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A Deep-Dive Into The frxETH Flywheel
Key Takeaways
9 min read
  • Frax Finance’s liquid staking derivative solution has two tokens: frxETH (ETH-pegged stablecoin) and sfrxETH (yield-bearing frxETH). Users can generate yield by LPing frxETH and/or staking and receiving staking rewards on sfrxETH. This has enabled Frax to offer highly competitive yields compared to other LSD providers.
  • frxETH brings additional utility to the Frax ecosystem through additional revenue generated from fees, as well as enhancing its existing DeFi products, such as FraxLend and FraxSwap.
  • Despite its rapid growth, Frax faces risks including centralization of validator nodes, admin control of the frxETH minter, and depeg risk.

Ethereum Staking Today

Since Ethereum's successful migration from Proof-of-Work to Proof-of-Stake, the liquid staking derivative (LSD) narrative has consistently been gaining traction. Ethereum bulls have continued to deposit their ETH into the staking contract to earn staking yields, even though withdrawals will only become available after the Shanghai upgrade, which is scheduled for March of 2023.

Today, approximately 16.2m ETH is...