GM! Impromptu thread about @fraxfinance $FXS as we are seeing the flywheel effect unfold right in front of us😳
$FXS has been showing crazy strength and basically up only over the past week. I think it is likely to continue being strong😏
🧵👇 for the deep dive!
1/
The main reason why $FXS has been outperforming is mainly due to $frxETH, the LSD of Frax. This has been leading $FXS to up only on the charts!
But how so?
2/
$frxETH users has two main sources of yield. The first one being the frxETH-ETH Curve LP.
What is this LP for? It is to ensure deep liquidity of $frxETH to $ETH swaps and vice versa, maintaining $frxETH’s peg to $ETH.
3/
With a strong peg to $ETH, $frxETH users do not need to worry about losing their capital due to a depeg.
This increases the safety of liquid staking $ETH on Frax.
4/
Frax holds a lot of $vlCVX, allowing them to direct emissions towards the frxETH-ETH Curve LP. This increases the rewards for the liquidity providers and incentivises deep liquidity.
As rewards are in $CRV, there is no need to dilute $FXS by giving it out as incentives.
5/
As we can see, the incentives are clearly working as TVL for the Curve LP has been rising steadily just as the new year started.
$frxETH has been able to keep a strong peg to $ETH at 0.9994 $ETH per $frxETH as of the time of writing this.
6/
The next source of yield would be simply staking $frxETH. Users are rewarded with $sfrxETH which accrues staking rewards for them.
As more users deposit liquidity in the Curve Pool, there are more staking rewards leftover to be distributed to stakers and vice versa.
7/
With two attractive yield strategies for $frxETH holders and a strong peg, liquid staking your $ETH on Frax becomes a very attractive option.
Now onto the juicy part, so how does this equate to the flywheel effect that is causing $FXS to outperform?
8/
A 10% fee is taken from the staking rewards for liquid staking your $ETH on Frax. Pretty standard stuff for LSDs.
The main point here is that 80% of the fees accrued goes to FXS stakers😱
9/
$FXS has been soaking up all these goodness from the increased adoption of $frxETH.
Price has pretty much been up only and recovers fast even on a dip.
10/
Why is the flywheel effect likely to continue? The liquid staking narrative is getting stronger as Shanghai upgrade approaches in March.
An affirmation of staked withdrawals mean that liquid stakers would not have to worry about not getting their actual $ETH back.
11/
The yields and deep liquidity for $frxETH are hard to pass. TVL for $frxETH continues to rise day after day, almost doubling even as 2023 has just started.
12/
With a stronghold on the Curve bribes, Frax has been able to put out an attractive staking APY of over 9% for your ETH!
As not everyone is staking their $frxETH and are putting it into the Curve LP, the share of rewards has become larger for each $sfrxETH holder.
13/
From a TA perspective, it’s pretty much clear skies from $11.50 onwards. With little resistance in its way from there and the flywheel effect playing out strongly, more fireworks are likely to be witnessed🤩 $FXS
14/
Due to the reasons above, I see Frax being a formidable challenger to the throne for LSDs. With a market share of only 1% versus Lido $LDO which holds over 73% of $ETH LSDs, there is massive potential yet to be unlocked for $frxETH and hence, $FXS🤯
defillama.com/lsd
15/
Have been accumulating $FXS around the time of the tweet below at mid $8. A bit late to the train😅
Should be a good medium to long-term play.