Carnage and crypto winter have engulfed us. Bitcoin is floundering, whilst Ethereum has passed a major juncture: The Merge, which has generated more fluctuation on its own. The move from Proof-of-Work to Proof-of-Stake produced havoc as some users clung to Proof-of-Work while traders attempted to profit from the split. There will undoubtedly be more spectacular peaks and market-shaking falls in the future. Liquidity will be critical in these ups and downs, and DeFi and web3 are currently grappling with long-term, dependable liquidity. Frax Finance's black flags may be seen all over the crypto space. The black banner is shown on lending, swaps, staking, indexing, and bridging. The effects of quiet but diligent construction are now apparent: the great energy of Frax Finance is emerging throughout DeFi.<h2>The liquidity war in brief</h2>Let's start by making a recap for those who have not heard about the liquidity war. Protocols first sought and trumpeted their total value locked (TVL). They gave incentives to liquidity providers in order to attain high TVL and liquidity. This fueled rivalry among protocols and gave rise to mercenary capital: farmers seeking the maximum profits. It faced the issue of inconsistent and pricey liquidity, which frequently led to farmers' dumping the rewards, which were usually the protocol's governance token. It was expensive, inflationary, and maintained sell pressure, which, by the way, hurts a lot in bear cycles like the one we're presently in.Curve Finance (CRV), a stable swap protocol, comes up with gauges allowing CRV holders to vote and channel CRV emissions to pools on its protocol. The TVL Wars became the Curve Wars.Protocols recognized that by putting their pools on CRV and having CRV emissions/inflation voted into their pools, they might get a more productive source of liquidity. Votium was created to enable protocols to bribe CRV holders in exchange for their votes/emissions direction. Convex (CVX) immediately saw how profitable and strong CRV and its gauges were. Convex launched a decisive early strike to emerge as the largest and most powerful CRV holder.Convex's techniques resulted in the Curve Wars turning into the Curve-Convex Wars. The two have nearly become interchangeable at this point, but keep in mind that it's all about the desired CRV emissions from the Curve voting and channeling in the end. Protocols and DAOs began acquiring CVX once Convex became the most powerful holder of CRV. The benefits of holding the stableswap protocol's governance token were so profitable that it inspired the development of several other CRV/CVX-focused initiatives from protocols such as REDACTED Cartel, AladdinDAO's Concentrator, and StakeDAO.While the Curve-Convex Wars were raging, another battleground was forming as Tokemak launched a phased rollout of their liquidity deployment. This provided protocols with a more cost-effective and readily controlled source of liquidity, while also immediately connecting to the Curve-Convex mechanisms. The Liquidity Wars were evolving quickly and becoming increasingly complicated. Then, as swiftly as they took off, they came to a standstill when the TERRA and 3AC events crushed crypto in combination with macroeconomic developments. That leads us to the current day: bruised, bloodied, and exhausted, the Liquidity Wars soldiers continue their battle in the icy crypto winter that has come upon us.<h2>Frax Finance Overview</h2>Frax Finance has a highly complicated ecosystem, and reading their documentation is well worth your time. However, we will go through the fundamentals of what Frax provides and how they function.<h3>Frax stablecoin</h3>The algorithmic fractional stablecoin at the core of Frax Finance is FRAX. This stablecoin is distinct in that it is backed by a fraction of its supply, but its algorithmic function allows it to expand beyond its collateral. Frax calls this the Collateralization Ratio (CR). FRAX will scale in accordance with market demand, therefore if there is no interest for or faith in FRAX outside its collateral, it will probably stay at or around 100% collateralized. If the market is confident in FRAX's algorithmic function, supply may grow quickly to meet demand.Frax effectively combines the advantages of both collateral and algorithmic stablecoins. Collateralized stablecoins may keep a tight peg and are highly trustworthy, but they are hard to scale and time-consuming to operate. Algorithmic stablecoins can be very scalable, but they are also more volatile.Because of this innovative and dynamic approach, FRAX DeFi is the ultimate stablecoin. It addresses the fundamental requirements of reliability, scalability, and decentralization.<h3>Other frax tokens</h3><ul><li>FXS -Frax Share: The main governance token of the Frax system is FXS. For veFXS, which offers voting privileges and benefits from fees, income, and collateral value, FXS might be locked.