Ouroboros Research: Why did we invest in Frax Finance?
Ouroboros Research: Why we invested in Frax Finance? # Introduction Frax Finance is a stablecoin project that combines algorithmic and collateralized stablecoins to create a currency that is less volatile than other cryptocurrencies. ## Frax's Value Proposition Frax's value proposition is its ability to maintain its value while being backed by a combination of collateralized assets and algorithmic trading. ## Why We Invested We invested in Frax because of its unique approach to creating a stablecoin. Its combination of collateralized assets and algorithmic trading creates a more stable currency. Frax has a solid team with experience in finance, technology, and blockchain, and a strong track record of delivering successful projects. We believe that Frax has the potential to become a major player in the stablecoin market and are excited to be a part of its growth. - [x] Investment in Frax - [ ] Other investments
Ouroboros Research has outlined its investment thesis on Frax Finance, including its FXS value accrual mechanism and scale, valuation, and common FUD issues. Ouroboros Research suggests that the market may assign significant incremental value to the token in the next 6-12 months.
Our investment theory for FXS is simple: we believe that the risk and reward of buying FXS are not symmetrical. In the next 6 to 12 months, the market is likely to assign significant incremental value to the token. Specifically, FXS currently has valuation support following FIP-256, and our valuation work indicates that the key parts of FXS have not yet been priced, especially considering the upcoming FraxChain and frxETH V2. Furthermore, once the market recognizes that the price floor for FXS is $5, there will be higher bidders because the risk-reward is asymmetric in this price range.
We believe that the next 6 months will be exciting for the development of FXS, including adoption of frxETH (soon to be launched on AAVE and frxETH V2), collateralization ratio greater than 1 within the next 12 months, FraxChain, and Frax V3. We also break down the current and future FXS value accrual mechanisms, with FXS already generating significant revenue of approximately $20 million, with frxETH and FraxChain bringing in even more revenue. Additionally, we estimate that when frxETH catches up to rETH TVL, it will generate incremental revenue of $6 million to $8 million. Therefore, from a value accrual perspective, FXS is still quite cheap and has approximately 4x upside potential in a bull market.