# Decentralization Ratio (DR)

Reducing reliance on centralized assets

The Frax Decentralization Ratio (DR) is the ratio of decentralized collateral value over the total stablecoin supply backed/redeemable for those assets. Collateral with excessive off-chain risk (i.e. fiatcoins, securities, & custodial assets such as gold/oil etc) are counted as 0% decentralized. The DR goes through underlying constituent pieces of collateral that a protocol has claims on, not just what is inside its system contracts. The DR is a recursive function to find the base value of every asset.

For example, FRAX3CRV LP is 50% FRAX so remove that, as you cannot back yourself with your own coin. The other half is 3CRV which is 33% USDC, 33% USDT, and 33% DAI. DAI itself is about 60% fiatcoins. So each $1 of FRAX3CRV LP only has about $.066 ($1 x 0.5 * 0.33 * 0.4) of value coming from decentralized sources.

In contrast, Ethereum, as well as reward tokens like CVX and CRV, are counted as 100% decentralized. FRAX minted through Lending AMOs also counts as decentralized since borrowers overcollateralize their loan w/ crypto sOHM, RGT, etc. This is the same reason DAI's vaults give it high DR.

The DR is a generalized algorithm that can be used to compute any stablecoin's excessive off-chain risk. Other stablecoins like LUSD are much easier to calculate: their DR is 100%. FEI is around 90% DR.

As of Nov 2, 2021, FRAX is roughly 40%. It is tracked daily and viewable at https://app.frax.finance/

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