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Best of Both: Stability & Yield with Frax V3

January 17, 2024

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What is Frax?

Frax Finance's V3 update represents a significant evolution in its stablecoin protocol, aiming to create a more robust and adaptable financial instrument in the DeFi space. In this version, the stablecoin FRAX maintains its peg to the US dollar, and the mechanisms for stability have been enhanced and diversified.

To maintain the stability of their stablecoins, Frax vV3 uses Algorithmic Market Operations (AMO), and subprotocols like Fraxlend and Fraxswap. FRAX aims for a 100% collateralization ratio, backed by both AMO, and real-world assets, enhancing its stability and trust. Frax uses Chainlink oracles to maintain the peg to the USD, and it integrates the Federal Reserve Interest Rate on Reserve Balances for specific protocol functions.

Frax also includes locked liquidity and safety measures to mitigate market volatility and potential risks, aiming for long-term stability and growth.

What is sFRAX?

sFRAX is a key component of Frax V3, serving as a staking vault within the ecosystem. It is designed to adapt to various market conditions, particularly in response to rising interest rates. The creation of sFRAX is a part of Frax's strategy to make their stablecoin more resilient and adaptable to different economic environments.

This approach was adopted to provide returns from off-chain sources through Frax's partnership with Financial Reserves and Asset Exploration Inc. (FinresPBC). FinresPBC, authorized by the Frax DAO, invests in short-dated Treasury bills, Repos, and other similar assets, aiming to offer yields close to the Federal Reserve's rates.

This development is part of Frax's broader vision to establish an "All-Weather Stablecoin," capable of thriving under various market conditions.

Enter the masters of yield-bearing markets. Balancer.

Through constant innovation within their protocol, Balancer has developed pools of interest-bearing tokens, making trades super efficient while also generating more revenue for liquidity providers and their protocol. This attracted many protocols to choose Balancer to host their token liquidity in their AMMs.

Building on that reputation, the new sFRAX - 4pool LP on Balancer has been attracting a lot of attention. The 4pool is composed of your favorite well-known stablecoins (DAI, USDC, USDC.e, USDT). Pairing into a new pool with sFRAX then allows seamless exchange with all of these stablecoins, while liquidity providers still get to enjoy the native interest provided by sFRAX.

The growth of the sFRAX pool also means the growth of the underlying 4pool, which in turns means more liquidity for low-fee USD swaps on Arbitrum, making Balancer ever more competitive in the USD stableswap market.

Enter Beefy, earn more.

With near-zero management needed, you can enjoy the maximum rewards possible for your stablecoins. Through its sFRAX - 4pool Vault, Beefy claims all the rewards available for providing liquidity (AURA, BAL, ARB), and automatically compounds them back into your position (sFRAX - 4pool), giving you unheard of returns on your stables.

Finally, thanks to the support of Arbitrum delegates, Frax received ARB to incentivize the use of their stablecoins in the optimistic rollup. As a result, you can also earn extra ARB on top of your autocompounding Beefy position until 25 Jan.

Extra tip: Check whether it is more convenient for you to bring sFRAX from Ethereum mainnet through FraxFerry or buy it directly on Balancer in Arbitrum.

Deposit into the vault, and start boosting!

sFRAX-4pool Vault

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