Fraxlend is the lending arm of the Frax Finance ecosystem, providing isolated, permissionless lending pairs where any ERC-20 token can be used as collateral to borrow FRAX — the Frax ecosystem's partially algorithmic stablecoin. Fraxlend is deeply integrated with other Frax products including Fraxswap, Frax Ether (frxETH), and the Frax Price Index.
Isolated Pair Model
Each Fraxlend market is a separate, isolated pair: a collateral asset paired with FRAX as the borrowable asset. This is similar to Silo's model but exclusively for FRAX borrowing. Pairs include WBTC/FRAX, ETH/FRAX, CRV/FRAX, CVX/FRAX, and various Curve LP tokens. Because each pair is isolated, bad debt in one does not affect others.
Dynamic Rate Algorithm
Fraxlend introduced a novel "time-weighted interest rate" mechanism. Unlike Aave's immediate rate jumps, Fraxlend rates adjust gradually over time based on utilization. If utilization is above the target, rates increase by a fixed percentage per hour until equilibrium is restored. This smoother adjustment prevents rate spikes from cascading and gives borrowers more predictable rate trajectories.
Integration with Frax Ecosystem
Fraxlend's most important function within the Frax ecosystem is managing CRV and CVX collateral debt. During the CRV liquidity crisis of 2023, Fraxlend was holding large CRV/FRAX positions. The dynamic rate algorithm automatically increased CRV borrow rates to discourage additional borrowing and incentivize repayment, helping contain exposure — a real-world validation of the mechanism.
frxETH (Frax Ether) is used as collateral in Fraxlend, allowing ETH stakers to borrow FRAX against their staked ETH without unstaking. The sfrxETH (staked frxETH) yield — typically 4–6% — partially offsets Fraxlend's FRAX borrow cost.
Risk Profile
Fraxlend inherits FRAX's partial algorithmic backing risk. FRAX maintains its peg through a combination of collateral reserves and an algorithmic fractional reserve. During periods of market stress, FRAX's peg has occasionally deviated, affecting Fraxlend's collateral values. As of 2024, FRAX has moved toward full collateralization to reduce this risk.