Frax Finance: algorithmic stablecoin and taxation in Spain

Frax Finance started as a “fractionally algorithmic” stablecoin (part collateral, part algorithmic) and has evolved into a full DeFi ecosystem that includes Frax ETH, proprietary AMMs, and the veFXS governance model.

What is FRAX?

FRAX is a stablecoin that maintains its $1 peg by:

• Collateral (USDC): a portion of each FRAX is backed by USDC.
• Algorithm (FXS): The other party uses FXS casting/burning to maintain the peg.

The collateral/algorithmic ratio varies; in 2024-2025 FRAX tended to become more overcollateralized (similar to DAI).

FXS: the governance token

FXS is the token that absorbs the volatility of the system. Tax events:

• Purchase of FXS: acquisition cost.
• FXS burning to mine FRAX or vice versa: FXS transmission.
• FXS blocking → veFXS: possible transmission.
• Distribution of protocol fees/income to veFXS holders: movable capital.
• Sale of FXS: GPO.

frxETH and sfrxETH: Frax liquid staking

Frax launched its own Ethereum liquid staking protocol:

• frxETH: 1:1 liquid staking token with ETH. It doesn't go up in value; the yield goes to sfrxETH holders.
• sfrxETH: the ETH that accumulates all the performance of Ethereum staking via Frax.

Taxation of the frxETH ecosystem

ETH → frxETH:

• Transmission of ETH at market value → GPO.
• frxETH acquisition cost: EUR value of ETH delivered.

frxETH → sfrxETH:

• Other transmission: frxETH → sfrxETH.
• if frxETH = ETH in value ≈ sfrxETH in value, the GPO ≈ 0 at the time of deposit.
• The yield is implicitly accumulated in the sfrxETH/frxETH exchange rate.

sfrxETH → frxETH or ETH:

• sfrxETH transmission → difference between acquisition cost and transmission value = GPO.
• The accumulated yield comes out as the price difference between sfrxETH and frxETH.

Fraxswap and Fraxlend

Frax also has its own AMM (Fraxswap: specialized TWAMM) and lending protocols (Fraxlend):

• Fraxswap: each swap is a transmission like on any DEX.
• Fraxlend: lending without overcollateralization with specific pairs (FRAX/FXS, FRAX/ETH etc). Taxation similar to Compound/Aave.

veFXS: governance and yield boosting

As with Curve (veCRV), locking FXS gives access to:

• Increased farming rewards.
• % of protocol revenue (Fraxswap fees, Fraxlend spreads).
• Votes on FRAX/FXS emissions.

veFXS taxation:

• Fees received → movable capital.
• When unlocking FXS after the period → possibly the FXS has the same original acquisition cost.

Coin FRAX: is it a broadcast?

If you mint FRAX by depositing USDC (collateral):

• You are transmitting USDC and receiving FRAX.
• USDC/FRAX are usually worth $1 ≈ zero GPO at the moment.
• But if you had USDC with an acquisition cost ≠ $1 → small GPO.

Frax Finance summary table

Updated: April 2026 | Fiscal year: 2025