Tokenomics
Finance Context
Certificates of Deposit are low risk investments available at banks globally. Although this low risk often means lower returns relative to stocks and other investments, they are a popular part of many financial portfolios.
The True Freeze ecosystem rewards creating and trading CDs with market determined interest rates (the frETH yield token's value) and community owned revenue (the fees and penalties paid to FRZ stakers).
For trading Freezer NFTs, zero-coupon bond pricing is applicable. In traditional finance a zero coupon bond is an investment that pays its amount (par value) at maturity, but does not pay interest along the way. Thus these bonds trade below their par value. The difference in price paid and the par value is the implicit return. For example, if you pay $95 for a bond that gives you $100 in 1 year; then you earned $5 in returns (5/95 = 5.2%).
This a core innovation of True Freeze - the ability to buy ETH with ETH profitably.
Freezer Yield Token
frETH, the yield token minted for creating Freezer NFTs, allows for new profitable ways for those interested in low risk (no oracles, no impermanent loss, no liquidations) DeFi to earn from confirming their patience on-chain.
Using the Freezer NFT example above, imagine Alice locks 100 ETH for 2 years and mints 200 frETH. Bob is willing to buy Alice's CD for 95 ETH, securing a (5 / 95 = 5.2%) implicit return on ETH over 2 years. Alice can profitably accept that trade as long as 200 frETH > (5 ETH + any related transaction costs).
If 1 frETH = 0.04 ETH, then 200 frETH = 8 ETH. She can profit nearly 3 ETH from this trade.
Note, in this case, Bob could lock his 95 ETH for 1.32 Years, receive 125 frETH and sell that for 5 ETH and be better off. The economic theory is that the appropriate price for these Freezer NFTs change with frETH's price in ETH. Changes in the market price of frETH represent changing time preferences for ETH. At full maturity, frETH absorbs the volatility of ETH and becomes the benchmark rate for all of ETH related DeFi!
Freezer Revenue Token
The FRZ revenue token acts as just like a stock receiving dividends. It's value will fluctuate as people forecast fees and penalties from early withdrawals. To support long term use of True Freeze, FRZ inflates, so that staker's percent of revenue ownership falls over time. To keep up, stakers must compete to burn frETH and retain their percent of newly minted FRZ earned.
Flywheel
The True Freeze Ecosystem has multiple counteracting effects for changes in the market price of ETH and frETH. There are 7 core principles underlying this flywheel:
1. Lower frETH prices means lower early withdrawal costs in ETH terms.
2. When early withdrawals cost less, more of them happen, leading to revenue to FRZ stakers.
3. More revenue to FRZ stakers combined with lower frETH prices means more frETH burned to earn FRZ.
4. 1 frETH burned = 1 ETH out of circulation for 1 year, reducing the circulation of ETH.
5. With less ETH in circulation, its price rises (assuming demand does not change), which leads to more early withdrawals (to sell ETH high and rebuy it low).
6. To withdraw ETH early requires frETH, so the price of frETH rises.
7. When frETH rises, the benefits of locking ETH rises, so more people lock ETH and sell frETH; restarting the flywheel.
