Data Decoded: Fraxlend

Our new Dune Dashboard tracks KPIs for Fraxlend, a lending protocol recently launched by Frax Finance. This document complements the dashboard and explains the metrics, guiding investors to data-driven decisions about the protocol.

Fraxlend Introduction

Fraxlend was launched in early September 2022, continuing the vertical integration of Frax Finance. Fraxlend facilitates over-collateralized lending using isolated markets called “pairs,” where users deposit a specific collateral token to borrow a specific asset token. Fraxlend initially launched with two pairs, WETH/FRAX and WBTC/FRAX. Borrowers deposited WETH or WBTC collateral to draw FRAX-denominated loans from separate liquidity pools. While anyone can deposit FRAX into a lending pair to earn yield, the protocol deposits FRAX liquidity into these pairs through its Lending AMOs, effectively minting new FRAX backed by over-collateralized debt. On October 7, FXS, CVX, and CRV were listed as eligible collateral for FRAX debt. There are currently discussions (1, 2, 3) to add Lending AMOs for these pairs as well. Pair creation is currently managed by the core team, but will be permissionless at maturation. Permissionless listing is possible because pairs do not pose a risk to the solvency of the protocol in an isolated lending model; risk is contained within each pair. Thus, Fraxlend acts as both a customizable lending market (like Aave or Compound) and a collateralized debt protocol (like MakerDAO).

In addition, Fraxlend supports the creation of private pairs with custom term sheets, opening the door to OTC debt structuring. New pairs can be created with customizable maturity dates, whitelisted borrowers & lenders, varying levels of collateralization, and specialized liquidation terms. This benefits businesses and DAOs that want on-chain leverage but require customizable solutions.

The current borrow rates range between 0.25% - 1.44% and compare favorably to other DeFi lending protocols. As of October 11, the borrow rate for USDC on Aave and Compound was 1.67% and 2.08%, respectively.

The currently listed pairs use the variable time-weighted interest rates where neither the pair creator nor protocol governance can control the interest rates. Each pair has a target utilization range in which the borrow rate does not adjust. When outside of this range, the rate will adjust to find equilibrium. In this model, the free market determines the appropriate rate for a given pair, not the protocol.