CPI Peg & Inflation Hedge
System overview
The Frax Price Index is a brand new, unique protocol within the Frax ecosystem. Centered around its own native stablecoin (FPI) and governance token (FPIS), the system will adjust every month according to an on-chain Consumer Price Index oracle so that holders of the FPI will increase their dollar-denominated value each month according to the reported CPI increase. It does this by earning yield on the underlying FPI treasury, created from users minting and redeeming FPI with FRAX.
The Frax Price Index Share (FPIS) token is the governance token of the system, which is also entitled to seigniorage from the protocol. Excess yield will be directed from the treasury to FPIS holders, similar to the FXS structure. During times in which the FPI treasury does not create enough yield to maintain the increased backing per FPI due to inflation, new FPIS may be minted and sold to increase the treasury. Since the protocol is launched from within the Frax ecosystem, the FPIS token will also direct a variable part of its revenue to FXS holders. Inflation Calculation The FPI uses the CPI-U unadjusted 12 month inflation rate reported by the US Federal Government: https://www.bls.gov/news.release/cpi.nr0.htm A specialized Chainlink oracle commits this data onchain immediately after it is publicly released. The FPI peg tracks the above 12 month inflation rate and pegs to it at all times from the FPI redemption contract. Thus, when buying FPI stablecoins for another asset (such as ETH) the trader is taking the position that CPI purchasing power is growing faster over time than the sold ETH. If selling FPI for ETH, then the trader is taking the position that ETH growth is outpacing the CPI inflation rate of the US Dollar.


The Frax Price Index has a two-fold mandate:
  1. 1.
    Maintain the $FPI peg (tracking monthly inflation)
  2. 2.
    Accrue value to the $FXS (Frax Share) token
To maintain the mandate, $FPIS token holders are encouraged to remain aware of the purpose of the protocol.
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