Frax (FRAX)

Frax is a decentralized stablecoin protocol that combines traditional collateral with algorithmic mechanisms to maintain the stability of its stablecoin, FRAX. The goal of Frax is to create a scalable, decentralized stablecoin that balances the reliability of collateralization with the flexibility of algorithmic control, addressing issues found in purely algorithmic stablecoins.

Fractional-Algorithmic Model

Frax operates using an approach, meaning that part of the stablecoin supply is backed by collateral (like USDC or other stablecoins), and the rest is stabilized through algorithmic mechanisms. The collateral ratio can fluctuate based on the market demand for FRAX and the protocol's stability. If more collateral is needed to maintain stability, the protocol increases the collateral ratio; if less is needed, it decreases.

Collateral and Algorithmic Adjustments

The protocol continuously adjusts its collateral ratio, which could range anywhere between fully collateralized and algorithmically supported. In times of high demand for FRAX, the protocol might lower the collateral requirement, while in times of stress, it increases the ratio.

Decentralization and Governance

Frax is governed by FXS token holders through a decentralized governance model. Community governance makes decisions such as adjusting the collateral ratio, introducing new assets, or upgrading the protocol.