Frax Finance — the first stablecoin protocol with a fractional algorithm. Frax is open source, permissionless and completely online - currently implemented on Avalanche and other chains.
Frax is trying to be the first stablecoin protocol. It implements design principles to create highly scalable, trustless, extremely stable and ideologically pure money on the network. The Frax protocol - a dual token system, comprising the Frax stablecoin (FRAX) and the Frax Shares governance token (FXS). The protocol also has a pool contract that contains USD collateral. Pools can be added or removed by using management.
The ultimate goal of the Frax protocol - to provide scalable, decentralized, algorithmic money instead of fixed-supply digital assets like BTC. Frax is a new paradigm in stablecoin design.
It combines familiar concepts into a protocol, never seen before:
| Decentralization and minimal management | There is community management and an emphasis on a highly autonomous algorithmic approach without active management. |
| Fully intranet oracles | Frax v1 uses Uniswap (ETH, USDT, USDC time-weighted average prices) and Chainlink (USD price) oracles. |
| Crypto Native CPI | Frax's ultimate goal - to create the first cryptographic version of the CPI, called the Frax Price Index (FPI), managed by FXS holders (and other protocol tokens). |
FRAX can always be minted and redeemed from the system for $1 of value. This allows arbitrageurs to balance the demand and supply of FRAX on the open market. If the FRAX market price is above the $1 target price, then there is an arbitrage opportunity to mint FRAX tokens by depositing $1 value per FRAX into the system and selling the issued FRAX for more than $1 on the open market.