Frax

Algo-Stables

Frax is a decentralized stablecoin issuer, with the first fractionalized algorithmic stablecoin that is partially backed by collateral, FRAX. The protocol also issues the Frax Price Index (FPI) which adjusts to match monthly CPI readings.

Risk Rating
Average
Protocol Code Quality
Protocol Maturity
Protocol Design
Summary
What we like
Frax offers solid value accrual mechanisms from minting and redeeming fees as well as revenue earned from its algorithmic market operations (AMO) controller.
What we like less
Frax has potentially concerning reflexivity as its FXS token is used to mint and redeem the FRAX stablecoin based on the current collateralization ratio, which can lead to negative feedback loops in volatile market conditions. Further, FRAX currently uses USDC as its underlying collateral which exposes it to the centralization risks related to Circle.
What it means for you
Offers you an alternative and more capital efficient way to access stablecoins through an algorithmic partially-collateralized system.
Information
Exploit/Hacks
None
Info
  • Website
  • Token: FXS
  • Tags: Algo-Stables
Key Metrics
  • TVL: $127.8M (Rank #42)
  • TVL Ranking by Algo-Stables: #1
  • Blockchain: Ethereum, Fantom
  • Chain TVL
    • Ethereum: $127.78M
    • Fantom: $45.97K
Risk Assessment
Average
Protocol Code Quality
  • Code reviewed by several experienced auditors including CertiK and Trail of Bits
  • Public team promotes accountability
  • No documented protocol hacks since launch
  • Robust controls to mitigate oracle price manipulation
Protocol Maturity
  • Core protocol launched in 2020; maturity over 18 months reduces technical risk as smart contracts are sufficiently battle-tested
  • Top 1% by total value locked reduces risk
  • Governance decentralization is in the roadmap
  • At least one critical governance issue documented
  • Low voting power concentration reduces risk
Protocol Design
  • Protocol could be susceptible to negative feedback loops
  • Isolated markets enable asset risks to be contained to each individual pool without impacting the entire protocol
  • Frax runs Open Market Operations (like the Fed) to adjust monetary supply of the FRAX stablecoin to maintain its peg to $1. This design has helped the protocol and stablecoin survive high market volatility, despite FRAX being a partially algorithmic stablecoin
Things to know about Frax

How Frax works

The Frax protocol is a two-token system consisting of the FRAX stablecoin and the FXS governance token. FRAX maintains its peg to USD by being partially collateralized by USDC and dynamically adjusting its collateralization ratio based on market demand to keep FRAX price at 1 USD. When FRAX price 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 price 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.

How Frax makes money

The protocol collects minting and redemption fees that range between 0.2% and 0.45%. This enables the Frax treasury to earn more when there is more demand for minting and redeeming of FRAX.

How you make money on Frax

You can supply FRAX liquidity to decentralized exchanges to earn trading fees. FRAX holders can also mint Frax Price Index (FPI) tokens that are inflation-adjusted stablecoins that essentially pay an interest equal to monthly CPI. FRAX stakers (veFXS) can earn 50% of all trading fees from its Automated Market Operations (AMO).

Frax Pools