Frax Finance, a stablecoin issuer, has been experiencing massive growth owing to its lending and liquid staking business, which is catching on quickly.
Consequently, its governance token, FXS, has been the top gainer over the past week, with a 55% rise.
Lending and liquidity staking activity were major contributors
Frax’s token is trading at $10.14 at the time of writing. It is a 13.14% gain over the past day and a 55% rise in the last seven days. The coin’s market cap stands at $739 million, a massive gain from $301 million, which it had on Dec. 31st, as 2022 came to a close.
Frax Finance is taking advantage of the wave of activity among liquid staking protocols. In October, it launched its protocol, frxETH, which has received over $100M based on Defi Llama data. In addition, there has been a rise in activity in its lending protocol, Fraxlend, which has grown more than 36%.
According to Hal Press, a partner at crypto fund North Rock Digital, FRAX is currently better advantaged over other LSD platforms due to their outsized CRV/CVX treasury holdings. “This allows them to stimulate higher ETH staking yield on their staked ETH derivative product than the rest of the market.”
In addition, he said that the sentiment among traders grew as FTS utility grew. This utility stemmed from the newly minted Frax stablecoins and fees from Frax Finance.
FRAX will be a central player in DeFi
In his Twitter thread on why Frax Finance will be hot in DeFi, Thor Hartvigsen brings to light more reasons why FRS is rising steadily. He mentioned that users could stake frxETH in an ERC-4626 vault.
In turn, they receive sfrxETH that combines all the staking yields from the validators. On average, only 42% of the stakers are staking frxETH to sfrxETH, who will be sharing all of the staking rewards, hence the higher base yield.
That explains why there has been an ethereum deposit increase of 50% within 30 days.
The small fee charged for staking is similar to that of other services. Almost all of the rewards (90%) go to the SFrxETH holders. 8% is allocated to the $veFXS and 2% to the insurance fund.
Meanwhile, Frax partnered with Curve to create FRAXBP (Frax basepool). Since the platform already has a strong bribing power due to its high CVX holdings. Hence, it brings about higher yields as it bonds with the FRAXBP instead of the 3CRV basepool.