Summary
The Frax Share (FXS) token serves as the volatile utility and governance token within the Frax Finance ecosystem, contrasting with the stablecoin FRAX. Designed for price volatility, FXS grants holders governance rights, protocol utility, and revenue-sharing opportunities. Key governance parameters include:
- Adjusting fees
- Allocating protocol assets
- Enabling new lending pairs on Fraxlend
Excess protocol revenue is distributed to locked veFXS holders, who also benefit from boosted farming weights and additional rewards. The initial FXS supply was capped at 100 million tokens (see allocation details). As of October 2024, the hard supply limit remains unchanged.
Value Proposition
FXS exhibits upside and downside utility potential, with its value decoupled from FRAX’s stability mechanism. This ensures FRAX’s peg remains unaffected by FXS price fluctuations.
Evolution of Frax Models
Original Model (V1)
In the V1 model, minting FRAX required both FXS and a collateral stablecoin (e.g., USDC). The ratio (e.g., 15% FXS, 85% USDC) adjusted dynamically based on market conditions.
Key Dynamics:
FXS’s market cap reflected:
- Expected net value from FRAX seigniorage
- Cash flows from fees
- Utilization of unused collateral
- As FXS’s cap grew, the protocol’s ability to maintain FRAX stability strengthened.
- Inspired by Robert Sams’ seigniorage shares model, FXS supply became highly deflationary with rising FRAX demand.
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Current Model (V2+)
In V2 and beyond, FXS retains its governance role but no longer participates directly in FRAX minting—this function is delegated to Automated Market Operations (AMOs).
veFXS Benefits:
- Share of excess revenue
- Enhanced farming rewards
- Voting power over protocol upgrades
FAQ Section
1. What is veFXS?
veFXS represents locked FXS tokens, granting holders governance rights, revenue shares, and farming boosts.
2. How does FXS remain deflationary?
FXS supply decreases through buybacks and burns funded by protocol revenue.
3. Can FXS affect FRAX’s peg?
No. FXS price movements are independent of FRAX’s stability mechanisms.
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Conclusion
FXS is central to Frax Finance’s decentralized governance and value accrual. Its design balances volatility for holders with stability for FRAX users, making it a cornerstone of the DeFi ecosystem.