How does Fraxchain work? Frax Finance built the Layer 2 platform Fraxchain using a combination of Optimistic Rollup and zkRollup on Ethereum. Will the project to make Frax Finance one of the largest DeFi platforms on the market truly experience a turning point thanks to Fraxchain? Let’s read the article below to learn more about the project.

Frax Finance Base Layer

Frax Finance is a DeFi platform with outstanding products that DeFi OGs are familiar with, such as:

FRAX, a stablecoin: FRAX was initially a semi-algorithmic stablecoin that combined crypto-backed collateral with an algorithmic stablecoin. FRAX officially became a stablecoin that was backed by cryptocurrency, much like DAI.
Fraxswap: Uniswap V2 is the foundation for this AMM platform.
Fraxferry: a Bridge platform that assists users in migrating FRAX to various available Blockchains.
Fraxlend: a platform for lending and borrowing that is more innovative than Fraxswap.
fxrETH: a platform for liquid staking derivatives built by Frax Finance on Ethereum with numerous distinctions from Rocketpool or Lido Finance.

Even though there are a lot of these kinds of products, Frax Finance products have yet to produce a single one that stands out from the competition in the stablecoin category. FRAX has a lot of power and stability, but compared to DAI, it has a much smaller impact. Additionally, Fraxswap cannot compete with Uniswap, and it is challenging for Fraxlend to split AAVE’s market share.

Frax Finance, in my opinion, is attempting to construct numerous products in order to capture value for FXS. However, in addition to Stablecoin FRAX, Frax Finance’s most successful product to date, the remaining products must still be on the market. As a result, Frax Finance must leave the DeFi industry. I believe that’s why Frax Finance decided to build Fraxchain.

The idea of Fraxchain was born

Sam Kazemian, the founder of Frax Finance, revealed a number of significant upcoming protocol enhancements in a recent podcast episode with Flywheel DeFi. Fraxchain, Frax Finance’s own Layer 2 (L2) solution, will be developed.

Fraxchain, in contrast to the L2s that are currently available, will be a hybrid fusion that combines the methods of optimism and zero-knowledge fusion (zk-rollups). Fraxchain uses a unique combination of Optimistic Rollups and ZK Rollup technologies, competing with Layer 2 on the market and distinguishing itself from the competition. Both of these are the best Layer 2 solutions currently available. It asserts that this will make it possible to achieve faster finality, improved scalability, and increased security against rivals.

Fraxchain’s Sequencer, a node that organizes transactions on Layer 2 and sends them to Layer 1, is run by the chosen through governance voting, which maximizes decentralization. Additionally, this position is alternately auctioned and transferred. Fraxchain allows the next Sequencer to seamlessly continue arranging the transaction from where the previous Sequencer stopped if a Sequencer is forced to shut down. This distinguishes Fraxchain from other Ethereum Layer 2s that frequently rely on a single Sequencer. This guarantees that transactions are carried out promptly and continuously.

More interestingly, unlike its competitors, Fraxchain will use frxETH as the on-chain gas token. At launch, FraxFerry will be integrated with Fraxchain to guarantee sufficient frxETH on-chain liquidity.

Because these fees are paid to FXS holders who deposit with votes (veFXS), obtained by locking the FXS token, the use of frxETH for gas is important to Frax Finance. FXS bettors who have earned through FXS buybacks funded by FraxLend and FraxSwap fees gain additional value as a result of this.

Additionally, the supply of staked frxETH decreases the larger the amount of frxETH held for gas and used on-chain, which will raise the overall profit for holders of staked frxETH (sfrxETH), making frxETH more appealing than other LSD solutions.

In the end, a successful Fraxchain has the potential to maintain frxETH’s dominance in the market, thereby assisting Frax Finance in securing a larger share of the market than other LSD protocols.

Additionally, it has been suggested that Fraxchain entirely utilize account abstraction contracts rather than Externally Owned Accounts (EOAs). According to Sam, the account abstraction resembles a “fully programmable bank account” and provides users with increased on-chain programmability.

With its Fraxchain, Frax Finance is extremely ambitious. Even Sam Kazemian, co-founder of Frax Finance, stated that Fraxchain would be superior to the majority of Layer 2 platforms on the market currently. The following are some of the benefits that Fraxchain provides:

The use of FRAX or fxrETH will increase if the Fraxchain ecosystem explodes. The progress of the Stablecoin project and Liquid Staking Derivatives is directly impacted by this. Additionally, FXS will lose a significant growth engine if this revenue stream is eliminated from the network.
aiming for decentralization from the start, whereas decentralization in the Sequencer and Prover area typically takes a long time in Layer 2 projects.
Layer 2 by Frax Finance is currently scheduled to launch in late 2023.

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Future challenges

In addition to the benefits, there will undoubtedly be drawbacks that have a direct impact on the Fraxchain network, such as:

Blockchain Layer 2 is the first time we have seen a combination of zkRollup and optimistic rollup. So, what exactly is this combination? Are there any potential dangers? It is possible to assert that Sam Kazemian’s model is too lofty.
Since Frax Finance hasn’t built a product that has really sold well in DeFi, will the team be able to build an ecosystem that needs more people and resources? Where is the foundation on which we can rely on Frax Finance to construct a formidable Fraxchain?
Is the decentralization that Fraxchain is going for the gold? because, rather than decentralization like Arbitrum or Optimism, the first phase of the project frequently puts speed of development ahead of decentralization.

Conclusion