What is FRAX Finance and Working of FRAX Ecosystem Explained

  •  Frax is a fractional algorithmic stablecoin protocol.
  • One part of its supply is backed by stablecoin and the other part is supported by algorithms.

It is an algorithmic stablecoin protocol. Initially named as Decentral Bank founded in 2019 by Sam Kazemian, Travis Moore and Jason Huan. It positions Itself the world’s most innovative decentralised stablecoin & Defi stable coin Infrastructure. 

Frax is a full fledged stablecoin protocol. It is not only  open source but also  permissionless protocol.

Frax is a very special stablecoin because its one part is backed by collateral and the other is backed by algorithms. The ratio of collateral & algorithm depends on the market’s pricing of Stable coin. The Protocol of Frax works in this way.

If Frax trades more than the price of a dollar which is $1 then protocol is designed to automatically decrease the collateral ratio.

On the other hand if the Frax trades under the $1 price then again to balance the protocol increases collateral ratio.

 Frax protocol currently issues 3 stable coins which are listed on different exchanges such as coin marketcap.

  1. The FRAX stablecoin is a crypto currency which is collateralized and pegged to the US dollar. This stablecoin is highly scalable, trustless and ideologically pure on-chain money.
  1. FPI stands for Frax Price Index. It is the first stablecoin which is pegged to a basket of consumer goods which creates its own unit of account separate from any national state denominated money.
  1. FreETH is an ETH pegged stablecoin and LST system are used as a replacement for the WETH in the smart Contracts.

How does Frax Finance Works

 To function Frax follows an special  algorithm system in which a portion of the FRAX stablecoin is collateralized by the dynamic ration of FXS token. But now the FRAX is starting to work towards collateralising the FRAX token 100% just like the USDC and the USDT.

Users can print FRAX but they must provide the collateral equivalent to the desired amount because FRAX relies on two assets which are USDC and FXS. The difference between the ratio of FXS and USDC varies from time to time. The ration highly depends on the market conditions.

In addition to this the collateral ratio also showed changes but according to the FRAX market. The number of the FRAX shares minted and burned is dependent on the collateral ratio.

This mechanism prevents FXS from facing a death spiral like what the LUNA and UST faced. FRAX has the ability to maintain equilibrium because every time a user sells FRAX a FRAX is burned.

Since the community has decided to increase the current ratio FRAX v1 mechanism will be disabled.The aim is to make FRAX a 100% collateralized stablecoin, just like the USDT and USDC.

FRAX token

Currently frax token enjoys a market cap of approximately $1,003,489,144 which ranks it 208 on coin market cap in terms of market cap. The FRAX token does not have a fixed maximum supply but the total supply of FRAX tokens in the market is 1,044,853,133. Currently the FRAX token is trading at price of $0.9993

FRAX Share

On the day of writing this article frax share was trading at a price of $5.69. FRAX shares enjoy a market cap of approximately $414,066,351. It does not have a maximum supply but the total supply of FRAX shares is 99,707,753.

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