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,” Kazemain said in the tweet, suggesting added benefits in the form of rewards and platform support to protocols that use Frax.
FXS traded at $22 on April 1 before the proposal was made public. Since then it has surged as high as $44 on Sunday, before dropping to as low as $37 this morning as traders took profits on the move.
FXS neared all-time highs on Sunday night. (TradingView)
FXS has a market capitalization of over $2.2 billion at the time of writing. However, the token remains nearly 10% below the 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 via 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,” explained Frax founder Sam Kazemian in a tweet. “The terms of the savings account? The A factor (aka the peg affinity of your deposits). And gamma (the new v2 pool param). 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, as per documents.
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 Fantom and Arbitrum networks, and later on Ethereum, as per developers, with its creators aiming to make it one of the most liquid trading pools on Curve. Curve remains the biggest decentralized finance protocol on Ethereum with over $21 billion in value locked.
At writing time, “tricrypto2” is the largest Ethereum-based pool on Curve as per value locked, holding over $78 million worth of USDT, wrapped bitcoin, and wrapped ether.