What is the alETH/frxETH Pool?
The Curve alETH/frxETH pool pairs two innovative ETH derivative tokens: Alchemix's self-repaying alETH and Frax Finance's liquid staking frxETH. This pool connects two distinct DeFi primitives in a single liquidity venue.
Understanding alETH
Alchemix ETH (alETH) is a unique DeFi primitive:
- Self-Repaying Loans: Debt repays itself over time
- Future Yield Collateral: Borrows against future staking yield
- No Liquidation Risk: Designed to avoid forced liquidations
- ETH-Backed: Collateralized by deposited ETH
alETH represents an advance on future ETH staking yields.
Understanding frxETH
Frax Ether (frxETH) is Frax's liquid staking solution:
- Non-Rebasing: Value accrual instead of balance changes
- sfrxETH Companion: Stake frxETH for yield as sfrxETH
- Validator Diversity: Multiple validators
- DeFi Native: Part of Frax ecosystem
Pool Synergies
This pairing makes sense because:
- Both are ETH derivatives at ~1:1 value
- Different mechanisms for different use cases
- Arbitrage keeps both aligned
- Users may want to switch between them
Trading Dynamics
The pool handles:
- alETH holders seeking frxETH exposure
- frxETH holders accessing Alchemix features
- Arbitrage maintaining price alignment
- Strategy optimization flows
Yield Considerations
LPs earn from:
- Trading fees on swaps
- Arbitrage activity between derivatives
- Users optimizing DeFi strategies
The low 0.02% APY reflects stable trading between pegged assets.
Alchemix Protocol Context
Alchemix offers:
- alETH: Self-repaying ETH loans
- alUSD: Self-repaying USD loans
- Transmuter: Underlying collateral access
- ALCX: Governance token
Risks
- alETH Mechanism Risk: Self-repaying loan complexities
- frxETH Risk: Frax staking implementation
- Multi-Protocol Risk: Exposure to both Alchemix and Frax
- Derivative Risk: Both are ETH derivatives, not ETH itself
- Smart Contract Risk: Factory pool and both protocol contracts