Frax Shares (FXS)
FXS is the staking and governance token of the entire Frax ecosystem. All utility is concentrated into FXS.
The Frax Share token (FXS) is the non-stable, utility token in the protocol. It is meant to be volatile and hold rights to governance and all utility of the system. Parameters that are up for governance through FXS include adjusting various fees, allocating protocol assets, and enabling new lending pairs for Fraxlend. The FXS token has the potential of upside utility and downside utility of the system, where the delta changes in value are always stabilized away from the FRAX token itself. FXS supply is initially set to 100 million tokens at genesis, but the amount in circulation will likely be deflationary as FRAX is minted at higher algorithmic ratios. The design of the protocol is such that FXS would be largely deflationary in supply as long as FRAX demand grows.
The FXS token’s market capitalization should be calculated as the future expected net value creation from seigniorage of FRAX tokens in perpetuity, the cash flow from fees, and utilization of unused collateral. Additionally, as the market cap of FXS increases, so does the system’s ability to keep FRAX stable. Thus, the priority in the design is to accrue maximal value to the FXS token while maintaining FRAX as a stable currency. As Robert Sam’s described in the original Seigniorage Shares whitepaper: “Share tokens are like the asset side of a central bank’s balance sheet. The market capitalisation of shares at any point in time fixes the upper limit on how much the coin supply can be reduced.” Likewise, the Frax protocol takes inspiration from Sams’ proposal as Frax is a hybrid (fractional) seigniorage shares model.
veFXS & Long Term Staking
In May 2020, the protocol now allows FXS holders to lock up FXS tokens to generate veFXS and earn special boosts, special governance rights, and AMO profits. Check the in depth veFXS specs for more information on how all veFXS features function.
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