not scale.

      • Once you build a stablecoin project, you notice that at a point there's a fork in the road:

        • You can adopt a hybrid model and take on some fiat/real world asset risk, and be able to scale

        • You can stay true to the immutable, decentralized ethos, but you will shrink over time

          • These are still valuable products and protocols, but they don't scale.

• frxETH is basically the protocols endogenous proof of stake staking platform

  • Users can come and deposit their ETH and will receive 1:1 frxETH (staking derivative)

  • There will be a Curve pool similar to stETH:ETH, and an extra vault within the FRAX ecosystem for extra boosted proof of stake yield.

• At first the validators will be displayed publicly but will only be run by the core team

  • Validator set to run validators within Frax ecosystem to make it decentralized and trustless (more trustless compared to Lido and Rocket Pool.

  • Anyone can come and run a validator if they post collateral in a Fraxlend contract

    • Essentially meaning that users can borrow the ability to run a validator in a fully decentralized way

• frxETH is being built to achieve the end game vision (The Trinity)

  • This will be achieved by incrementally building out things that will increase Frax's chances of executing on the trillion dollar vision of capturing the entire DeFi/Crypto stack

  • frxETH will be a new version of Lido, to help Frax become a large ETH staking economy.

    • Since The Merge is the biggest event in Crypto for the past 3-4 years, it's a good time for frxETH to be released, since lots are paying attention to Rocket Pool, Lido and Stakewise

• Stablecoins and derivatives are what Frax is good at:

  • Sam thinks overall people will be happy to see diverse staking derivative markets

    • Lido is still a fantastic project

    • Since frxETH is essentially an ETH stablecoin, Frax will be able to do a good job at keeping it pegged, especially through providing lots of utility and use cases for it.

• frxETH will be liquid

  • The protocol can internally through AMOs and other stability mechanisms increase demand of frxETH, by backing part of FRAX's collateral in frxETH.

  • This increases market demand and synergy with FRAX and frxETH

    • Focus is on integration and synergies to show how big Frax ecosystem can become.

  • Similar to FraxBasePool, frxETH will be paired alongside ETH and additional incentives will be driven there

    • This is the first piece of utility for frxETH, and will come day 1.

• Frax Rollup:

  • The rollup is a while away

  • Recently FRAX changed how they do cross-chain FRAX issuance

    • Attempting to build towards a system where FRAX is not reliant on any kind of bridge

      • This is because cross-chain bridges have many issues, particularly hacks.

    • To be able to do this, they are looking into issuing native FRAX, which can be redeemed on ETH L1, through an exit mechanism.

      • The exit mechanism would allow anyone to trustlessly exist FRAX stablecoins on ETH L1, so people can hold FRAX on alt L1s, without worrying about what happens in the case of a bridge hack - since they can always exit and redeem.

• Assets and Bridge Issues

  • There are chains, where every asset on bridges apart from the L1 asset itself, is only a wrapped representation from the bridge - (i.e. Multichain USDC, whUSDC etc.)

  • This could lead to a situation where almost every asset on the network goes to zero if the bridge is exploited/hacked/emptied.

    • If the user is staking on a Curve pool, and Multichain gets hacked, that entire pool goes to zero.

      • Circle takes no responsibility/liability for the USDC because it's not their USDC, it's the bridges.

• The goal of the rollup isn't to be a general rollup to compete with Arbitrum or Optimism.

  • The aim is to create a stablecoin issuance rollup, that would be a better model for issuing trustless money everywhere

    • The goal is to allow for users to hold FRAX on alt L1s and know that if a bridge gets hacked they still have a one dollar of native liability issued by FRAX protocol that they can claim.

      • Ideally the users are holding a dollar, and not an asterisk.

• The Trinity

  • The end game for FRAX and its developers, the singular vision that they are working towards: the full DeFi stack.

  • According to Sam: everything in DeFi is a different flavour of three of the same things:

    • (1) Stablecoins, (2) AMMs and liquidity and (3) Lending and leverage.

• All projects and primitives are different forms of this trinity:

  • If you're building in this space, you want to be following the industry/going where the industry is going

  • Eventually, lending protocols will issue their own stablecoins, AMMs will explore lending, stablecoins will create lending platforms and their own AMMs.

  • The more large blue chip protocols that end up accepting this world view and building towards it, the more correct the world view becomes

    • More and more projects will start to build the full stack

    • Frax wants to be the first to build it and capture a large part of the market share.

• Frax launched Fraxswap

  • Fraxswap is an AMM with an xy = k curve, that has additional features and TWAMMs.

  • Concentrated liquidity will come as well.

• Fraxlend

  • Isolated lending market

  • Allows lots of different things: custom loans between DAOs, allows any token to be used to borrow stablecoins (predominantly FRAX)

  • Isolated in risk

  • Dynamic debt repricing, which makes it impossible for the pool to brick if there's a small liquidation that creates bad debt

• The Trinity view end goal is to build and capture full DeFi stack and to make FRAX the economic fuel that powers the full DeFi stack

  • To build this, there must be as many trading pairs, lending markets, debt denominated in FRAX as needed

  • Instead of just building a stablecoin and hoping that people integrate it, it is better to build the full stack and try and integrate it, while focusing on growing it all in tandem

• FRAX will be first one but other big protocols wont be too far behind:

  • Curve might in the future go into extra leverage (lending and borrowing)

  • AAVE might go into swaps and cross-chain payments of debt and collateral.

