frxETH V2

V2 of Frax Ether (frxETH)

Summary

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.