Fraxtal is an EVM equivalent modular rollup using the OP stack as its smart contract and execution environment.
Rollups are a type of Layer 2 scaling solution built on top of Ethereum. There are two types of rollups, ZK and Optimistic. ZK rollups use "zero knowledge proofs" to validate transactions without revealing the details and prove a set of transactions is valid. Optimistic rollups always assume transactions are valid unless proven otherwise. They use a fraud proof system where anyone can challenge an invalid transaction, which leads to a dispute process. Optimistic rollups are less secure than ZK rollups, but they allow for faster development and deployment, lower fees, and have greater integration across the OP stack. Most rollups deployed right now are Optimistic, with the assumption they will switch to ZK once more research and development is completed.
Furthermore, Fraxtal is modular, meaning its consensus, settlement, execution and data availability are broken into separate modules. This allows for improved future scalability, massive potential innovation in the future, and flexibility. Already Fraxtal is using an internally developed data availability layer developed by the Frax Core Team. Fraxtal's modular design will enable middleware and other components from other networks to easily integrate to connect and deploy L3s on top of Fraxtal.
The most novel thing about Fraxtal is that it uses Frax's liquid staking token frxETH as its gas token. It is the first of its kind to have this vertically integrated setup and completes the demand flywheel.
All other LST's have one function, the represent staked ETH and collect rewards from Ethereum's consensus layer. These LST's are not substitutes for Ethereum and cannot be used for paying gas. This disconnect between the two assets means that LST's utility is capped solely as a collateral asset.
On Fraxtal, Frax's LSD frxETH is the gas token. frxETH uses a novel two token design that forces users to choose between earning staking rewards or providing liquidity and paying gas on Fraxtal. The more demand there is for the latter, the smaller the pool of sfrxETH stakers and the higher the rewards.
Up until now, the only sink for frxETH was liquidity. Frax only supports FXS gauge rewards for frxETH. Users had to choose whether to stake sfrxETH and earn ETH rewards or provide liquidity with frxETH on Curve or one of the other DEX's and earn FXS, CRV, CVX, or other reward tokens. In the chart above from Frax Facts, you can see the current split of tokens between sfrxETH and frxETH. As of writing, 73% is staked as sfrxETH earning ETH rewards and the other 27% is used for liquidity. The split gives sfrxETH a 36% bump in reward yield as a result.
Fraxtal will create a new massive sink for frxETH as it will be the first and primary gas token. All gas on Fraxtal will be paid in frxETH and users will need to buy, bridge and hold on Fraxtal. As demand for Fraxtal blockspace increases, the amount of gas consumed by the network will also rise, further driving sfrxETH yields. Sam Kazemian said in a recent interview that demand for frxETH as gas on Fraxtal potentially could increase sfrxETH yields 2-3x what stETH and rETH provide.
This all ties back into Kazemian's Stablecoin Maximalism Thesis he presented last year at ETH Denver. Let's review what we wrote back then:
The success of a stablecoin can be measured by its monetary premium which is the demand for an issuer’s stablecoin to be held purely for its usefulness without expectation of any interest rate, payment of incentives, or other utility from the issuer. At scale, all stablecoins converge to have the same structure, but what does this structure look like?Every stablecoin consists of a two part mechanism; the “risk-free yield” and swap facility. The risk-free yield (RFY) is the revenue generated by the assets backing the stablecoin in the lowest risk venue within the system based on its reference peg. The swap facility is where a stablecoin can be redeemed for its reference peg.
frxETH is the stablecoin, sfrxETH provides the "risk free yield," Curve and other liquidity venues provide the swap facility. And now with Fraxtal, we finally have a venue that will create real, organic monetary premium by users who hold frxETH solely for the utility of paying gas fees.
As Frax's primary goal is to increase the monetary premium for its stablecoins, its implementing Blockspace Incentives, a novel incentive structure for Fraxtal that rewards users, developers and applications for spending gas and interacting with smart contracts on the network.
On every other network, the biggest applications and power users earn zero revenue for spending gas. An application like GMX on Arbitrum drives thousands of users and is one of the largest spenders of gas on their contracts, yet they receive nothing (other than massive governance token airdrops and ongoing rewards voted on by the DAO) for increasing the value of the network. While some newer network are experimenting with gas rebates or rewards, the network can never give more back than it earns.