What is Frax?
Frax is a fractional-algorithmic stablecoin protocol using both collateralized and algorithmic stablecoin design principles to achieve a highly scalable, trustless, and extremely stable form of on-chain money. Frax Finance is a two-token system comprised of stablecoin Frax (FRAX), and the non-stable, value-accrual and governance token Frax Shares (FXS). The prices of FRAX, FXS, and the collateral rate are calculated using the time-weighted average of the Uniswap pair price and the ETH-USD Chainlink oracle. This Chainlink oracle provides Frax protocol with the true price of USD more accurately than obtaining USD price using the average price of stablecoins in Uniswap pools, allowing FRAX to hold a more stable value against the value of the US dollar. Frax protocol also interacts with a pool contract holding USDC collateral as decided by community governance. FRAX can always be minted or redeemed for $1 of value, allowing arbitragers to balance supply and demand of FRAX on the open market. If FRAX market price is above the price of $1, this presents an arbitrage opportunity to mint FRAX tokens by placing $1 of value into the system per FRAX and selling the minted FRAX for over $1 on the open market. During the fractional-algorithmic phase, FXS is burned as FRAX is minted. As FRAX is redeemed, FXS is minted. Frax is an agnostic protocol, making no assumptions and setting no expectations for the collateral ratio the market will settle on in the long term. Frax Finance tokens FRAX and FXS are available on Ethereum mainnet, Binance Smart Chain (BSC), MATIC, Avalanche, and Fantom blockchain networks.
