Getting Started with Frax Bonds
Frax Finance has been one of the more innovative protocols in crypto. It's a stablecoin protocol, so the project creates tokens that are pegged to the values of other assets for easy use across the crypto economy.
This month, they shook things up when they introduced Frax Bonds (FXB) to complete the FRAX token’s V3 upgrade.
In simple terms, Frax Bonds are similar to traditional bonds but operate on the blockchain, offering returns comparable to those of short-term U.S. Treasury bonds in the traditional finance sector. This dynamic allows crypto investors to access yields similar to one of the most popular real-world assets (RWA) but entirely onchain.
How Frax Bonds Work
When you purchase a Frax Bond, you're essentially buying a promise to receive a certain amount of FRAX stablecoins at a future date.
This process is akin to lending money and getting it back with interest, but in this case, the "interest" is reflected in the discounted price at which you buy the bond compared to its future value. Accordingly, FXB tokens don’t directly track Treasury bond yields—they only emulate them in a crypto-native way.
Key Characteristics of Frax Bonds:
- 📆 Maturity dates — Each FXB has a specific date when it matures or becomes redeemable for FRAX stablecoins. Frax offers bonds with various maturity dates, allowing investors to choose based on their investment horizon.
- 🔄 Interest rate equivalent — While FXBs don't pay periodic interest like traditional bonds, they are sold at a discount. This means you buy them for less than what they will be worth at maturity, which is similar to earning an interest.
- ⛓️ Onchain operation — All aspects of FXBs, from issuance to redemption, occur on the blockchain, ensuring transparency and security inherent in decentralized finance.
- 🌊 Integration with DeFi — FXBs can be used in different decentralized finance apps, like providing liquidity on Curve Finance, which adds another layer of utility and potential earnings for bondholders.
All in all, then, Frax Bonds are designed for a range of investors, whether you're an expert seeking a stable, low-risk return or a newcomer looking to diversify your crypto portfolio. By combining the familiar mechanics of traditional bonds with blockchain innovations, FXBs offer a new accessible entry point into DeFi.
How to buy Frax Bonds
If you’re interested in buying FXB tokens, you’ll first need to acquire some FRAX, e.g., on Uniswap, as Frax is the medium of exchange across the Frax ecosystem. Once you have your FRAX ready, follow these steps:
- Head to app.frax.finance/fxb/overview and connect your wallet.
- In the “Auctions” tab, you will see FXB offerings with various maturity dates—select a token per your desired timeline by clicking on it. Note that the “Yield to Maturity” rate is the total expected return on an FXB if it’s held until its maturity date.
- In the ensuing “Buy Bond” interface, input how many bonds you want to purchase.
- Press “Buy.”
- Sign the approval transaction and the ensuing purchase transaction with your wallet to complete the process.
That’s all it takes! Once the FXB tokens come to maturity, you’ll then be able to redeem them on Frax Finance’s Bonds page to receive your discounted FRAX.
What else can I do with FXB tokens?
It’s possible to put your FXB to work in DeFi to earn additional yields on top of your bond’s base Yield to Maturity rate. For example, Curve offers the FRAX-FXB-20261231, FRAX-FXB-20240630, and FRAX-FXB-20261231 liquidity pools, which DeFiLlama currently estimates are offering up to 60% APY via CRV token rewards.
The idea? Deposit FRAX and FXB tokens into Curve’s automated pools to earn trading fees and CRV rewards for your service in helping to facilitate token swaps.
The big picture
Frax Bonds are important for Frax because they enable the creation of a yield curve, a dynamic that helps in determining the value over time of lending FRAX to the protocol. This curve essentially prices the cost of time in the context of lending activities within the Frax ecosystem.
On the user side of things, FXB tokens present an opportunity for crypto investors seeking a low-risk investment similar to Treasury bonds, but with the added advantage of being entirely onchain. This approach allows investors to experience returns comparable to those in traditional finance while benefiting from the accessibility, security, and transparency that come with being onchain.