Fraxchain, New Famous Layer 2 With High Expectations By Frax Finance
What is Fraxchain? Fraxchain is a Layer 2 platform built by Frax Finance on Ethereum with a combination of both Optimistic Rollup & zkRollup. Will Fraxchain really make a turning point for the project to make Frax Finance one of the largest DeFi platforms in the market? Let’s learn about the project through the article below.
Frax Finance Base Layer
Frax Finance is a DeFi platform that is familiar to DeFi OGs with outstanding products, including:
- Stablecoin FRAX: In the beginning, FRAX was a semi-algorithmic Stablecoin that combined Algorithmic Stablecoin and Crypto-backed Collateral. After this, FRAX officially became a Crypto-backed Stablecoins similar to DAI.
- Fraxswap: An AMM platform built on top of Uniswap V2.
- Fraxferry: A Bridge platform that helps users migrate FRAX to various Blockchains in the market.
- Fraxlend: A Lending & Borrowing platform with more innovation than Fraxswap.
- fxrETH: A Liquid Staking Derivatives platform built by Frax Finance on Ethereum with many differences compared to Lido Finance or Rocketpool.
Although there are many such products, Frax Finance products have yet to have a single product that leads the market in the Stablecoin segment. Although FRAX is very strong and stable, its influence is far behind compared to DAI. Fraxswap also cannot compete with Uniswap, and Fraxlend is also very difficult to split AAVE’s market share.
In my opinion, Frax Finance is trying and trying to build many products to capture value for FXS. However, apart from Stablecoin FRAX, which is the most successful product ever of Frax Finance, the remaining products still need to be available position in the market. Therefore, Frax Finance needs to break out of the DeFi industry. That’s why I believe Frax Finance chose to build Fraxchain.
The idea of Fraxchain was born
In a recent podcast episode with Flywheel DeFi, the founder of Frax Finance, Sam Kazemian, once again revealed a series of important upcoming developments for the protocol. Frax Finance will build its own Layer 2 (L2) solution, Fraxchain.
Unlike the existing L2s on the market, Fraxchain will be a hybrid fusion, combining the technologies of both Optimism and zero-knowledge fusion (zk-rollups). Competing with Layer 2 already in the market and becoming different, Fraxchain uses a combination of both Optimistic Rollups and ZK Rollup technologies, which is unprecedented in the crypto market. These are both the 2 best Layer 2 solutions available today. It claims that this will allow for better scalability, faster finality, and increased security against competitors.
The Sequencer (node that helps arrange transactions on Layer 2 and sends them to Layer 1) in Fraxchain is operated by the chosen through governance voting, which increases decentralization to the maximum extent. This position is also auctioned and transferred alternately. If a Sequencer is forced to shut down, Fraxchain allows the next Sequencer to continue to arrange the transaction from where the previous Sequencer stopped seamlessly. This feature makes Fraxchain different from other Layer 2s on Ethereum, which often depend on a single Sequencer. This ensures transactions are executed continuously, and quickly.
Perhaps more interestingly, Fraxchain will use frxETH as the on-chain gas token instead of ETH, like its counterparts. FraxFerry will be integrated with Fraxchain at launch to ensure sufficient liquidity of frxETH on-chain.
The use of frxETH for gas is significant to Frax Finance as these fees are paid to FXS holders who deposit with votes (veFXS), obtained through locking the FXS token. This accumulates additional value for FXS bettors, who have earned through FXS buybacks funded by FraxLend and FraxSwap fees.
Also, the larger the amount of frxETH held for gas and used on-chain, the lower the supply of staked frxETH, which will increase the overall profit for staking frxETH (sfrxETH) holders, thus increasing the attractiveness of frxETH over other LSD solutions.
Ultimately, a successful Fraxchain has the potential to solidify frxETH’s dominance in the market, which could help Frax Finance secure market share relative to other LSD protocols.
Fraxchain has also been suggested to fully use account abstraction contracts instead of Externally Owned Accounts (EOAs). The account abstraction opens the door to increased programmability for users on-chain and, as Sam explains, makes it like a “fully programmable bank account.”
Frax Finance is extremely ambitious with its Fraxchain. Even Sam Kazemian – Co Founder of Frax Finance also affirmed that Fraxchain would be better than most of the Layer 2 platforms currently on the market. Some of the advantages that Fraxchain creates are as follows:
- If the ecosystem of Fraxchain explodes, the application of FRAX or fxrETH will increase. This directly impacts the development of the Stablecoin project and Liquid Staking Derivatives. And if this revenue stream is burned off the network, it will be a significant growth engine for FXS.
- Aiming at decentralization from the beginning, while Layer 2 projects often take a long time to get decentralized in the Sequencer and Prover area.
Frax Finance’s Layer 2 is currently slated to launch in late 2023.
Besides the advantages, there will certainly exist disadvantages that directly affect the network of Fraxchain, including:
- Blockchain Layer 2 is a combination of both Optimistic Rollup and zkRollup, which is something we have never seen before. So what is the combination here? Are there any possible risks? It can be said that Sam Kazemian’s model is too ambitious.
- Frax Finance has not built a product in DeFi that has really been successful, so when they build an ecosystem that requires more human and resources, will the Frax Finance team be able to do it? Where is the basis that we can trust Frax Finance to build a mighty Fraxchain.
- Is the decentralization that Fraxchain is aiming for too soon? Because often the first phase of the project often prioritizes development speed rather than decentralization like Arbitrum or Optimism.
The crypto market has matured compared to 2020, the number of users is higher, the number of users who have known crypto but have not yet used it is also much higher than in 2020. As a result, the demand for Layer 2 protocols has increased in line with the market. This could be one of the reasons why Frax Finance developed its Layer 2 Fraxchain.
While other Layer 2 focuses on features, users, and product quality, Fraxchain focuses on decentralization and new experiences. In particular, the combination of both Optimistic Rollups and ZK Rollup is something Layer 2 still needs to do. It is quite risky as the feasibility of this is not confirmed.
The launch of Fraxchain marks an important move by Frax Finance to strengthen its position in the DeFi world. Besides Fraxchain, Frax Finance is also planning to upgrade Frax V3, launch Frxgov, and upgrade FrxETH V2. However, the strategy and success of Fraxchain are still something to watch in the long run.
DISCLAIMER: The information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.
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