The Frax Protocol introduces a new mechanism where cryptocurrencies are partially backed by collateral and algorithms to stabilize the supply. The project vision is to create decentralized, highly scalable money in place of digital assets like BTC.
With the launch of Fraxswap and Fraxlend, Frax Finance has become the first DeFi protocol to offer stablecoins, liquidity, and lending services under one umbrella on Ethereum.
Fraxswap is the system's AMM (Automatic Market Maker), based on Uniswap V2. Fraxswap will help the Frax protocol create new FXS, buy back and burn FXS to keep the price for the FRAX stablecoin and help distribute the system's profits to users.
Fraxlend is a permissionless lending platform that allows assets linked to Chainlink Oracle to be used as collateral to borrow and lend against any pair of tokens. Currently, Fraxlend is supporting two types of collateral, WETH and WBTC, as mentioned in the platform's whitepaper, Fraxlend will aim to support all tokens in Chainlink's data.
The birth of Fraxlend will mark an innovative step for the Frax Finance ecosystem, with special features that make this mechanism possible in the future.
The reason why Fraxlend can become a phenomenon
The permissionless lending platform
The user's assets are guaranteed to not go through any barriers to using the Fraxlend platform.
Any asset that supports Chainlink Oracle will be supported by the platform
It gives out a more comprehensive number of supported trading pairs, giving users easy access to different asset classes.
Demand for Fraxlend is very high
The total value of assets locked (TVL) of the Fraxlend protocol has nearly tripled since the low in early September to $1.3 million while only supporting WETH and WBTC collateral. This demonstrates the potential of the platform even in its incomplete development stage.
The advantage of launching stablecoin $FRAX first
With the Frax Finance platform launching stablecoins before Aave with $GHO and Curve with CRVUSD, this helps Frax gain a lot of interest while also attracting demand. The algorithm for minting $FRAX also increases the value of the system's native token $FXS.
Platform's stablecoin- $FRAX is also of great interest as it remains at $1 even after the $UST collapse, thanks to its flexibility and partly backed. $FRAX was pegged to $USDC and $FXS; although the price of $FXS at the time fell sharply, the platform's AMO (Algorithmic Market Operations Controller) quickly removed the excess $FRAX circulating in the market so that this token would retain its value of 1 USD during and after the $UST crash.
Potential risks to watch out for before investing in the Frax ecosystem
The possibility that Circle will freeze assets in the
Circle pool can blacklist $USDC in the liquidity pool (very difficult but still possible). out). This will have a big impact on the Frax protocol as $FRAX, the stablecoin of the ecosystem, uses $USDC as collateral.
It must be emphasized that this is only a hypothesis. However, with Circle having blacklisted addresses holding $USDC on the Tornado Cash platform, the company can do the same with permissionless DeFi protocols like Curve and Frax.
The market is not favorable for investing in DeFi
High-risk, plus the substantial volatility of the crypto market and recent interest rate hikes make money gradually move back. traditional market instead of choosing crypto for medium and long-term investment.
This directly affects the growth potential of DeFi ecosystems in general and Frax Finance in particular.
Competition from the Memecoin Ecosystem
The expanded ecosystem of meme coins will also directly affect the attraction of investors to these systems instead of choosing a simple DeFi ecosystem like Frax, Curve, and Aave.
Dogechain, Shibarium, or the most recent and also very potential Berachain is attracting a lot of attention. These ecosystems are built exceptionally well with many lending projects, AMM-integrated exchanges, and other financial mechanisms similar to Frax Finance.
The above are Holdstation's analysis of the potential of the Frax ecosystem, not investment advice. Let's wait and see if Frax Finance will create a new wave of DeFi in the near future.