</li><li>FPI - Frax price index:&nbsp; FPI employs a cutting-edge strategy to combat inflation by tying its peg to the U.S. CPI.</li><li>FPIS - Frax Pirce Index Share: The FPI product and its performance are particular to the governance token known as FPIS. For veFPIS, FPI may also be locked. One significant point is that veFXS investors share in the rewards of FPI's success.</li></ul><h3>Frax products</h3><ul><li>Time-Weighted Average Market Maker (Fraxswap TWAMM)</li><li>The TWAMM, another distinctive characteristic of Frax, enables the capacity to rapidly handle big orders and long-term orders. This brief explanation doesn't do this invention justice; you should read Frax's papers to learn more about its benefits and workings.</li><li>Algorithmic Market Operations (AMO): Operations at Frax Finance are driven by the AMO. It is in charge of overseeing re-collateralization and de-collateralization in accordance with the current CR (Collateralization Ratio). Additionally, it controls FXS value accumulation.</li><li>FraxBP: The Frax Base Pool is a FRAX-USDC pool on Curve that benefits both CRV and Frax, especially with recent advancements generating a positive sum cycle so that emissions on both ends are efficiently utilised rather than sold.</li><li>FraxBridge: Frax's initiative is not limited to Ethereum. Frax offers a one-of-a-kind bridging system that allows users to communicate across chains such as Polygon and BNB Chain.</li><li>Fraxlend: Frax's most recent release takes them into the DeFi lending sector. There is not yet much information about this product.</li><li>frxETH – Frax Staked ETH: Frax will also soon create a service that will allow users to stake ETH using Frax, similar to Lido Finance and Rocket Pool.</li><li>Frax Gauges: Frax features its own gauges, based on the Curve gauges, in which veFXS holders vote to channel emissions toward different pools on Frax. [REDACTED ]'s Hidden Hand works in the same way as Votium in that veFXS holders can be persuaded to vote for specific pools.</li></ul><h2>The Frax empire</h2>While several other protocols have gained traction in the last year, Frax has mostly gone unnoticed. The Frax team appears to believe that "our product speaks for itself." You may have overlooked Frax's product development and spectacular growth if you haven't been actively seeking. Frax has been working tirelessly to lay the groundwork for DeFi underneath our feet. Let's take a closer look at the Frax empire's expanding power and impact in these battles.<h3>The impact on Curve - Convex</h3><img src="https://cdn.builder.news/news/11ed55db73fed90ca8e6023f659fee92.jpg" alt="cvx share" title="cvx share" width="600" height="383" class="lykafe0">Source: daocvx.comWe'll start with the most fierce and well-known battlegrounds. Frax is the largest of the 24 DAOs holding CVX, with 19.5% of DAO-owned CVX.It's also worth mentioning the combined effect of protocols with strong ties to Frax. [REDACTED] has a strong connection to Frax via the Hidden Hand integration. OlympusDAO has been a trusted partner and provider of bonding activities for many years. CitadelDAO, a sub-DAO of BadgerDAO, provides an ICO allowlist for Frax holders. In summary, Frax has a significant effect on CVX — and hence CRV — that might be exacerbated by its close allies.<h3>The 3rd largest Tokemak owner</h3>Frax has the third-largest TOKE DAO holding, with close allies OlympusDAO and [REDACTED] contributing to that influence. Frax Finance will profit not just from effectively sourcing liquidity as Tokemak increases; it will also play a great role in governing and guiding liquidity, similar to its existing tremendous influence on the CRV gauges.<h3>The attention of Convex</h3>Convex Finance is a formidable DeFi entity that showed forethought by making some of the first moves in the Curve Wars. It is worth mentioning that they are the biggest FXS holder, accounting for 28% of supply.Frax has significant power in the liquidity warfare and has established itself as an important piece of infrastructure. Convex has realized this and is attempting to recreate its success in the CRV battles by swiftly gaining the lead. Even more intriguing is the combined impact exerted by the collecting cohort of protocols and DAOs aimed at resolving DeFi's liquidity issue. Take one more look at the protocols listed above: Close ties exist between [REDACTED] Cartel, OlympusDAO, Curve, Convex, and even Tokemak.<h2>The numbers don’t lie&nbsp;</h2>Of all, a concept or idea is one matter, but can you demonstrate that it works and generates true value instead of hype? Let's take a look at Frax's performance throughout the last year.