EXAMINING FRAX FUTURE PLANS: BAMM, RWAs, FRAXCHAIN AND FRAXLEND
If you are in the Frax Finance official Telegram GC, you’d have observed that Sam Kazemian, co-founder of the Frax protocol has been shedding a bit of light on various aspects of the project’s development, including permissionless pools, BAMM integration, oracles, stability mechanisms, and the expansion into real-world assets
Here are the key takeaways…
Permissionless Pools and Reliable Oracles:
FraxLend, a key component of the Frax ecosystem, has been exploring the idea of permissionless pools. However, according to Kazemian, enabling permissionless pools requires reliable oracles for effective operation. Deployers also need a deep understanding to set up these pools correctly.
Importantly, Kazemian clarified that FraxLend does not hold accountability for “bad debt” due to the unique nature of fTokens. To address this concern, the team believes the Byzantine Automated Market Maker (BAMM) is a more suitable solution for long-tail assets. Unlike traditional oracles, BAMM doesn’t rely on external price feeds and therefore doesn’t accumulate bad debt.
BAMM Integration and FXBs:
BAMM, which stands for Byzantine Automated Market Maker, is set to be integrated into a new version of FraxSwap with an upgraded architecture. Kazemian likened this integration to the transition from Uniswap v2 to v3, indicating a significant advancement in functionality and efficiency.
The flexibility of FXBs, the native token of the Frax ecosystem, allows them to operate on both FraxLend pairs and BAMM. Kazemian assured that FXBs will function on both platforms without the need for third-party oracles, streamlining operations and reducing potential vulnerabilities.
Oracles, Stability, and Regulatory Procedures:
Addressing concerns about oracles and stability mechanisms, Kazemian clarified that stablecoin oracles, including crvusd, are not immutable and can be adjusted as needed. He emphasized that considering stablecoins as immutable assets, akin to Ethereum or Bitcoin, is a misconception
Regarding KYC (Know Your Customer) requirements, Kazemian highlighted that Frax v3 doesn’t require on-chain KYC. Instead, regulatory procedures are handled off-chain by custodians, ensuring compliance with regulations while preserving user privacy.
Real World Assets and Frax Bonds:
The discussions delved into the integration of real-world assets (RWAs) and the Frax ecosystem. Kazemian stated that FXBs, which are an integral part of the Frax protocol, do not provide rights to off-chain assets or redemption for fiat
They assure conversion to one FRAX stablecoin at maturity without the need for KYC. Additionally, questions about auto-renewing FXB bonds were answered with the clarification that FXBs don’t offer rights to off-chain assets and have specific maturity dates.
HOW FXBS WOULD WORK
1)Maturity and Conversion: As the maturity date of FraxBond approaches, the bond converts into FRAX stablecoins at a rate that reflects the discounted price at which the bond was initially acquired. This conversion ensures that the bondholder receives the promised yield at the end of the maturity period.
2) Fixed Yields: Each FraxBond offers a fixed yield over its specified maturity period. This means that holders of FraxBonds can expect to earn a predetermined interest rate on their investment by the time the bond matures.
3) Issuance of Bonds: FraxBonds are issued by the Frax protocol and are tied to the FRAX stablecoin. These bonds are issued over consecutive years, with each bond having a fixed annual maturity date (e.g., January 1 of every year). These bonds are represented as ERC-20 tokens
Frax Ecosystem Expansion and Yield Generation
As the Frax ecosystem evolves, the potential for staking and yield generation has been a topic of interest. Kazemian compared FXBs to Maker’s DSR, highlighting their versatility and potential for offering short-term yields. He also explained the redemption process for FRAX from FXB tokens, emphasizing that the contract responsible for creating FXBs also facilitates their redemption once the maturity timestamp is reached.
FraxChain
Fraxchain will be Frax Finance’s very own EMV-compatible layer-2. It will likely launch the chain before year’s end, Frax Finance’s founder Sam Kazemian said on the Flywheel DeFi podcast.
The solution will be a hybrid rollup consisting of both optimistic rollup architecture (used by Optimism and Arbitrum) and zero-knowledge proofs. It will also utilize frxETH as its gas token, giving the token more utility.
This will enable faster transaction finality and decentralized sequencer capabilities, Blockworks Research noted.
“The chain can elect to implement an EIP-1559 type mechanism where transaction fees can be burnt and this value can accrue to veFXS holders,” according to BlockWorks
VeFXS (Vote-EscroweD FXS) is a token designed to earn long-term token holders yield. Users can lock in FXS tokens for up to four years and earn four times the amount of veFXS.
“VeFXS holders may also elect to introduce a bribe market for sequencers,” Blockworks Research said. “Frax is no stranger to bribe markets in DeFi and continues to hold the lion’s share of CRV and CVX, which enables the protocol to drive deep liquidity and incentives to its products.”
FraxChain would be a game changer to the Frax Ecosystem by introducing a layer 2 solution which is more secured, Scalable and with faster finality.
FraxChain is expected to be live by the end of 2023
CONCLUSION
The project’s focus on innovative solutions, such as BAMM, and its commitment to regulatory compliance highlight its determination to create a stable and sustainable algorithmic stablecoin protocol. As the crypto space continues to evolve, Frax remains at the forefront of innovation, offering a unique approach to price stability and value preservation
