Frax (FRAX)

What is Frax?

Frax (FRAX) is a stablecoin with a unique "fractional-algorithmic" stability mechanism. It aims to address the limitations of existing fully collateralized and algorithmic stablecoins. The Frax protocol features a two-token system: FRAX, the stablecoin, and Frax Shares (FXS), the governance token. FRAX is partially collateralized and stabilized through algorithms, while FXS serves as the native utility token of the Frax ecosystem.

The protocol is open-source, permissionless, and operates entirely on-chain, meaning transactions are directly processed on the blockchain. It has been implemented on Ethereum among other blockchains, making it interoperable and scalable.

What Are the Unique Features and Use Cases of Frax?

The Frax stablecoin offers a liquidity pool (LP) token that can be redeemed at any time, facilitating easy conversion into traditional currency without affecting market prices. Users can mint FRAX by depositing collateral into the minting contract. The protocol accepts various cryptocurrencies as collateral, but prioritizes on-chain stablecoins to mitigate volatility risks.

Frax aims to provide a more stable and scalable decentralized fund by integrating both collateral-based and algorithmic methods for maintaining stability. This innovation addresses the drawbacks seen in entirely collateralized stablecoins, which can suffer from poor performance or over-collateralization, and purely algorithmic stablecoins, which may experience periods of extreme volatility.

Frax Shares (FXS) has a dynamic supply. Initially set at 100 million tokens, it becomes deflationary as more tokens are minted at higher algorithmic ratios. Token holders can also lock their tokens in veFXS, thereby earning special rewards and AMO benefits.

Why is Frax Important?

Frax aims to bring the best of both worlds by fusing collateral-based and algorithmic models. This offers a stable, trustless, and scalable on-chain fund. The protocol's dual-token system—FRAX and FXS—adds a layer of governance and utility to the ecosystem, making it a highly versatile and practical solution for various DeFi applications.

Who Created Frax and When?

Frax was founded in 2019 by American software developer Sam Kazemian, in collaboration with Stephen Moore, a former nominee for the Federal Reserve Board. Kazemian originated the concept of a fractional-algorithmic stablecoin and is the key architect behind the Frax Protocol. The project aims to solve issues inherent in existing stablecoin designs and provide a more efficient and resilient stablecoin model.