Frax(FRAX)

Frax (FRAX), launched in November 2020 by Frax Protocol, is said to be an innovative fractional-algorithmic stablecoin, pegged to the US Dollar at a 1:1 ratio.  

Collateralized stablecoins lack capital efficiency while fully-algorithmic stablecoins are fragile and prone to de-pegging (e.g. UST) during volatile market movements. That’s why FRAX uses the ‘Fractional-Algorithmic’ stability mechanism. Frax aims to be a unique stablecoin protocol that implements the design principles of both collateralized and algorithmic stablecoins to deliver a highly stable, trustless and scalable on-chain solution for value transfer.

It is currently implemented on Ethereum as well as 12 other blockchains including Polygon, BNB Chain, Fantom, Harmony and Avalanche. At the time of writing, only stablecoins like USDC are accepted by the protocol as collateral. That said, plans are underway to also allow more volatile crypto collaterals like Wrapped Bitcoin (WBTC) with increased adoption in the future.

FRAX price

As FRAX coin was always meant to retain its dollar peg, its price has stayed mostly in the vicinity of $1 ever since its launch. On occasions when it has veered slightly from its peg, owing to various internal and external factors, these fluctuations haven’t been beyond 3 cents up or down. According to our FRAX live price chart, FRAX coin’s closing price has always stayed with the range of $0.97 to $1.03. We are yet to witness any steep falls or rises.

Nonetheless, there have been intraday drops and spikes on multiple occasions, with the FRAX price reaching its all-time high of $1.14 on Feb. 7, 2021, and an all-time low of $0.89 on Dec. 4, 2021. At its ATH, FRAX’s fully diluted valuation was well over $1.5 billion.

How FRAX works

The Frax protocol features a two token system — comprising of Frax (FRAX) the stablecoin and Frax Shares (FXS), its governance token that accrues excess collateral value, seigniorage revenue and protocol fees. There’s also a pool contract that holds the USDC collateral, and different pools can be introduced and removed through the protocol’s governance mechanism.

Frax v1, the first iteration of the protocol, used a banking algorithm that dynamically adjusted the collateral ratio based on the market price of FRAX. The collateral ratio would decrease (‘decollateralization’) if the FRAX price would be over $1, and increase if it would fall below $1 (‘recollateralization’). This fractional-stability mechanism is referred to as the ‘Base Stability Mechanism’.

Frax v2, launched in March 2021, introduced the concept of ‘Algorithmic Market Operations Controller’, thus expanding the above-explained idea of fractional-algorithmic stability. An AMO module can be defined as an autonomous contract that implements an arbitrary monetary policy while ensuring that the FRAX price doesn’t go off its $1 peg. Although AMO controllers can algorithmically perform open market operations, they can’t mint FRAX and break the peg.

While Frax v1 employed one Algorithmic Market Operations Controller (AMO) for accomplishing base stability, and thus, conceptualized the fractional algorithmic stablecoins, Frax v2 serves as a building block for a programmable monetary policy. In Frax v2, AMOs are smart contracts that execute stablecoin monetary policies without impacting the FRAX price and collateral ratio. These AMOs leverage the protocol’s assets and automate their movement to various capital-efficient DeFi protocols. All these AMOs run atop run atop the ‘Base Stability Mechanism’. There are four AMOs currently implemented by the protocol - Collateral Investor AMO, Curve AMO, Uniswap v3 AMO and FRAX Lending AMO – while two more are still under development.

At the core, FRAX is an ERC-20 stablecoin, which being the digital version of USD, can be used for trading, borrowing and lending of digital assets. It is also used as a hedge mechanism for minimizing exposure to volatile crypto market conditions.

FRAX news, updates and highlights

Sam Kazemian, the co-founder of Frax, highlighted in a December 2021 interview to Cointelegraph that authorities have always been too harsh on fiat stablecoins, and that this category of crypto assets bears the maximum brunt of regulatory scrutiny. He stressed that Frax will always keep complying with the regulatory requirements by just existing and staying fully decentralized. The news came amidst concerns that fiat stablecoins may require banking licenses to operate in the future.

In another FRAX news, in April 2022, Terra and Frax-backed 4Pool went live on Fantom Network, attracting $31 million TVL within a few hours of launch. The Curve-based yield farm 4Pool, created as a result of a governance vote on Curve, was paying daily yields of almost 0.5% after launch. It held close to $9.7 million in FRAX funds. Sam Kazemian, co-founder, Frax, said that FRAX looked forward to supporting all projects that incorporated 4Pool for their liquidity needs and stablecoin yield.

However, since the Luna and UST crash, stablecoins, especially algorithmic ones, have come under increased scrutiny.

Frequently asked questions about FRAX

• Can you mine or stake FRAX?

Although you cannot mine FRAX coins, it is possible to stake them for staking rewards. You can learn more here.

• What are some of the best FRAX wallets?

You can store your FRAX coins in any ERC-20 compatible crypto wallet, including Trezor, MetaMask, Atomic Wallet and Ledger.

• What can you do with FRAX cryptocurrency?

You can use FRAX to hedge against volatile market movements. It is also actively used for trading, lending and borrowing crypto assets.

• How can you buy FRAX coins?

You can buy FRAX from various well-known crypto exchanges, with fiat currency, or crypto coins like USDC, USDT, ETH, BTC and more.