What is Frax Share (FXS), and what are its prospects?

Blockchain project teams often issue one or two tokens, but some do not limit themselves to this number and create crypto-assets to solve different tasks.

What is Frax Share?

Frax Share is a DeFi project on the Ethereum blockchain that operates on a decentralized autonomous organization (DAO) principle. Frax Share is part of the Frax Finance ecosystem, which also includes:

FRAX native stablecoin,
Frax Price Index (FPI) token linked to the consumer price index,
the liquid-staking derivative sfrxETH.

Frax Finance is a DeFi protocol created to issue stablecoins and other tokens whose price is pegged to some type of asset. The project was founded back in 2019 but launched only in 2021. The developers themselves position the project as a DeFi infrastructure for stablecoins.

Frax Finance, at the heart of Frax Share, is essentially a "system of autonomous central banks" and operates using the Algorithmic Market Operations Controller (AMO) mechanism.

Frax Share token

FXS is a native ERC-20 format Frax Finance protocol control token issued on the Ethereum blockchain. In addition to Ethereum, the FXS token is also available on the networks:

BNB Smart Chain (BSC),
Solana,
Arbitrum,
Avalanche,
Fantom.

The FXS token gives its holders a voice in developing the Frax Finance ecosystem. In addition, FXS holders can tokenize their tokens and receive rewards for doing so, which incentivizes holders to hold them for as long as possible and can contribute to the growth of the exchange rate.

FXS is fully backed by cryptocurrency and is a unique token, as it is rare for individual-created tokens to be used to manage a DAO. Moreover, FXS is not the only management token in the Frax Finance ecosystem.

Currently, the total number of tokens is about 99.6 million FXS, and about 76.2 million are traded on the market. The maximum number of FXS tokens is capped at 100 million and does not have an inflation schedule. Over 60% of FXS tokens are allocated to liquidity providers and will be issued within six years of launch.

The FXS token ranks 94th among all cryptocurrencies on CoinMarketCap's list in terms of capitalization at $688.5 million, which has nearly doubled since October 2023 but is 33% below the absolute capitalization high of $915.9 million reached in February 2023.

Frax Share is not a stablecoin, unlike FRAX or FPI, and its rate depends solely on supply and demand. At the time of writing, the FXS price was at $9.1. Since October 2023, the FXS token has risen by more than 60% but is still 78.5% below its all-time high (ATH) of $42.67 in April 2022. Amid a correction in the crypto market, the FXS price collapsed more than 6 times in just one month after reaching the ATH and then gradually declined until January 2023, reaching a local low of $4.14.

The FXS token is traded on major crypto exchanges such as Binance, ByBit, OKX, HTX, KuCoin, and decentralized exchanges Uniswap, Sushi, Curve, and Fraxswap.

In addition to FXS, the Frax Finance ecosystem includes 4 other digital assets:

FRAX is a stablecoin whose exchange rate is pegged to the US dollar. The developers have nicknamed it "fractional-algorithmic-stablecoin," as its currency peg is secured partly by collateral and partly algorithmically;
Frax Price Index (FPI) — the crypto industry's first stablecoin whose exchange rate is tied to the Consumer Price Index (CPI), fully backed by cryptocurrency;
Frax Price Index Share (FPIS) — another control token that can be used for staking, interlinked with the FXS token;
Frax Ether (frxETH and sfrxETH) is a stablecoin whose exchange rate is pegged to ETH, an LST token that replaces Ethereum's popular WETH wrapped token.

Frax Share ecosystem

The FXS token is part of Frax Finance's autonomous DeFi ecosystem, which includes various decentralized protocols:

Fraxswap is the first automated market maker (AMM) with a built-in TWAMM algorithm. In other words, Fraxswap is a time-weighted average price market maker. This approach allows large orders to be spread out over time to reduce their impact on price;
Fraxlend is a non-custodial and trustless lending protocol that provides users with a marketplace for lending against digital assets;
Fraxferry — a protocol for securely transferring tokens between blockchains via the Frax Protocol without the need for bridges or other third-party cross-chain solutions;

Frax Share outlook

The course of Frax Share is directly dependent on the development of the Frax Finance ecosystem. According to the project roadmap, the Frax Finance team plans to issue new tokens related to the Real World Asset (RWA) market. Analysts predict the global RWA market could reach $3.5-10 trillion as early as 2023.

According to DeFi Llama, the capitalization of the RWA sector in DeFi already exceeds $5 billion. In the last quarter alone, this figure increased more than 19 times: as recently as October 2023, the RWA market in the crypto sector was only $264 million.

Frax Finance has a well-developed ecosystem consisting of several DeFi protocols that are relatively liquid. For example, according to its blockchain observer Frax Facts, Frax Price Index has almost $100 million in blocked assets (TVL), while Frax Ether has more than $782 million.

At the same time, TVLs have shown steady growth over the past few months. The number of blocked assets in Fraxswap has grown by more than a third over the year to $41.9 million, but this is still significantly less than the leading DeFi DEX exchanges in the sector, such as Uniswap, PancakeSwap, and Sushi.