With Federal Reserve interest rates at a 22-year high, FRAX announced the launch of sFRAX – a vault intended to leverage the corresponding rise in Treasury yields.
FRAX is in the process of deploying a series of “Frax v3” products and today is launching sFRAX, or “staked FRAX,” in addition to a bond product that converts to FRAX’s stablecoin at maturity. Frax founder Sam Kazemian told Blockworks that starting Monday, users can deposit sFRAX and receive a 10% return — which would then drop to about 5.4%, the Fed’s current IORB rate.
Kazemian said that once Federal Reserve interest rates started rising, he realized that most stablecoins on the market were only built for low interest rate environments – and that Frax (FRAX) had to keep up with interest rates to stay relevant.
“Otherwise, no one will treat your stablecoin like real dollars. They just treat them as play money and then sell them for real dollars, or for real stablecoins or real treasury projects,” Kazemian said.
sFRAX is partly the result of FRAX’s August partnership with FinresPBC, which connected FRAX with Kansas City-based Lead Bank to open a brokerage account and begin purchasing government bonds.
Frax’sFrax appears to be similar in motivation to MakerDAO’s DAI Savings Rate (DSR), a bear market success story that has helped Maker increase its earnings for five consecutive months by giving DAI holders exposure to Treasury yields, according to DeFiLlama.
But Kazemian thinks Frax’s design is ultimately more sustainable than Maker’s.
The DSR rates are akin to “marketing expenditures to increase the profits of the DAO,” Kazemian told Blockworks, arguing that the Maker rates do not match those of the Fed. Kazemian said FRAX is perfecting the Treasury-exposed stablecoin.
“It’s not like, ‘Hey, let’s just throw in a bunch of revenue and compete with DAI.’ We believe that we want to complete this design,” Kazemian said. “To complete a dollar-pegged stable coin, you need a way to bring the Fed’s interest rate on-chain.”