Frax Finance Will Collateralize Stablecoin
The community of Frax Finance, a decentralized finance protocol with some $2 billion in total value locked, voted to fully collateralize the protocol’s native stablecoin frax (FRX), according to a vote concluded Wednesday.
The proposal FIP-188, posted last week on Frax’s governance forum, suggested setting the target collateral ratio to 100% using protocol earnings to increase the stablecoin reserves.
The result represents a significant shift for FRX, the fifth largest stablecoin with more than $1 billion in market capitalization, as it eliminates the algorithmic element of the stablecoin’s stabilizing mechanism.
Frax uses a hybrid design to keep its price pegged to the U.S. dollar. It is 80% backed by crypto asset collateral and partially stabilized algorithmically, burning and minting the protocol’s governance token FXS. Its issuer, Frax Finance, is managed by a decentralized autonomous organization through community proposals and votings.
(With inputs from Shikha Singh)
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