What is Frax Share?
The Frax Protocol, created by American software developer Sam Kazemian, is the first fractional-algorithmic stablecoin system. The open-source, permissionless, and entirely on-chain protocol is currently implemented on Ethereum, with potential for cross-chain implementations in the future. The goal of the Frax protocol is to provide a highly scalable, decentralized, algorithmic money in place of fixed-supply digital assets like BTC.
The protocol uses a unique fractional-algorithmic monetary policy, where parts of its supply are backed by collateral and parts are algorithmic. The ratio of collateralized and algorithmic depends on the market's pricing of the FRAX stablecoin. If FRAX is trading above $1, the protocol decreases the collateral ratio. If FRAX is trading under $1, the protocol increases the collateral ratio.
The Frax protocol is community-governed and emphasizes a highly autonomous, algorithmic approach with no active management. It uses fully on-chain oracles, with v1 using Uniswap and Chainlink oracles. The protocol also has two tokens: FRAX, the stablecoin targeting a tight band around $1/coin, and Frax Shares (FXS), the governance token which accrues fees, seigniorage revenue, and excess collateral value.
The supply of the FRAX stablecoin is dynamic and always changing to keep the price at $1. The supply of the Frax Shares (FXS) tokens is hard capped to 100 million tokens at genesis, with no inflation schedule in the protocol. The FXS token is the governance token which accrues all value of new minted FRAX, fees, and excess collateral.
Frax is a community-driven and unique design stablecoin. Over 60% of the supply of FXS is issued over a number of years to liquidity providers and yield farmers. It is an entirely decentralized protocol with governance onchain. It is also the first and only stablecoin to incorporate the fractional-algorithmic hybrid design at the time of its launch in November 2020.
The investment information, comments, and recommendations provided here do not fall under the scope of investment consulting. Therefore, making an investment decision based solely on the information and comments provided here may not yield results that meet your expectations.
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