Opinion: Frax Finance will become the best choice for Ethereum staking
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Opinion: Frax Finance will become the best choice for Ethereum staking
Fraxfinance is the largest holder of $CVX and owns over 20 million $CRV.
Navigating Web3 tides with focused insightsWritten by: Fraxgener 200x
Compiled by: TechFlow
Frax Finance is the largest holder of $CVX and owns over 20 million $CRV.
This week, they will double their bribes to push APR back up to 50%.
The amount of $ETH staked in frxETH will increase from 24k to 48k (25% APR), then from 48k to 96k (12% APR). Within 12 months, total staking could reach millions of dollars.
Due to such high staking yields, the peg will remain perfectly at 1:1.
Why will frxETH be better?
Because frxETH does not generate yield through rebase. The reason wstETH doesn't work well in DeFi is that its value constantly increases. You can't pair it with liquidity pools without risking impermanent loss.
frxETH has a novel design. When you deposit $ETH into Frax, you receive frxETH at a 1:1 ratio, just like 1 ETH = 1 wETH. To earn staking rewards, you must stake frxETH into sfrxETH. If only half of users convert frxETH to sfrxETH, then sfrxETH stakers will earn double the yield.
Therefore, we can choose either the frxETH/ETH Curve pool or opt for sfrxETH and capture all the yield from 100% collateralized ETH.
The more participants join the Curve pool, the higher the MEV and $ETH staking rewards for sfrxETH. This creates a stronger flywheel effect, attracting millions of dollars in ETH and generating higher returns than stETH—even when both have equal ETH node totals.
79% of DAI is backed by centralized stablecoins and stablecoin LPs on Uni v3, while Frax is currently backed by 80% USDC. Frax is often FUDed and called “Wrapped USDC.” But in reality, it’s just as centralized as DAI.
However, Frax has a clear path toward decentralization—while $DAI does not. They want more USDC because they can send it to Coinbase to earn yield, exposing themselves to risks of U.S. government intervention and potential $MKR price drops.
As frxETH grows, Frax will become a truly decentralized stablecoin. Users will be able to mint Frax using frxETH and sfrxETH. We’ll use frxETH to directly issue loans to $FXS holders, earning 2% interest.
As frxETH expands, Frax will become increasingly decentralized and eventually support most $ETH through built-in utilities, making it superior to $LUSD and $DAI.
$stETH offers no utility, whereas $frxETH provides stronger peg stability, higher yields, and lending capabilities. $LDO collects fees from revenue, while $FXS earns fees from staked ETH income, self-generated loans, liquidation penalties when loans are closed out, and stablecoin-related fees.
$FXS integrates three DeFi sectors into one:
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They have a dollar-pegged stablecoin (with perfect peg stability) and now offer a staked $ETH product.
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They offer an MKR-style lending protocol (FraxLend).
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They enable ETH staking.
Thanks to integrated lending, over time this makes Frax validators more decentralized than Rocket Pool. And the interest paid by operators… even greater yields will go directly to $FXS holders.
Once $ETH withdrawals go live, users can replace their WETH-based liquidity pools with frxETH (same token standard). This adds the base 50% ETH staking yield to all liquidity within DeFi. The base-layer $ETH yield is the best Ponzi scheme we've ever seen.
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