Frax Finance is also known as Frax, formerly known as Decentral Bank, is a fractional-algorithmic stablecoin Protocol. The project is “the world’s first decentralized stablecoin with parts of its supply collateralized and parts algorithmic stabilized.”
Through its fractional-algorithmic design, Frax aims to have the confidence and tight peg of over-collateralized models like MakerDAO as well as the trustless and scalable model of algorithmic stablecoins like Basis Cash.
On November 16, 2020, the testnet was released for early users to experiment with and report bugs. The protocol officially launched on the Ethereum mainnet on Monday, December 21, 2020, at 0:00 UTC.
On Monday, December 21, 2020, one hour after launch at 1:00 UTC the total value locked (TVL) in Frax Finance was over $43 million. . As of Jan 13, 2021, a record 100 Million FRAX tokens have been minted, with a collateral ratio of around 85%.
On January 19, 2021, Frax Finance passed Wrapped Bitcoin (WBTC) to become the 5th most liquid token on Uniswap with over $130 million in liquidity.
On February 17, 2021, Frax Finance became the first algorithmic stablecoin to be listed on Binance. Binance listed Frax Shares in their Innovation Zone with FXS/BTC and FXS/BUSD trading pairs opening on February 18, 2021, 9:00 AM (UTC) and deposits opening earlier.
The Frax protocol takes inspiration from Robert Sams’ 2014 academic paper titled “A Note on Cryptocurrency Stabilisation: Seigniorage Shares.”
Before the inception of the Frax Finance protocol, stablecoins were divided into three different categories: fiat collateralized, overcollateralized with cryptocurrency, and algorithmic with no collateral. Frax is the first kind of decentralized stablecoin to classify itself as fractional-algorithmic ushering in the 4th and most unique category.
The Frax protocol aims to be the first stablecoin designed to transition from fully collateralized to varying levels of fractional backing whereby parts of the supply are not backed by any assets but rather minted and bought back by the protocol itself to keep the price of the Frax token at $1.
The protocol is a two token system encompassing the stablecoin Frax (FRAX) and the Frax Share token (FXS) which accrues seigniorage revenue, fees, and provides governance rights.
The project has also announced the third token, the Frax Bonds token (FXB) to be released at a future date which is an interest-bearing token representing debt in the system.
As FRAX adoption increases, users of the protocol will be more comfortable with a higher percentage of FRAX supply being stabilized algorithmically rather than with collateral.
The price of FRAX, FXS, and collateral are all calculated with a time-weighted average price (TWAP) of the Uniswap pair price and the ETH: USD Chainlink oracle. The Chainlink oracle allows the protocol to get the true price of USD instead of an average of stablecoin pools on Uniswap. This allows FRAX to stay stable against the United States dollar itself which would provide greater resiliency instead of using a weighted average of existing stablecoins only.
Frax Share Token (FXS)
Frax Share Tokens eschew DAO-like active management similar to MakerDAO. FXS supply is initially set to 100 million tokens at genesis, but the amount in circulation will likely be deflationary as FRAX is minted at higher algorithmic ratios. The design of the protocol is such that FXS would be largely deflationary in supply as long as FRAX demand grows.
FXS has control of the seigniorage and revenue flow of the protocol. FXS is similar to ownership/stake in the protocol, not debt which is a separate financial primitive.
Frax Bonds (FXB)
The Frax team plans to outline more information about Frax Bonds on GitHub.
The following pools with their weight will be available to users at the genesis launch.
- FRAX-FXS: 33.33%
- FRAX-USDC: 33.33%
- FRAX-ETH: 33.33%
Liquidity Programs and Staking
Community (60% – 60,000,000 FXS)
A maximum of 60,000,000 FXS will be distributed to the community for liquidity programs and other DeFi (Decentralized Finance) as they appear in the space as voted by governance. New programs can be added by governance to the remaining allocation, but no more than 60,000,000 FXS can be allocated due to the hard cap of 100,000,000 FXS.
In May 2019, Frax, then Decentral Bank, announced the project. In July 2019, the project announced additional team members, namely Travis Moore and Jason Huan.
How to Buy Frax Finance
How do I buy Frax Finance Token?
While some cryptocurrencies, including bitcoin, are available for purchase with U.S. dollars, others require that you pay with bitcoins or another cryptocurrency.
To buy cryptocurrencies, you’ll need a “wallet,” an online app that can hold your currency. Generally, you create an account on an exchange, and then you can transfer real money to buy cryptocurrencies such as bitcoin or Ethereum. Here’s more on how to invest in bitcoin.
Coinbase is one popular cryptocurrency trading exchange where you can create both a wallet and buy and sell bitcoin and other cryptocurrencies. Also, a growing number of online brokers offer cryptocurrencies, such as eToro, Webull, and Sofi Active Investing. Robinhood offers free cryptocurrency trades (Crypto.com is available in most, but not all, U.S. states).