Frax (FRAX) Research

Frax (FRAX) Research Details

Frax (FRAX) Frax

INTRODUCTION

Frax Protocol is the first fractional algorithm stablecoin system. Frax is open source, permissionless, and completely online. Currently implemented on Ethereum (possibly cross-chain implementations in the future). The ultimate goal of the Fraxprotocol is to provide a scalable and decentralized algorithmic currency in behalf of a fixed supply digital asset like BTC.

Frax is a unique stablecoin backed in part by collateral and in part by the supplied algorithm. The ratio of collateral to the algorithm depends on the market price of the FRAX stablecoin. If FRAX trades above $1, the protocol will reduce the collateral ratio. If FRAX trades for less than $1, the protocol increases the collateral ratio.

Frax Finance is a dual-token protocol consisting of FRAX, a stablecoin, and Frax Shares, a governance token. This structure is optimized to maintain fiat peg stability, accumulate seignorage fees, and provide governance rights to community members.


HISTORY AND FOUNDERS

Launched in May 2019, the project formerly called Decentral Bank was founded by Sam Kazemian, Travis Moore, and Jason Huang. Since its launch, the FRAX offer is partially collateralized while the rest of the offer remains floating. The secured supply depends on the provisioning rate of the protocol.

Frax Founder Sam announced the development of the Crypto Consumer Price Index (CPI). The proposed CPI has its own stablecoins (Frax Price Index) and governance tokens (Frax Price Index Shares). With this new product, FRAX will break out of the USD peg and become the first truly decentralized and permissionless crypto-account unit. New FPI token holders will face the challenge of increasing the dollar value of their holdings every month. As a result, the FPI aims to act as a hedge against inflation.


REASON TO BUILD THE PROJECT

Prior to the launch of Frax in 2020, stablecoins that existed at the time were either collateralized or algorithmically issued and burned. Collateralized stablecoins are not capital-efficient, whereas fully algorithmic stablecoins are natively fragile and open to breakage in volatile market conditions. Frax Finance combines the best of both worlds by eliminating the problem, creating the first stablecoin protocol with a fractional algorithm.


BASE OF PROJECT

·       Growth Ratio- Growth rate is an important measure of the amount of FXS liquidity in relation to the total FRAX supply. This metric helps you understand if the protocol has the FXS liquidity needed to handle FRAX buybacks/FXS dumps without negative feedback loops.

·       Buybacks and Recollaterization- Buybacks check if the protocol is over-collateralized and will use excessive collateral for the market to buy and burn FXS whereas Recollaterization checks if the protocol is under collateral and will allow users to add collateral to restore the protocol to its CR ratio.

·       Algorithmic Market Operations Controllers (AMO) - The AMO controller is the contract that initiates the monetary transaction and is subject to strict restrictions that cannot adjust the price of CR or FRAX.


USE CASE

·       FRAX is a protocol stablecoin that aims to fix its value to $1 per coin. A digital representation of the US dollar stablecoins can be used to facilitate lending, borrowing, and trading of digital assets.

·       Additionally, blockchain enthusiasts who want to reduce the risk of disclosure to volatility in crypto assets can use Frax as a store of value and medium of exchange.

·       As the protocol is based on Ethereum, FRAX is a multi-chain token that can also be used on blockchains such as Ethereum, Polygon, Avalanche, BSC, Harmony, Fantom, and Moonriver.


TOKENOMICS

Frax Finance uses FXS as a token for its use and governance. Tokenomics is as follows: A total of 100 million FXS and distribution of FXS tokens will be distributed between:

·       Farming Rewards (60%): Distribution is halved every 12 months.

·       Treasury (5%)

·       Teams and Investors (35%): 20% for Teams, 3% for Advisors and Early Participants, and 12% for Individual Investors.


CONCLUSION

So far, FRAX has been experimenting with success in the growing stablecoin market. According to the protocol, FRAX's market cap remained stagnant in Q1 2022, but its absolute and relative share in the stablecoin market cap is increasing. Although not as successful as its closest rival - UST, FRAX traded within a strong price target.

If FRAX can continue to partner with other protocols that expand its use as collateral in decentralized finance, its market cap will continue to grow. As a result, the price of the underlying FXS tokens will also rise. If the Frax Finance community manages its finances carefully, FXS may be able to hit all-time highs in the future.


DISCLAIMER

Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Crypto products are currently unregulated and subject to market risk. Please seek independent financial advice or do your own research before investing.