• There will be customizable money markets in Fraxlend:

  • DAOs and DeFi protocols themselves can fins use cases to set up OTC debt structuring

  • Frax is unable to service all requests from these DAOs and DeFi protocols - One way to do this is through Fraxlend Gauges: - Where people are incentivized to lend their FRAX and get rewards - DAOs can launch a Fraxlend gauge so that they can channel part of their FXS gauge rewards to their lending market - meaning that anyone can deposit and earn high FXS APR (while taking the risk of lending to that DAO)

• Backing FRAX with loans instead of fiat coins

  • As discussed before, it is not possible to back DAI and FRAX with overcollateralized ETH, since it shrinks over time.

    • If overcollateralized ETH, only demand for leveraged ETH would make stablecoin supply actually grow

      • This is because: people don't use the stablecoin, the demand for leveraged ETH goes down in times of bearishness, people don't integrate the stablecoin into their protocols, they don't hold it, don't have interest in it etc.

    • If there are other types of loans that are not just demand for leveraged ETH, i.e. if there is also demand for borrowing against collateral that is inverse to demand for leveraged ETH, then you can lend FRAX against that

      • Since as demand of leveraged ETH goes down, maybe demand for this type of loan goes up

      • The goal here is acylicality, different types of collateral that acyclical.

• Fraxlend will attempt to address getting rid of USDC reliance in a new and unique way:

  • Through Fraxlend many loans with different loan parameters with different isolated assets can be created

    • The goal would be to find debt and loans that are acyclical and mix and match them.

    • This is part of the reason why Fraxlend is so modular and versatile - It needs to be usable for bespoke and unique loans, which would allow FRAX to hopefully become the on-chain stablecoin without significant fiat exposure

• FraxBasePool is a liquidity pool on curve

  • FRAX is paired with USDC

  • The structure of the BasePool allows for LP tokens of this pool to be paired with other assets in new pools

  • FraxBasePool was launched 2 months ago and is above a little over 600 million dollars in TVL

    • Currently 8 other pools have paired alongside this pool

      • Those 8 pools have together 50 million in TVL.

• FraxBasePool and Frax's Aims:

  • Frax aims to play positive sum games, and to create more value:

    • Instead of taking market share of others, grow the total size of the pie.apart, they try to play positive sum games

  • Frax has been working with Curve and Convex since last year

    • They were the first to build a Convex AMO, and have one of the (if not the) largest CVX position out of any protocol

  • They are co-owners and partners in owning Convex and Curve ecosystem alongside Curve and Convex

    • FraxBasePool idea arose from Frax itself being 20% of Curve's entire TVL.

• FraxBasePool, Subsidies and Incentives:

  • Since Frax was essentially 1/5 of Curve's TVL, they were subsidizing the 3pool by having a lot of their liquidity in the FRAX-3Crv pool

  • USDC-USDT-DAI were not paying the people who have MetaPools with the 3Crv pool

    • FraxBasePool is Frax's own BasePool that any stablecoin can pair with

      • Frax distributes back the incentives ($CRV, $CVX and $FXS) proportionally downward to all MetaPools that pair with the FraxBasePool rather than the 3Crv pool.

      • These incentives are proportional to how much their size is:

        • For example if FraxBasePool has 660m TVL and a M has 330m TVL, a quarter of all FraxBasePool demand comes from this MetaPool

          • This MetaPool gets a quarter of the entire incentives trickled down to their MetaPool, their stakers, DAO, protocol etc.

      • This incentivization is working well, since projects are able to access additional incentives by pairing with FraxBasePool, earn up to 10-20%

      • Goal is to get FraxBasePool on Arbitrum and Optimism

      • FraxBasePool already exists on Saddle.

• crvUSD and FRAX

  • Frax owns part of Convex and Curve, so they want crvUSD to be huge since it's in their interest

  • They would be able to have joint liquidity against FraxBasePool and the Curve team have been bullish FraxBasePool-3Crv

    • People will like using FraxBasePool-crvUSD just as much

  • If the Curve team wasn't excited about partnership/relationship with Frax, they wouldn't have helped with FraxBasePool

• GHO

  • When the governance thread announced it, Frax said they would love to help them build it and increase the market cap of GHO, as well as increase the yield opportunities and help with gauges and rewards.

• Joint Liquidity:

  • It is all in Frax, Curve, AAVE's interest to make everybody's pegs stronger with joint liquidity - deep liquidity breeds stability for a stablecoin

    • Rather than try to create division through competitive narratives such as: "we're better than them, don't use or stake with them etc."

    • This mentality doesn't end well, since those who adopt this all or nothing mentality end up losing it all.

• Curve, Convex and Frax are continually growing and becoming more intertwined:

  • Curve AMO is the most revenue producing portion of Frax

  • FraxBasePool is a liquidity Schelling Point for FRAX

  • Convex simplifies the process for LPs and manages their positions

• The goal is to ensure that the system is not just beneficial/valuable for Frax, but to build an ecosystem where the quasi-meta-stablecoin of the Curve ecosystem is Frax

  • This is done by increasing Frax's ownership of the Curve ecosystem - by accumulating CVX and CRV.

  • As Fraxlend goes live, lending increases, volume and velocity off all FRAX pairs increase, there will be lots of value created for Curve: revenue from swaps and volume will increase

    • Additionally bribes and incentives for CRV and CVX holders derive from Frax creating value for itself

      • Incentives give cash flow back to CRV/CVX holders, which make the tokens valuable

      • The cash flow is reliable, every few weeks a few million dollars of cash flow goes to these holders, because Frax right now is one of the few protocols that can turn liquidity and incentives into real value (no inflating and subsidizing)

• Accumulating tokens of other protocols:

  • As you're increasing ownership of another protocol, you're incentivized to create value

    • Almost like a slow merger

      • This is not possible in TradFi, you either merge or you don't

  • Frax treasury/balance sheet is asset rich and holds: SYN, CRV, CVX, SADDLE, TOKE

  • If you own FX you own controlling the stake and exposure of quasi-liquid governance rights to important DeFi protocols