A Quick Look at Six Catalysts for the Growth of Algorithmic Stablecoin Frax Finance

By Stacy Muur, Chief Marketing Officer, Spin; Compiled by: Felix, PANews

Ouroboros Capital issued an article outlining its investment thesis on Frax Finance, and believes that in the next 6 to 12 months, FXS tokens have great growth value. This article is a summary of the article by Spin Chief Marketing Officer Stacy Muur.

On June 16, Frax launched the FXS buyback program with a budget of $2 million within 6 months. Ouroboros Capital recommends ramping up buybacks during periods of low prices, but stopping buybacks once prices exceed $5.

On June 30, the proposal was approved. This sends a clear signal to the market that there is a minimum (floor) for FXS when it falls below $5. Additionally, FXS presents an attractive opportunity in the $5-$6 range as downside risk remains limited.

In addition to discussing potential downtrends, uptrends are also explored. Ouroboros Capital believes that FXS will experience exciting times in the next six months, driven by six key catalysts. The six key factors are:

Adoption of frxETH****

Ouroboros predicts massive growth for frxETH, a derivative of Ethereum, which has shown impressive growth since its launch. According to the approved proposal, sfrxETH will be incorporated into the Aave platform. The move is expected to be a growth catalyst, reflecting the success of stETH on AAVE.

In addition, the v2 version of frxETH will focus on optimizing the earning of validators, attracting the best validators, and bringing better benefits to users. It will introduce competitive fee rates and leverage options for validators.

Collateral Ratio (CR) > 100%

Once the collateral ratio reaches 100%, the distribution of FXS fees will resume and any concerns about the stability of FRAX will be eliminated. The current collateralization ratio is slightly below 100%, but Frax has volatile assets + income to maintain stability.

Fraxchain

Layer2 network Fraxchain is an upcoming Hybrid Rollup that will support all Frax assets and enable seamless liquidity transfers. Fraxchain is expected to be ready by the end of this year. Fraxchain will use the stable currency Frax and the liquid collateral derivative Frax Ether to pay transaction fees. Additionally, Frax founder Sam Kazemian said that fees generated by the Rollup network can be partially burned or redirected back to the Ethereum mainnet for distribution to holders of the FXS governance token. This will have a positive impact on frxETH’s yield and potentially lift valuations.

Frax v3

Frax v3 is an update of the Frax stablecoin designed to reduce risk and make it more resistant to decoupling. This would enhance the bullish outlook for FXS.

FRXGov

While veFXS holders govern the protocol, proposal execution relies on multi-signature smart contracts. But what if the signer is unable to sign due to legal issues or other reasons? frxGov was launched to address these concerns. When Frax creates a signature, they fully submit it to the FRXGov contract on-chain, and after a certain amount of time FXS holders can vote or veto the signature. Then after a certain amount of time, the smart contract itself allows that signature to be executed on-chain.

Accrued Value

Frax founder Sam Kazemian has publicly stated that Frax’s annual revenue is about $20 million. This puts Frax in the top 30 for revenue generation. As far as frxETH is concerned, 90% of the staking proceeds are distributed to sfrxETH stakers in the form of frxETH.

This would generate an estimated $2 million in revenue for FXS holders, with the potential to grow to $8 million if Frax reaches rETH’s TVL.

AMO (Algorithmic Market Operation Controller) is Frax’s largest revenue driver. They serve the dual purpose of maintaining the stability of the Frax asset peg and leveraging protocol liquidity to generate income.

The major AMOs, including the Curve/Convex AMO, frxETH AMO, and FraxLend, are expected to generate approximately $14 million in revenue, with total revenue for all AMOs expected to be approximately $16 million.

Fraxchain is the driving factor for the future value accumulation of Frax Finance. Fraxchain will allow the use of native Frax assets as gas fees. It is conservatively estimated that Fraxchain’s gas fee is about $1.8 million per year.