Decoding Frax Finance’s frxETH V2 Update

Frax Finance is one of the fastest growing protocols in the LSD field, largely due to the clever synergy between the sfrxETH and frxETH-ETH pool on Curve. The innovation of frxETH V2 promotes decentralization of frxETH while improving the efficiency of the lending market. Cryptocurrency KOL Poopmam has deciphered the design of frxETH V2.

What are the innovative points of frxETH v2? In order to achieve the ultimate decentralized LSD project, frxETH v2 introduces several innovations, the most notable of which is the interest and programmable lending market based on market and utilization rate (UR). Users can borrow from verification nodes based on the loan-to-value ratio (LTV). To “borrow” a validator, users must provide a minimum amount of ETH as collateral (possibly > 8 ETH), and the loan interest is paid directly from the user’s ETH and validator rewards. FrxETH v2 does not use hard-coded fees, instead relying on dynamic interest rates based on utilization and market forces.

Penalties. When a validator fails to complete certain tasks, a reduction occurs, increasing the borrower’s LTV as the validator’s total value decreases. If the LTV reaches an unhealthy level, the validator will be expelled to maintain protocol stability.

Programmable lending market. Fundamentally, the cost and type of collateral are usually unknown (you can use RPL, fxs, or any token as collateral, and their collateral cost is actually the same). With this in mind, frxETH v2 will be fully programmable, allowing vefxs holders to decide which tokens should become new collateral and design new loan terms through governance.


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