frxETH V2
V2 of Frax Ether (frxETH)
Last updated
English π°πΎ
V2 of Frax Ether (frxETH)
Last updated
frxETH V2 allows the possibility for anonymous / external validators to enter the frxETH system. All of their ETH staking rewards will flow directly to a ValidatorPool smart contract under their control and thus no frxETH will be minted for them. They will however receive credit which can be used to borrow ETH that entered through the V1 mint mechanism. The collateral for this borrowing is an escrowed exit message, which can be executed by the frxETH protocol if their borrow position becomes unhealthy. The exited funds only go to the ValidatorPool and become "trapped" their until all loans are paid off.
The amount of credit per 32 ETH deposited will depend on the validator operator pool. Anonymous pools will only receive 24 ETH borrow credit per 32 ETH. Known / community whitelisted pools can receive up to 31 ETH per 32 ETH deposited. Borrowed ETH can only be used to spin up additional validators. An offchain bot, the Beacon Oracle, will constantly monitor the health of all validators / validator pools and execute exit message(s) if a liquidation scenario occurs. Additionally, the interest rate will increase if ETH becomes scarce from redemptions, heavy borrowing, or both.
The frxETH protocol will earn income both from investing idle ETH (Curve AMOs) as well as receiving interest from validator pool borrow activity. Existing V1 Frax-operated validators will also earn yield from ETH staking.
In this example, if you only put in 320E and nothing else, you can "control" 1248E which is 3.9x. Your LTV is (borrowed ETH) / (total ETH in validators). The LTV is denominated in ETH, so the market price of ETH does not matter. Larger initial amounts will converge to 4x. Max leverage (for 24E per 32E credit) is 32E / (32E - 24E) = 32E / 8E = 4x. Doing 12 rounds as in the example above however would put you dangerously close to the LTV limit and you risk some of your validators being force exited back to the validator pool contract and having the Beacon Oracle bot force repay part of the loan from there. You will also have to pay interest on 928E worth of borrow.
If you became whitelisted to say, 28E per 32E, the max effective leverage would be 8x and the max LTV would be 28/32 = 87.5%. This can only be done on a case-by-case basis via a governance vote.
