Aave launches V3, Polygon teams up with fractal and a new generation of DEXs
Protocol of the week: Frax Finance 🔣
Welcome to the 44th edition of DeFi Fridays!
Access all the previous editions here.
101 today:
Protocol of the week: Frax Finance 🔣
Major happenings in the ecosystem. 🔰
In this week’s good reads:
The FEX Model.
10 best crypto data breakdowns.
Protocol Of The Week: Frax Finance
What is Frax Finance?
Frax Finance is an Ethereum based protocol, which has created the world’s first fractional stablecoin. A fractional stablecoin is one that is backed partially by collateral and partially by computer algorithms.
It is also the first protocol to create a stablecoin pegged to the Consumer Price Index. The protocol’s second stablecoin, FPI, is pegged to the US-CPI.
Along with this, it also offers services in swapping, lending and staking tokens.
What are they doing?
Collateral backed stablecoins always come with institutional and custodial threats. Algorithmically backed stablecoins, though accompanied with a greater level of decentralization, are prone to volatility.
FRAX was created to get the best of both worlds. They are attempting to build a stablecoin which is scalable, trustless and stable.
How are they doing it?
Before understanding how the stablecoin works, lets introduce ourself to some basic fundamental concepts:
FXS is the protocol’s native token which is also used for governance.
CR or collateral ratio is the ratio of how much of the FRAX token is backed by collateral (at 100% it is fully backed by collateral, at 50% it is backed half and half by collateral and algorithms).
One FRAX token will always be equal to $1.
Now, at 100% CR, you can mint FRAX tokens entirely for your choice of collateral alone. When redeeming, you get all of your collateral back.
At 80%, you can mint FRAX token by supplying 80% collateral and 20% FXS tokens to the protocol.
Example: If one wants 500 FRAX tokens, they will place $400 in collateral and $100 in FXS to get 500 FRAX tokens.
The CR is determined by the protocol’s users and can be increased or decreased by .25% every hour. The current CR is 92%.
In sum, they are using the power of both, algorithms and collateral, to power the FRAX stablecoin.
To learn how to navigate the protocol, click here.
We explain one DeFi Protocol every Friday:
Major News in the Ecosystem:
Aave V3 goes live. 🔰
Fractal is now live on Polygon. 🔰
More Good Reads:
✍️The FEX Model: Building the Next Generation of Exchanges.
✍️10 best crypto data breakdowns from 2022.
That’s it for today, folks. See ya next Friday. 🧢
Disclaimer: Nothing included in DeFi Fridays should be taken as financial advice.