<img src="https://cdn.builder.news/news/11ed55db73feeb2aa8e6023f659fee92.jpg" alt="frax accrued profit" title="frax accrued profit" width="600" height="284" class="lykafe1">Source: Frax FinanceFrax Finance now has a profit of about $36-38 million. The figure above indicates its profitability's growth and decrease, which corresponds to the overall events mentioned before. The surge began in October of last year when DeFi and crypto reached craze levels; the downturn began in May when TERRA/LUNA failed and the 3AC death spiral spread.Despite this, Frax Finance has demonstrated tenacity and is continuing its steady ascent. This is fueled by its Collateral Investor feature, which uses idle USDC to farm yield. The accrued profit is ascribed to this conservative technique, which is a significant aspect here. The newest projects have not yet had enough time to disclose the full extent of their influence and advantages to the Frax community.Frax's success is excellent, particularly given its durability during the present slump. However, we have yet to witness what Fraxlend and ETH staking will accomplish for Frax. Let's take a look at the existing leaders in these categories to get a feel of the impact these new services may have.<h3>DeFi Lending</h3>Aave, MakerDAO, and Compound have always been market leaders in DeFi lending.<img src="https://lh5.googleusercontent.com/gejNSs2pCZZ5NXRcKXw40dzxVkN6PovrKAR6csrqo1htmHOZZK4cKHHiM5tUxc7bhIultlKBJxu4_r7Jo-AN3wa7Av8eXVW73JP0zEos3adC_JFaPviodmzgJjIBH401MGEvDroq2VaeehJ13TKNqJfWbHky_mHvl_UMH3kX8DLMlbh67PY4douvpg" width="624" height="329"><img src="https://lh5.googleusercontent.com/9JyMBghzCEp26FWbkIlKt8KN-5DpJY6Z2-F8NVIrrvC4dXNrna-n_GhnLKGhGomJGPkH_UJ74dGwhocTGSPfVXaqyWG6lMmZn-fz5iROorflnSPuqeusipJFykKzym6EXdGGWpuj4PweCFIRzWSwLTWKPVG3YBvnllCOt4dzQFgwIBeGScyGMeYa0g" width="624" height="340"><img src="https://lh4.googleusercontent.com/B2Nab4KKfgvv9q03Hd7lATdLKkQkfe1ImibQn9HE3uEMEpb90U8sf7Lfo5g4jDUq5quPtnPyVIDcIZbVQyswZH0M9E3Kxp_GsdtByPvjwQoIWu3P8jfJ4N8OcGztWNPwwTI9ppVypd9Ksw75Pvgy1Kibt2N7uU0BpuZDdiYnc1KcPQ2Kebs6VAa4Og" width="624" height="336">Source: token terminalThe data above underline that DeFi's bread and butter have long been borrowing and lending. Despite the downturn market, all three protocols have strong profitability and are undervalued when measured just on performance. The risk involved with crypto as an emerging market/new technology, as well as negative sentiment from macroeconomic fundamentals, are both driving down these values.Having said that, Frax's FXS token now has a $408 million circulating market cap and a circulating supply of $67.5 million, with accrued profits of $37.2 million. That was before Frax Finance added Fraxlend as another option for DeFi clients to utilize when lending and borrowing.Frax Finance doesn't even have to win out Aave or Maker for the best lending protocol to reap huge benefits from joining this area. Frax's ecosystem will increase its attractiveness to users, even if just through convenience. Borrowing and lending are strong use cases for DeFi, and rising interest rates in conventional finance may render DeFi products even more appealing.&gt;&gt;&gt; Read more:&nbsp;<a href="https://www.builder.news/crypto-insights/best-crypto-staking-platforms" alt="8 best DeFi lending platforms in 2022" title="8 best DeFi lending platforms in 2022" target="_blank" rel="" class="">8 best DeFi lending platforms in 2022</a><h3>ETH staking</h3>When it comes to ETH staking, Lido controls the vast bulk of the market, with Rocket Pool coming in second.With its reliance on The Merge's performance and the very short time span in which it has been in place, it is unclear how considerably ETH staking may raise revenues. While it may give substantial benefits, it will at the very least attract additional value and users to the Frax ecosystem. More users, more txns, more gas fees, and more interest: Frax has taken another great move in what looks to be a campaign to provide DeFi customers with a full protocol from which to handle their assets proactively.ConclusionFrax has established itself as a formidable challenger in the Liquidity War and a DeFi powerhouse. The Frax team has been rapidly expanding, tackling each product or service with its own distinct mechanics. Time and trials are still required to determine how formidable a competition Frax and its offers can be in DeFi.It is almost useless to say, but we are actually in the early stages of crypto, web3, DeFi, and any other word related to the usage of blockchain tech and digital currencies. Frax has created a variety of chances for customers to actively and efficiently handle their assets. Whether you are already utilizing Frax or are observing it, you will hear more about Frax's effect in the sector as its influence grows.<div class="pr-block-special">Disclaimer: This article is intended for and only to be used for reference purposes only. No such information provided constitutes advice or a recommendation that any investment or trading strategy is suitable for any specific name.</div>

Frax Finance is known for its extremely complex ecosystem. In this article, let's review the foundations of what Frax Finance offers and how it works.

Frax Finance and the war of liquidity