Decentralized stablecoin issuer Frax Finance is set to make its liquid staking protocol on Ethereum publicly available within two weeks.
The launch will allow users to stake ether (ETH) and receive a liquid derivative token called Frax Ether (frxETH), aimed at unlocking the value of the staked tokens. The derivative will mirror the price of ether and will be freely tradable on other DeFi protocols.
"Everything will be fully available publicly within two weeks barring anything unforeseen, but the full system is already live, and is already proposing blocks," Frax core developer Jack Corddry told The Block.
Frax has finished a security audit of its liquid staking token ahead of a final release on the Ethereum mainnet. The project has also finished setting up a Curve pool so frxETH can be swapped with ETH with low or no slippage.
Frax Finance is mainly known for its stablecoin that relies on collateral and algorithmic mechanisms to maintain a 1:1 peg with the U.S. Dollar. Its stablecoin is backed partially by hard collateral, primarily USD Coin (USDC), and partly by Frax Finance’s native governance token known as FXS.
Frax's decentralized liquid staking offering will compete with similar existing protocols, such as Lido Finance and RocketPool. “Get ready for the most interesting ETH liquid staking derivative released by a major stablecoin issuer,” the Frax team said.
Frax Finance also runs a decentralized exchange Fraxswap and a lending platform called Fraxlend.
How will Frax's liquid staking work?
First, users deposit their ETH to stake via Frax ETH Minter, a function that will mint the liquid derivative tied to the underlying value of deposited ETH.
Frax will use its customers’ ETH to spin Ethereum validators to generate and distribute a staking yield. This system is meant to abstract away the complexity of setting up validators by allowing people to delegate their assets to the protocol.
To receive the yield, users will have to exchange the first derivative token (frxETH) to Staked Frax Ether (sfrxETH), a second token that will accrue staking yield from Frax’s Ethereum validators.
This second token will continue to accrue interest and increase in value in relation to ether over time. The interest can be collected by converting sfrxETH back to frxETH.
© 2023 The Block Crypto, Inc. 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.