The largest fractional algorithmic stablecoin protocol, Frax Finance, has launched a permissionless lending market called Fraxlend — where users can lend or borrow digital assets using any token that is included in the Chainlink data feed.
With around $1.18 billion total value locked (TVL), this effectively places Frax ahead of the algorithmic stablecoin protocol race, according to DeFiLlama.
FRAX and FPI, the two stablecoins, are used to run the protocol. While FPI is pegged to the U.S. Consumer Price Index (CPI), FRAX is partially collateralized and pegged to the US dollar. To this day, FRAX has always been one of the most stable algorithmic stablecoins that had never lost its peg.
Drake Evans, the core developer of Frax Finance, recently discussed two crucial use cases for Fraxlend on the Flywheelpod podcast.
First, Fraxlend can allow the protocol to mint new FRAX via the borrowing and lending process. Through current money markets, Fraxlend enables the Frax Finance protocol lend FRAX directly to earn interest.
Up until recently, the only way to do so was to take out a loan that is over-collateralized through lending platforms like Curve. The protocol is able to streamline the process thanks to Fraxlend, which was described by Frax Finance’s website to be able to generate extra profit that can be used to “buy back and burn FXS (similar to how MakerDAO burns MKR from stability fees).”
Drake mentioned a second new application of Fraxlend that lets user design custom term sheets for protocol-to-protocol deals. Normally, these transactions are negotiated via Telegram chats and concluded as OTC transactions using multi-sig wallets. By allowing DAOs to put up the deal on the chain, Fraxlend automates the process and increases transparency.
Sam Kazemian, the founder of Frax Finance, lauded Fraxlend as “one of the newest generations of lending protocols that will showcase new innovations in onchain debt origination.” He added that the team is incredibly excited to introduce some new features that have never been added to any types of lending system.
