Frax: Fractional-Algorithmic Stablecoin Protocol

A new category of decentralized stablecoin with a novel mechanism

Frax is the first fractional-algorithmic stablecoin protocol. Frax is open-source, permissionless, and entirely on-chain – currently implemented on Ethereum (with possible cross chain implementations in the future). The end goal of the Frax protocol is to provide a highly scalable, decentralized, algorithmic money in place of fixed-supply digital assets like BTC.

Frax is a new paradigm in stablecoin design. It brings together familiar concepts into a never before seen protocol:

  • Fractional-Algorithmic – Frax is the first and only stablecoin with parts of its supply backed by collateral and parts of the supply algorithmic. The stablecoin (FRAX) is named after the "fractional-algorithmic" stability mechanism. The ratio of collateralized and algorithmic depends on the market's pricing of the FRAX stablecoin. If FRAX is trading at above $1, the protocol decreases the collateral ratio. If FRAX is trading at under $1, the protocol increases the collateral ratio.

  • Decentralized & Governance-minimized – Community governed and emphasizing a highly autonomous, algorithmic approach with no active management.

  • Fully on-chain oracles – Frax v1 uses Uniswap (ETH, USDT, USDC time-weighted average prices) and Chainlink (USD price) oracles.

  • Two Tokens – FRAX is the stablecoin targeting a tight band around $1/coin. Frax Shares (FXS) is the governance token which accrues fees, seigniorage revenue, and excess collateral value.

  • Swap-based Monetary Policy – Frax uses principles from automated market makers like Uniswap to create swap-based price discovery and real-time stabilization incentives through arbitrage.

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