Frax Finance’s FXS Jumps as Terra Introduces Stablecoin Pool ‘4pool’

Liquidity from four major protocols would be used to make Curve’s 4pool attractive for users.

AccessTimeIconApr 4, 2022 at 12:59 p.m. UTC
Updated Apr 4, 2022 at 3:52 p.m. UTC

Shaurya is an analyst/editor for CoinDesk's markets team in Asia.

Frax Finance’s FXS governance tokens have surged nearly 80% in the past week as Terra developers introduced the “4pool” liquidity pool on stablecoin swap service Curve Finance.

Sentiment among traders increased amid increased utility for FXS tokens. These tokens accrue value from the newly minted FRAX stablecoins and fees from Frax Finance. Frax founder Sam Kazemian said in a tweet that any stablecoin that uses 4Pool for its base liquidity will get direct support from both Terra and Frax.

"My own personal goal is to make sure any project that holds FRAX is getting more than $1 of value per FRAX," Kazemian said in the tweet, suggesting added benefits in the form of rewards and platform support to platforms that use Frax.

FXS traded at $22 on Friday before the proposal was made public. Since then, it surged to as high as $44 on Sunday, before dropping to as low as $37 Monday morning as traders took profits.

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FXS neared all-time highs on Sunday night. (TradingView)

FXS had a market capitalization of over $2.2 billion at the time of writing. The token, however, remains nearly 10% below its January highs of $45.71.

What is the 4pool?

4pool is composed of two decentralized stablecoins, UST and Frax’s FRAX, and two centralized stablecoins, USDC and USDT. It aims to increase the utility of Terra’s UST stablecoins through a partnership with Frax and Redacted Cartel, a tool for earning yields on locked tokens.

Decentralized, or algorithmic stablecoins, keep their dollar peg based on the value of assets, or a basket of assets that are provided by users, while their centralized counterparts rely on actual fiat backing held by their issuers.

“Curve Finance is more like an algorithmic savings account,” Kazemian said in another tweet. “The terms of the savings account? The A factor (aka the peg affinity of your deposits). And gamma (the new v2 pool parameter). This allows anyone to build a "term sheet for a savings account" when they create a Curve pool.”

Depositors on Curve earn annual yields of up to 4% from one of the many pools on the platform. Curve offers a highly efficient way to exchange stablecoins while maintaining low fees and low slippage, according to documents from Curve Finance.

Pools currently deployed on Curve are backed by centralized or decentralized stablecoins, wrapped tokens – such as wrapped bitcoin – or a basket of various assets. 4pool, however, will bring together UST and FRAX, the two largest decentralized stablecoins with a cumulative backing of over $19.6 billion, and USDT and USDC, the two largest centralized stablecoins, with a cumulative backing of $133 billion.

4pool will initially be tested on the Fantom and Arbitrum networks, and later on Ethereum, according to its developers, with its creators aiming to make it one of the most liquid trading pools on Curve. Curve remains the biggest decentralized finance platform on Ethereum with over $21 billion in value locked.

At the time of this writing, “tricrypto2” was the largest Ethereum-based pool on Curve by value locked, holding over $78 million worth of USDT, wrapped bitcoin and wrapped ether.

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Shaurya is an analyst/editor for CoinDesk's markets team in Asia.

CoinDesk - Unknown

Shaurya is an analyst/editor for CoinDesk's markets team in Asia.