Frax: A Fractional-Algorithmic Stablecoin Protocol
Sam Kazemian, Jason Huan, Jonathan Shomroni, Kedar Iyer · 2022
A 2-token, fully autonomous blockchain protocol which transitions a fully collateralized stablecoin (FRAX) to fully algorithmic, moving through a fractional-collateral phase is proposed and implemented. FRAX is backed 100% by collateral at genesis. As usage of FRAX as a medium of exchange grows, so does its monetary premium and demand. This allows the backing to be incrementally lowered as long as the price target of $1/FRAX holds. A second token in the system, Frax Shares (FXS), captures the seigniorage value when minting non-collateralized value. This creates a protocol where FRAX is mintable with decreasing ratios of collateralization and FXS tokens capture the non-collateralized value as the stablecoin slowly transitions to a predominantly algorithmic model from its original collateralized state.