Compilation of the original text: Deep Tide TechFlow
Compilation of the original text: Deep Tide TechFlow
DeFi will be the monetary infrastructure layer of the Internet, and Frax Finance will be its central bank.FRAX is a stablecoin launched by Frax Finance that uses collateral and algorithmic mechanisms to maintain a peg to $1. However, this article does not intend to explore the stablecoin mechanism of FRAX, but to understand why it will become the central bank of the Internet currency infrastructure layer.
One of the reasons why $FRAX can be the central bank of the internet money infrastructure layer: Automated Market Operations (AMO).
AMO will create the cash flow FRAX needs to scale and incentivize growth without the need for inflation or Ponzi finance, and it will even be more efficient in cash flow than the Fed.
Unlike the purely over-collateralized model ($DAI), in the traditional model, minted debt is owned by the owner of the debt position (CDP). Whereas in a fractional model (like $FRAX), the protocol owns the debt, and the protocol must ensure that it can redeem it through collateral.
This creates greater flexibility in the extension of $FRAX. This mechanism allows them to mint additional $FRAX (as long as it is not depegged) to participate in the AMO strategy and help scale the protocol.
AMOs can:
Increase the supply of FRAX;
Reduce lending rates in the lending market ($AAVE, $EULER, etc.);
Create money cheaply to increase capital efficiency;
generate revenue for the protocol;
That's actually what the Fed does.
Each different AMO has 4 attributes:
De-mortgage: also known as reducing the mortgage rate (CR);
Market operation: actions that do not change CR/operate in a balanced state;
Remortgage: increase CR;
FXS 1559: Liquidation of AMO, how much $FXS can be bought and burned, and how much profit in the end.
In the beginning, Frax had 4 AMO strategies:
1. Investor AMO;
2.$CRV AMO；
3. Loan AMO;
4. Liquidity AMO;
1. Investor AMO
AMO deploys protocol collateral to yield aggregators and money markets such as Iearnfinance, AaveAave, OlympusDAO, and more. There is no waiting period for these collaterals to be withdrawn, so the collateral is liquid and can be cashed out from FRAX.
2.$CRV AMO
Deploy idle $USDC and new $FRAX to FRAX3CRV pool. It can earn CRV transaction fees, management fees and CRV rewards, and promote FRAX liquidity to become better to strengthen the peg.
3. Borrowing AMO
Inject FRAX directly into money market pools, such as Compound or AaveAave. Instead of the standard FRAX minting process (which is more convenient), users can borrow by over-collateralizing assets, and people can earn income from the interest payments on borrowing.
4. Liquidity AMO
Combine newly minted FRAX with collateral to provide liquidity on Uniswap V3 and earn transaction fee income.
But that's not all, Sam Kazemian and his team are planning to launch 4 other brand new AMO strategies:
5. FRAX basic pool
Projects can create pools to easily trade between Frax and USDC as well as other tokens, just like with the 3CRV pool. If the price is right, projects will pay for FraxBP's liquidity.
6.FraxSwap
Uniswap xy=k AMM competitor, but with more features like TWAMM for large transactions. FraxSwap will help projects gain better control over their funds by slowly selling or buying back governance tokens.
7.Fraxlend
FEI/Rari competitor (FRAX team learns from their mistakes). Anyone can create a lending market (permissionless lending market) between any ERC-20 tokens, and the protocol can integrate FRAX and use loans on CreditDAO for DAO custom loans.
8. fxsETH
Liquid staking competitor to LidoFinance and Rocket Pool. Lido is one of the projects with the best cash flow on mainnet, and fxsETH will help decentralize some of the liquid staking market and make some money on the way to a more decentralized ETH.
Right now, everyone is just talking about sustainable yields, and Frax has 8 complete ways to do it.
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