Frax (Optimism)

FRAX

FRAX is the first fractional-algorithmic stablecoin that is partially collateralized by USDC stablecoins and FXS governance tokens.

Risk Rating
Watch Out
$1.00
0.00%
Summary
What we like
FRAX's ability to dynamically adjust the collateralization ratio based on real-time market conditions provides a significant advantage in scalability and capital efficiency versus fully collateralized stablecoin protocols.
What we like less
FRAX uses USDC as its underlying collateral which exposes it to the centralization risks related to Circle which has blacklist capabilities.
What it means for you
Offers you an alternative and more capital efficient way to access stablecoins through an algorithmic partially-collateralized system.
Information
Blockchain
  • Optimism
Key Metrics
  • Market Cap: $648.1M
  • Fully Diluted Valluation: $648.1M
  • FDV / MC: 1
  • Ranking inside Exponential (among stables): #6
  • Circulating Supply: 649,434,271
  • Total Supply: 649,434,271
  • Volume (24H): $5.8M
  • ATH: $1.14 (02/07/2021)
  • ATL: $0.87 (03/11/2023)
Risk Assessment
Watch Out
Asset Strength

FRAX is a mid-cap undercollateralized asset. This asset is exposed to the underlying risks of Frax, a protocol rated as Watch out.

FRAX is a stablecoin that usually trades within 20bps of its peg to USD, which makes it a solid store of value.

Asset Tokenomics

FRAX has an uncapped supply but has inflation control or burn mechanisms in place. FRAX is exposed to death spiral risk as its price depends on another asset, thus creating negative feedback loops. FRAX increases its collateralization reserves when investors push the price below $1. This mechanism has proven resilient in the past at low scale but is not a guarantee of future success. FRAX uses a PID Controller to update the collateral ratio based on the change in the growth ratio, which measures FXS liquidity against overall FRAX supply. This metric allows the protocol to know if it has the necessary FXS liquidity to handle FRAX redemptions/FXS sells without leading to negative feedback loops.

Asset Volatility

FRAX is a stablecoin that usually trades within 20bps of its peg to USD, which makes it a solid store of value. FRAX uses a PID Controller to update the collateral ratio based on the change in the growth ratio, which measures FXS liquidity against overall FRAX supply. This metric allows the protocol to know if it has the necessary FXS liquidity to handle FRAX redemptions/FXS sells without leading to negative feedback loops.

Dependencies

Frax

Things to know about FRAX

How is FRAX created?

FRAX is a fractional stablecoin created by the Frax protocol that aims to be the first stablecoin issuer implementing design principles of both a collateralized system and a fully algorithmic system (with no backing). Its value is pegged to the USD and kept stable through an economic system of aligned financial incentives. The Frax protocol consists of a two token system with the FRAX stablecoin and the FXS governance token. FRAX is minted when users deposit the relevant amount of its constituent parts into the system. At genesis, FRAX was 100% collateralized, meaning users could only mint FRAX by depositing an equivalent amount of USDC. In the current fractional phase, FRAX has become undercollateralized as users became more comfortable with a higher percentage of FRAX supply being stabilized algorithmically through burning the inverse collateral ratio of FXS tokens.

What is FRAX used for?

FRAX is a price-stable asset that is mostly used as a hedge against volatility as it maintains a stable value of around 1 USD. Users need an alternative store of value and medium of exchange to navigate the highly volatile crypto markets. FRAX addresses this problem for crypto native users, as well as enables a wide range of financial activities including hedging during periods of high market volatility, market making against a stable asset, use as collateral for leveraging, and payment as a medium of exchange.

How is the price of FRAX kept stable?

FRAX maintains its peg to USD through fractional USDC backing and by dynamically adjusting its collateralization ratio based on market demand to keep the FRAX price at 1 USD. When FRAX is above 1 USD (during periods of expansion), the protocol will reduce the collateral ratio by one step of 0.25% per hour. And when FRAX is below 1 USD (during periods of retraction), the protocol will increase the collateral ratio by one step per hour to restore market confidence in FRAX's peg.