FRAX V3 is launched. Will the DeFi industry and algorithmic stablecoin track usher in huge changes?

Frax is currently the 7th largest stablecoin project by market value. Unlike over-collateralized stablecoins such as DAI and USDT, Frax previously achieved stablecoin price anchoring through algorithms + partial collateral. Its highlight is the higher returns in the LSD business.
The total amount of staked Frax Finance sFRAX has exceeded 11 million
The release of the FraxV3 stablecoin is an important moment. Through a series of Defi mechanism innovations, users can earn real-world bond returns on the chain through sFrax and FBX.
FRAX v3 is a stablecoin pegged to the US dollar, which is achieved through the AMO Autonomous Smart Contract, the FrxGov governance mechanism, and the Interest on Federal Reserve Balances (IORB) interest rate oracle to stabilize $FRAX at 1 US dollar.
As the IORB oracle rate rises, Frax Protocol’s AMO strategy will heavily collateralize FRAX via Treasuries, reverse repo contracts, and/or USD deposited with the Federal Reserve Bank that pays the IORB rate.
As the IORB oracle reports lower/declining interest rates, the AMO strategy will begin purchasing on-chain, decentralized assets and overcollateralized lending in Fraxlend to rebalance FRAX collateral.
Previously, Frax Core Developers established Financial Reserves and Asset Exploration Inc (FinresPBC) in Delaware to serve as a channel to facilitate Frax Protocol's access to safe cash equivalent assets and yields close to the Federal Reserve rate.
Staked FRAX (sFRAX) is a staking vault that allows users to stake Frax to earn weekly distributed $FRAX rewards.
Frax Finance recently launched sFRAX, a collateral vault based on US Treasury bonds
Frax generates revenue primarily through AMO by deploying its collateral into on-chain yield strategies. A portion of the revenue will be deposited directly into the sFRAX vault.
sFRAX starts at 10% APY. Regardless of the amount of deposit in sFRAX, Frax will try to keep the minimum APY of sFRAX equal to or higher than the Federal Reserve's reserve balance interest rate (IORB rate), which is currently 5.4%.
This is achieved through Frax’s AMO by converting the underlying collateral into the following RWAs:
1. Short-term U.S. Treasury bills;
2. Federal Reserve overnight repurchase agreements;
3. Deposit U.S. dollars into the main account of the Federal Reserve Bank;
4. Selected stocks of money market mutual funds.
The switch will only take place if Frax’s current AMO strategy fails to provide sFRAX with a more attractive yield than the current IORB rate. If the IORB rate begins to decline, Frax’s AMO will switch collateral back to an on-chain yield strategy to keep sFRAX’s yield attractive.
FXB, which can be seen as an on-chain zero-coupon bond, is an innovative mechanism introduced by Frax Protocol, providing users with an opportunity to make low-risk profits. Its working principle is relatively simple: users can buy FXB at a discount, and after a certain period of time, FXB will be exchanged for FRAX at par value, earning the difference. This means that just by buying FXB and waiting for it to expire, there is an opportunity to realize profits.
FXB has the same characteristics as traditional zero coupon bonds, and its price is inversely proportional to the interest rate, that is, the higher the interest rate, the lower the price of the zero coupon bond. This makes FXB an attractive investment tool, especially for investors seeking low-risk assets.
The FXB sale is conducted through a Gradual Dutch Auction (GDA) system, where frxGov sets quantity and price limits to ensure that FXB tokens are not sold below a floor price. This auction process is conducted through the FXB Auctioneer AMO contract, which is decentralized, permissionless, and non-custodial. In addition, frxGov can launch new auctions at any time, providing users with more opportunities to participate.
Frax Protocol’s official website’s asset pledge page
FXB brings an innovative way to Frax Protocol, allowing users to realize profits in a low-risk environment without having to worry about price fluctuations. This mechanism adds more diversity and appeal to the Frax ecosystem, providing holders with more choices and profit opportunities. As frxGov continues to develop and improve, FXB will continue to attract more users and contribute to the long-term success of Frax Protocol.
As one of the most designed protocols in the DeFi world, Frax Finance has delivered impressive products in many different fields such as stablecoins, lending, LSD, etc. The release of FRAX v3 marks the further evolution and innovation of Frax Protocol, introducing new mechanisms such as sFRAX and FXB, providing users with more profit opportunities and diverse choices.
As market competition becomes increasingly fierce, FRAX v3 is expected to demonstrate strong market competitiveness. Its unique design and mechanism innovation pave the way for the future development of Frax Finance and also bring new highlights to the stablecoin field. We look forward to seeing Frax Protocol continue to play an important role in the DeFi ecosystem and provide more opportunities and value-added potential for users and investors.
Frax Finance's continuous evolution and innovative spirit will continue to attract the global DeFi community, and we will wait and see how FRAX v3 will drive the development of this protocol in the DeFi world and bring new possibilities to the stablecoin field. In any case, Frax Protocol has proven its strength and commitment, bringing unique value to the DeFi ecosystem, and this journey will continue.