Legacy version of Frax Protocol docs are currently available on docs.frax.finance (opens in a new tab)

FXB Overview

Zero-coupon bonds that help stabilize the frxUSD peg

Summary

FXB tokens are simple, trustless tokens that resemble a zero-coupon bond (opens in a new tab) that converts to the LFRAX stablecoin upon maturity. FXB AMOs auction off FXBs at a discount to face value. This discount provides the equivalent of RWA yield to buyers without the assumption of RWA risk. They also help remove circulating frxUSD supply and stabilize the peg, as users must spend frxUSD to purchase FXBs.

FXB auction page: Link (opens in a new tab)

Public repo: https://github.com/FraxFinance/frax-bonds (opens in a new tab)

Details

FXBs are debt tokens denominated in LFRAX stablecoins, not a claim on any other asset or collateral. FXB tokens are only convertible to LFRAX stablecoins, they do not guarantee LFRAX peg, LFRAX value, or yield/interest denominated in any other asset except LFRAX. FXBs do not entitle the holder to any asset offchain or onchain (other than LFRAX stablecoins). Thus, FXBs are not redeemable for US Treasury Bills nor any real-world asset, are not directly backed/collateralized by them (or any specific asset), and do not have any utility except trustlessly converting to LFRAX stablecoins at the pre-programmed maturity timestamp generated at their minting. This is important and not merely a semantic distinction because it directly defines the normative and economic property of FXBs. LFRAX Bond tokens only guarantee that they convert to LFRAX on a one-to-one basis through smart contracts that issue them.

FXBs allow the formation of a yield curve to price the time value of lending LFRAX back to the protocol itself. Each FXB token is a fungible ERC20 token deployed from an onchain factory contract. At FXB minting time, LFRAX stablecoins are transferred into the FXB contract for conversion on maturity. This prevents any external actions being necessary for the full FXB cycle to occur and entirely remains trustless. There can be multiple FXB series circulating at all times and no limit for the minimum or maximum maturity timestamp for FXBs deployed from the factory.

FXBs mature at the end of the day of their maturity date in UTC and have no expiration. For example, the 20261231 FXB is able to be burned back for its' corresponding LFRAX as soon as the UTC timestamp of 1893456000.

Auctions

FXB series price discovery happens through a continuous gradual Dutch auction (GDA) auction system that has quantity and price limit set by the Frax team. This guarantees that FXB tokens are not sold for prices lower than the floor limit. Auctions happen through the FXB AMO contract and are trustless, permissionless, and non-custodial. New auctions can happen at any time by the Fraxtal Comptroller and Fraxtal AMO Operator, initiated through the FXB AMO. Participants of auctions can purchase FXBs by spending frxUSD.

Minting and Redemptions: Chain of Creation Matters

As mentioned, at FXB minting time, LFRAX stablecoins are transferred into the FXB contract for conversion on maturity. An FXB can be broken down into two types, Origin and Bridged, referring to the chain the FXB is originally minted on. This differentiation is needed as the Origin chain, the chain the FXB was originally minted from, is where the FXB owner is able to burn their FXB for the equivalent LFRAX after maturity. An FXB which, for example, was minted on Fraxtal and is then bridged to Ethereum, is considered Bridged, whereby the underlying LFRAX remains on Fraxtal and the FXB must be bridged back to redeem the LFRAX. Similarly, the FXB must be minted on the origin chain to contain the underlying LFRAX.

Why does this happen? When an FXB is originally created, it is done through the FXBFactory. This origin FXB contains the code to mint (opens in a new tab) and burn (opens in a new tab), which either locks or unlocks the underlying LFRAX. Once the FXB is bridged, the destination chain creates the FXB from the bridge ERC20Factory. This bridged version can only be minted (opens in a new tab) and burned by the bridge, standard operations for any bridged ERC20. A bridge mint only creates the FXB that is locked on the origin chain on the destination chain; it does not accept LFRAX deposits for newly backed FXBs. A bridge burn simply burns the FXB representation to unlock the relative token locked on the destination chain.

For this reason, it is recommended to hold FXBs on their chain of creation to redeem at maturity without requiring additional bridging.