Frax’s Alternative Approach to Scaling LSTs | Sam Kazemian
Aug 15, 2023
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Sam Kazemian, Founder of Frax Finance, joins hosts Mike and Myles on Bell Curve. They discuss FRAX's journey from decentralized stablecoin to Liquid Staking Tokens and Derivatives. Topics include algorithmic stability, decentralizing trust, DeFi domination, FRAX V2 decentralization, and Frax Chain vision.
Frax Finance has evolved from a hybrid stablecoin to an ecosystem with various product lines.
Frax v2 decentralizes the liquid staking system by allowing anyone to run validators.
Frax Chain is a planned chain that aims to expand the ecosystem and reduce reliance on external platforms.
Deep dives
Overview of Frax Finance and its Complexity
Frax Finance is a protocol with many moving parts and a complex design. It started as a hybrid algorithmic collateralized stablecoin and has since grown into an ecosystem of different products and protocols. Frax Founder, Sam Kasmi, has a similar view on liquid-staking protocols but embraces a different strategy in terms of complexity and product breadth. Frax aims to be a multi-trillion dollar protocol by issuing stablecoins pegged to different currency units and becoming ubiquitous in the digital economy.
Evolution of Frax from a Stablecoin to an Ecosystem
Frax initially launched as a hybrid algorithmic collateralized stablecoin. Over time, it has evolved into an ecosystem with various product lines. Frax Ether, an ETH-pegged stablecoin, and FPI, a unique pegged stablecoin, are part of this ecosystem. Frax also consists of sub-protocols like Fraxland, an isolated lending market, and Frax Swap. Frax Chain, a planned hybrid roll-up, is a significant upcoming launch for the Frax ecosystem.
Frax v2: Permissionless Liquid Staking
Frax v2 represents a revamped version of the Frax Ether system. In Frax v1, the validators were curated by the core team. However, in Frax v2, anyone can run validators through a permissionless system. Validators post collateral in ETH and borrow the right to control a validator. This open market approach aims to decentralize the liquid staking system and create a competitive market for competent validators. The bond required to run validators in Frax v2 is set at 4 ETH.
Managing Risk in Frax v2
The risk management in Frax v2 comes from the dynamic interest rate that validators must pay to borrow the validator. The interest rate is determined by the market and ensures that competent validators can continue borrowing and running validators profitably. While concerns have been raised about hobbyist validators being left out, the protocol aims to reward efficiency and competence. Slashing conditions play a role in risk mitigation, and the collateral required is subject to governance decisions.
Frax Chain: Controlling Block Space and Issuance
Frax Chain is a planned chain that will leverage frax as gas and have its own limited stablecoin issuance. It aims to ensure block space control and provide additional utility by acting as a turn-complete ledger for frax units. With frax chain, the protocol seeks to expand its ecosystem and become more self-contained, reducing reliance on external platforms. The goal is to launch a testnet by the end of the year and mainnet by January 2024.
In this episode of Bell Curve, Mike and Myles are joined by Sam Kazemian, Founder of Frax Finance. They explore FRAX's innovative journey from decentralized stablecoin to Liquid Staking Tokens (LSTs) and Liquid Staking Derivatives (LSDs). Sam shares insights into the algorithmic stability mechanism, decentralizing trust, DeFi domination plan, and FRAX V2 decentralization.
Disclaimer: Nothing said on Bell Curve is a recommendation to buy or sell securities or tokens. This podcast is for informational purposes only, and any views expressed by anyone on the show are solely our opinions, not financial advice. Mike, Jason, Michael, Vance and our guests may hold positions in the companies, funds, or projects discussed.
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