Frax Finance launches Fraxlend, its own borrowing and lending market

Quick Take

  • Frax Finance is launching Fraxlend, its native market for borrowing and lending.
  • Fraxlend will create more cash flow for Frax Finance, which can be used to buy back and burn its governance token, FXS.

Frax Finance, the largest fractional algorithmic stablecoin protocol, is launching Fraxlend, a permissionless lending market that allows anyone to lend or borrow assets with any token that is a part of a Chainlink data feed.

Frax leads all algorithmic stablecoin protocols with roughly $1.18 billion total value locked (TVL), according to DeFiLlama. It operates using two stablecoins: FRAX and FPI. FRAX is pegged to the U.S. dollar and partially collateralized, while FPI is pegged to the U.S. Consumer Price Index (CPI). FRAX has been one of the most stable algorithmic stablecoins, having never lost its peg to date.

Frax Finance core developer Drake Evans recently highlighted two important use cases for Fraxlend during an appearance on the Flywheelpod podcast.

First, Fraxlend will enable the protocol to mint new FRAX through the borrowing and lending process. Fraxlend allows the Frax Finance protocol to directly lend FRAX and earn interest through existing money markets.

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Until now, the only way to do that was by taking out an over-collateralized loan on a lending platform such as Curve. With Fraxlend, the protocol can now do this whole process in-house, which generates an additional cash flow that can be used to “buy back and burn FXS (similar to how MakerDAO burns MKR from stability fees),” according to Frax Finance's website.

The second new application Drake highlighted is the ability to create custom term sheets for protocol-to-protocol deals. Typically, these deals — such as when a DAO wants to send another DAO tokens  — are worked out via Telegram chats and finalized as OTC deals involving multi-sig wallets. Fraxlend lets DAOs set up the deal on chain, automating the process and making it more transparent.

"Fraxlend is one of the newest generations of lending protocols that will showcase new innovations in onchain debt origination,” said Frax Finance founder Sam Kazemian. “Some of these features have never been built before in any kind of lending system so we are extremely excited to finally bring these use cases to DeFi."

© 2023 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

About Author

Mike is a reporter on the crypto ecosystems team who specializes in zero-knowledge proofs and applications. Prior to joining The Block, Mike worked with Circle, Blocknative, and various DeFi protocols on growth and strategy.