Fraxbonds, abbreviated as FXBs, are innovative utility tokens designed to convert into FRAX stablecoins at a predefined timestamp, functioning akin to zero-coupon bonds. These tokens are an essential component of the FRAX ecosystem, offering a unique approach to handling stablecoin issuance and maturity.
FXBs mirror the economic behavior of zero-coupon bonds, with a key distinction: they convert into FRAX stablecoins upon maturity. They are debt tokens denominated in FRAX stablecoins and are not claims on any other assets or collateral. Their sole purpose is to be converted into FRAX stablecoins; they do not guarantee the FRAX peg, the value of FRAX, or yield/interest in any asset other than FRAX. Importantly, FXBs do not entitle holders to any offchain or onchain assets, excluding FRAX stablecoins. This differentiates them from being redeemable or backed by real-world assets such as US Treasury Bills or any specific collateral, emphasizing their role in the FRAX ecosystem.
When a user buys a Fraxbond, the FRAX is locked in the FXB and the protocol is able to send funds to Finres PBC or other partners to invest into short term treasuries. According to Sam K, the USD needed to purchases US Treasuries is swapped out daily and then sent to FinresPBC.
"The physical FRAX inside the actual FXB auction contract isn't used directly. An equivalent amount of FRAX is minted or LPs burned to remove USDC/USDP/PYUSD from the POL on Curve to make the conversion. Economically, it is identical. The accounting is just simpler. And the balance sheet will show the tbills and the fiatcoin that goes out of it so it should be simple to follow"
FXBs are programmed to convert to FRAX on a one-to-one basis via smart contracts that issue them, ensuring a direct and trustless conversion mechanism. Every FXB has a fixed future timestamp that it matures at. When maturity occurs, users may swap their FXB’s back for FRAX.
Each FXB token is a fungible ERC20 token generated from an onchain factory contract, with FRAX stablecoins minted into the FXB redemption contract at minting for future conversion upon maturity. This process eliminates the need for external actions, maintaining the system's trustless nature.
Multiple FXB series can be in circulation simultaneously, with no restrictions on the minimum or maximum maturity timestamps. FXBs mature at the end of their designated maturity date in UTC and do not expire, ensuring their conversion into FRAX can occur seamlessly at the specified time.
The price discovery for FXB series is conducted through a continuous gradual Dutch auction (GDA) system, which includes quantity and price limits to prevent sales below a certain floor limit. These auctions are facilitated through the FXB AMO contract, ensuring a trustless, permissionless, and non-custodial process. New auctions can be initiated at any time, allowing for dynamic and responsive market operations.
Three FXB expirations were available at launch, 06-2024, 12-2024, and 12-2026.