Frax is a fractional-algorithmic stablecoin and is the first cryptocurrency that is partly secured by collateral while also being kept stable through cryptographic algorithms. Algorithmic stablecoins maintain a consistent value and manage their circulating supply using a different reserve asset as the basis. 

The Frax system relies on two assets. One is Frax (FRAX), a stablecoin pegged 1:1 to the US dollar, and the other is Frax Shares (FXS), which serves as the governance and utility token.

What are Frax’s key features and how does it work?

As an algorithmic stablecoin, Frax works to stabilize its price through smart contracts that create new tokens when the price moves up, and that purchase tokens when the price drops. Unlike many other stablecoins, FRAX is partially backed by USDC.

Minting and redeeming are central to keeping the cryptocurrency’s peg aligned with USDC. FRAX can be minted by anyone who supplies two tokens: USDC and FXS. FXS acts as the protocol’s “share token” and is used to power a range of platform functions. 

The Frax collateral ratio (CR) determines the split between the two tokens. For instance, if the CR is 50%, then $1 worth of FRAX can be minted by providing $0.50 in USDC and $0.50 in FXS. Redemption follows the same idea in the opposite direction, where FRAX is exchanged for the USDC and FXS amounts provided at the outset.

What is noteworthy about Frax Finance?

Frax Finance sets itself apart from other stablecoins. First, users can supply liquidity across multiple Uniswap pools, and in return they can earn rewards paid out in FXS, the platform’s token.

Second, the protocol enables long-term staking with time locks. Liquidity providers can commit their LP tokens to the protocol for as long as 3 years. Rewards for liquidity are based on both how long the tokens are locked and the collateral ratio. 

What can Frax Finance be used for?

Frax Finance is working on additional tools designed to expand how FRAX can be used. Planned additions include FRAX bonds, a vAMM, and support for new collateral types. For now, it functions as a stablecoin whose dual-backed design aims to be more “stable” than other options.

Where can you buy FRAX?

FRAX can be purchased on major DEXs: