Frax Finance started as a novel stablecoin protocol and has grown into one of DeFi's most ambitious ecosystems, spanning a stablecoin (FRAX), a liquid staking token (sfrxETH), a lending market (Fraxlend), and an upcoming L2 chain (Fraxtal).
FRAX: The Stablecoin
FRAX is a USD-pegged stablecoin that began as fractional-algorithmic — partly collateralized, partly maintained algorithmically. Over time, Frax evolved toward full collateralization following lessons from algorithmic stablecoin failures (Terra/LUNA).
In 2026, FRAX operates as a fully collateralized stablecoin backed by USDC, ETH, and other approved assets held in the protocol's reserve.
FRAX distinguishes itself by deploying idle collateral into yield-generating strategies (Curve pools, Aave, Compound), making the reserve productive rather than inert. This efficiency funds operations and reduces reliance on FXS emissions.
sfrxETH: Highest-Yielding ETH LST
Frax's liquid staking product uses a two-token model:
frxETH: A 1:1 pegged representation of staked ETH. No staking yield accrues to frxETH itself. It's used as DeFi liquidity (in Curve frxETH/ETH pools).
sfrxETH: The yield-bearing version. All staking rewards from the entire Frax LST system concentrate into sfrxETH holders — because frxETH holders get no yield, sfrxETH holders get a larger share.
Result: sfrxETH consistently yields 0.5–1% APY more than stETH or rETH. If stETH yields 4.5%, sfrxETH might yield 5.2%.
The tradeoff: sfrxETH is less liquid than stETH. The frxETH/ETH Curve pool provides exit liquidity, but it's smaller and less deep than stETH/ETH.
Fraxlend: Isolated Lending
Fraxlend is Frax's lending protocol, using isolated pair markets (similar to Morpho Blue). Each market is a separate contract with its own collateral/loan pair, LTV, and interest rate model.
Fraxlend uses a Variable Rate v2 model — interest rates rise and fall based on utilization, with a built-in mechanism that prevents utilization from staying at 100% for long by aggressively raising rates to attract new lenders.
FXS and veFXS
FXS is Frax's governance token. Lock FXS for veFXS (up to 4 years) to receive:
- Protocol fee revenue share (from FRAX, sfrxETH, and Fraxlend)
- Gauge voting power (for FRAX liquidity incentives on Curve and Frax-native pools)
- Enhanced yield on Frax protocol products
The veFXS model mirrors Curve's veCRV — longer lockups receive more voting power and revenue.
Fraxtal: The L2 Chain
Frax launched Fraxtal, an Ethereum L2 using the OP Stack (same as Base, Optimism). Fraxtal uses FRAX as the gas token, creating demand for the stablecoin beyond simple swaps.
Fraxtal aims to be the canonical home for Frax-native DeFi, with preferential integration of FRAX, sfrxETH, and Fraxlend across the chain's native protocols.