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.
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.
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.
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).