Frax Finance — the first stablecoin protocol with a fractional algorithm. Frax is open source, permissionless and completely online - currently implemented on Harmony and other chains.
About Frax Finance
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 is 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.
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 stablecoins can be mined by placing an appropriate number of its constituent parts into the system. When created, FRAX is 100% secured by collateral, meaning that FRAX minting only requires a collateral to be paid into the minting contract.
While the protocol has appeared to accept any type of cryptocurrency as collateral, this implementation of the Frax protocol will basically accept on-chain stablecoins as collateral to smooth out the volatility in the collateral so that FRAX can smoothly transition to more algorithmic ratios. It becomes easier and safer to include volatile cryptocurrencies such as ETH and BTC in future managed pool.
More about coin defi app
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, 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 coin defi market. When FRAX is in the 100% collateral phase, 100% of the value that is entered into the system to mint FRAX is collateral. As the protocol enters the fractional phase, a portion of the value that enters the system during mining becomes FXS (which is burned out of circulation then).