Frax

Frax (FRAX) is a stablecoin with a unique "fractional-algorithmic" stability mechanism. It aims to address the limitations of existing fully collateralized and algorithmic stablecoins. The Frax protocol features a two-token system: FRAX, the stablecoin, and Frax Shares (FXS), the governance token. FRAX is partially collateralized and stabilized through algorithms, while FXS serves as the native utility token of the Frax ecosystem.

The protocol is open-source, permissionless, and operates entirely on-chain, meaning transactions are directly processed on the blockchain. It has been implemented on Ethereum among other blockchains, making it interoperable and scalable.

The Frax stablecoin offers a liquidity pool (LP) token that can be redeemed at any time, facilitating easy conversion into traditional currency without affecting market prices. Users can mint FRAX by depositing collateral into the minting contract. The protocol accepts various cryptocurrencies as collateral, but prioritizes on-chain stablecoins to mitigate volatility risks.

Frax aims to provide a more stable and scalable decentralized fund by integrating both collateral-based and algorithmic methods for maintaining stability. This innovation addresses the drawbacks seen in entirely collateralized stablecoins, which can suffer from poor performance or over-collateralization, and purely algorithmic stablecoins, which may experience periods of extreme volatility.

Frax Shares (FXS) has a dynamic supply. Initially set at 100 million tokens, it becomes deflationary as more tokens are minted at higher algorithmic ratios. Token holders can also lock their tokens in veFXS, thereby earning special rewards and AMO benefits.