Frax

Frax Finance is a decentralised finance (DeFi) protocol launched in 2020 that builds and operates a family of on-chain assets and sub-protocols: a fiat-redeemable dollar stablecoin (frxUSD) with a yield vault (sfrxUSD), an ETH liquid-staking system (frxETH/sfrxETH), an inflation-indexed asset (FPI), zero-coupon bonds (FXBs), and the Fraxtal Layer 2 network. Following the 2025 “North Star” upgrade, the FRAX asset (formerly FXS) became Fraxtal’s native gas and base monetary unit. Although the project maintains that FRAX is not a governance token, voting rights are obtained only by locking FRAX to mint veFRAX, making governance participation functionally dependent on holding FRAX.

How the ecosystem is organised (high level)

• Fraxtal (L2): An OP-Stack rollup where FRAX is used as gas. Activity earns FXTL points via the Flox blockspace incentive system. FRAX is issued natively on Fraxtal L1; official wrapped/bridged forms exist on other chains.
• Cross-chain strategy: FRAX supports a multi-chain footprint via LayerZero’s OFT approach, while maintaining native issuance on Fraxtal.

Core assets (quick reference)

• frxUSD: Fully collateralised, fiat-redeemable USD stablecoin issued through governance-approved “enshrined custodians” that hold cash-equivalent reserves; on-chain mint/redeem contracts support permissionless access.
• sfrxUSD: An ERC-4626-style savings token for frxUSD. Allocates backing dynamically via a benchmark yield strategy across DeFi AMOs, carry trades and short-dated T-Bills/RWAs. Redeemable for the underlying frxUSD at an increasing conversion rate.
• FRAX (prev. FXS): Fraxtal’s native gas and base money. The project states FRAX is not a governance token; in practice, voting rights are accessed by locking FRAX to mint veFRAX, making participation functionally dependent on holding FRAX. Issuance follows a tail-emission schedule (8% initially, decreasing by 1 percentage point per year to a 3% floor).
• frxETH & sfrxETH: ETH liquid-staking pair. frxETH tracks ETH within a tight peg band; sfrxETH is an ERC-4626 vault that accrues validator yield and increases its exchange rate over time.
• FPI: A stable asset pegged to the US CPI-U basket to target constant purchasing power; FPIS is being phased out with a future conversion path to FRAX as per governance.
• FXBs (Frax Bonds): Zero-coupon bond-like tokens that convert to Legacy FRAX (LFRAX) at maturity and are used by AMOs to manage liquidity and help stabilise the frxUSD peg.

Key protocol components

• Fraxlend: Isolated-pair lending markets used both by users and by the protocol’s AMO strategies.
• Fraxswap (with TWAMM): An AMM that embeds time-weighted long-horizon orders, enabling programmatic rebalancing and monetary operations.
• AMOs (Algorithmic Market Operations): On-chain strategy modules that deploy protocol assets/liquidity across venues (e.g., Fraxlend, Fraxswap) to manage pegs, collateral and income without altering core token contracts.

Recent governance changes (2025)

• FIP-419 introduced frxUSD/sfrxUSD and set an upgrade path for legacy FRAX/sFRAX holders across chains.
• FIP-428 (North Star) renamed FXS→FRAX and veFXS→veFRAX, switched Fraxtal gas to FRAX, introduced tail emissions, and formalised FXTL/Flox mechanics.