Algorithmic stablecoin platform Frax Finance plans to acquire “billions of dollars” worth of tokens to create a reserve fund for the FRAX algorithmic stablecoin. The project’s founder, Sam Kazemyan, told The Block about it.
The FRAX stablecoin is backed by the native token of the Frax Shares (FXS) project and the centralized “stablecoin” USDC. The platform uses a fractional reserve system, the parameters of which depend on the ratio of the liquidity of FXS and the total supply of FRAX.
When FRAX trades above $1, the system reduces the collateral ratio, below it increases it. At the same time, arbitrageurs can buy or spend FRAX, making it easier to peg to the $1 target.
Initially, FRAX was funded entirely by USDC, but as the project evolved, the algorithmic component began to play a more important role.
FRAX Collateral and Algorithmic Shares. Data: Frax Finance.
The idea of using a range of cryptocurrencies and synthetic assets to maintain stability is contained in Frax Finance’s white paper. However, according to Kazemyan, it is only now being discussed as “inevitable”.
This approach is similar to an initiative by the non-profit organization Luna Foundation Guard. She has invested in Bitcoin and Avalanche (AVAX) to build a backup and improve the sustainability of Terra’s UST stablecoin.
Kazemyan said that the platform plans to buy tokens from all networks where FRAX circulates. Most of the stablecoin supply resides on Ethereum, but it also circulates on 12 other blockchains, including Avalanche, BNB Chain, Fantom, and Solana.
Kazemyan explained that Frax Finance will acquire native tokens in proportion to demand for stablecoin on a specific blockchain. The reserve fund balance will reflect the proportion of FRAX coverage in each grid.
“This strategy means that every Tier 1 network (including bitcoin) will be interested in having FRAX stablecoins flowing through its economy as it creates huge market demand for their native tokens,” he noted.
According to the project’s founder, some of the seigniorage will be retained to raise funds for these causes. However, the details of the plan have yet to be finalized – first, Frax Finance management must vote on the issue.
The total supply of FRAX exceeded 2.69 billion. In the last six months, the number has increased by 250%.
Quotation Dynamics by Frax. Data: Frax Finance.
Recall that in March 2022, the Fantom project announced the launch of its own USDB stablecoin with high-yield pools of liquidity as collateral.
Algorithmic stablecoins: how USDT and USDC alternatives are performing
Dear readers, the online edition joins the Front Pickup initiative and starts raising funds for a car for Ukrainian defenders that we plan to drive from abroad. The Mitsubishi l200 SUV is already waiting to be redeemed. We have a few days. Help our soldiers get the right car. Paypal [email protected] Ethereum: 0x8ecf8dB15ef228331b87620c25383707fC6f3f57
post navigation
Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers
Comments are closed.