Frax

The Frax Protocol represents the pioneering fractional-algorithmic stablecoin system. It operates as an open-source, permissionless platform, entirely on-chain, with its current implementation on Ethereum and potential plans for cross-chain applications in the future. The ultimate aim of the Frax protocol is to deliver a highly scalable, decentralized form of algorithmic currency as a replacement for fixed-supply digital assets like Bitcoin. This protocol utilizes several innovative features:

Fractional-Algorithmic – Frax introduces a distinctive stablecoin model where part of its supply is backed by collateral, while the rest is algorithmically maintained. The balance between collateralized and algorithmic supply is determined by the market value of the FRAX stablecoin. When FRAX's price exceeds $1, the protocol reduces the collateral ratio, and when it falls below $1, the protocol boosts the collateral ratio.

Decentralized & Governance-minimized – The system is governed by its community and relies on a highly autonomous algorithmic framework with minimal active intervention.

Fully on-chain oracles – Frax v1 employs Uniswap (using ETH, USDT, USDC time-weighted average prices) and Chainlink (USD price) oracles.

Two Tokens – FRAX functions as the stablecoin maintaining a close value to $1 per coin, while Frax Shares (FXS) serves as the governance token, accumulating fees, seigniorage revenue, and surplus collateral value.

Before Frax's introduction, stablecoins were categorized into three types: fiat-backed, cryptocurrency overcollateralized, and algorithmic without collateral. Frax is the first decentralized stablecoin to define itself as fractional-algorithmic, marking it as a new and distinctive category.

The supply of the FRAX stablecoin is flexible and continually adjusts to maintain its price at $1, following its fractional-algorithmic monetary policy. In contrast, the supply of Frax Shares (FXS) tokens is capped at 100 million at inception, with no planned inflation in the protocol. The FXS token acts as the governance token, capturing all the value from newly minted FRAX, fees, and extra collateral. While FXS is an investment and governance asset, FRAX serves as the currency token.

The Frax Protocol stands out with its community-driven, innovative stablecoin design. More than 60% of the FXS supply is distributed over several years to liquidity providers and yield farmers. It is fully decentralized, with all governance occurring on-chain. Additionally, it became the first stablecoin to incorporate a fractional-algorithmic hybrid model at its launch in November 2020.

The Frax Protocol was conceived by American software developer Sam Kazemian, who first proposed the idea of a fractional-algorithmic stablecoin in 2019.

The founding team also includes engineers Travis Moore and Jason Huan. Sam Kazemian envisioned the concept after observing the rapid expansion of stablecoins, yet noting none combined algorithmic monetary policy with collateral backing. Previous projects focusing solely on algorithmic policies had either failed or ceased operations due to lack of momentum. Frax was created to gauge market confidence in a stablecoin that blends algorithmic features with collateralization.

FRAX, the stablecoin, is accessible on numerous major exchanges and DeFi platforms such as Uniswap and various DEXs. Frax Shares (FXS) tokens are equally available and as liquid as the stablecoin. Those interested in obtaining governance rights and potential growth opportunities in the world’s first fractional-algorithmic stablecoin should consider buying Frax Shares (FXS). Users seeking stability with the only fractional-algorithmic stablecoin should opt for FRAX.