What Is Frax Crypto (FRAX)? How It Works & Where To Buy It?

FRAX is an innovative stablecoin that relies on a two-token system. It is partially collateralized and it’s also a fractional algorithmic stablecoin protocol.

FRAX is unique because its 1:1 peg is not achieved in the same way as most centralized stablecoins. Instead, a unique collateralization mechanism and algorithmic backing position FRAX as a novel stablecoin.

FRAX is currently the 207th largest cryptocurrency by market and one of the fastest-growing stablecoin protocols on the market.

How FRAX Stablecoin Works

Understanding the FRAX protocol means understanding the fundamental differences between algorithmic stablecoins and asset-backed stablecoins. FRAX uses both of these to achieve its peg to the dollar.

Algorithmic stablecoins are notorious for being slow to gain adoption because of their complexity. Various protocols have used mathematical algorithms to efficiently achieve a stable peg.

This is achieved in different ways by various protocols, and it’s important to also understand how they can go incredibly wrong. This happenend in the sad case of UST which was once the 3rd largest stablecoin in the world.

Asset-backed stablecoins are a lot more straightforward and in a nutshell, every token minted is backed by collateral. For example, USDC collateral is fiat dollars – therefore every USDC token achieves its peg to the dollar because it has a dollar in reserve for every coin.

USDT is another stablecoin protocol that uses asset backing. Asset-backed stablecoins are generally seen as more credible and trustworthy than complex algorithmically-backed stablecoins.

Essentially, if the collateralization ratio of FRAX is 75% this simply means that 75% of every FRAX coin is backed by USDC and the other 25% is algorithmically backed. The collateral ratio affects minting FRAX and redeeming FRAX

Frax’s governance token is the FXS token and it is subject to price volatility like any other cryptocurrency. The FRAX supply also plays an integral role in the pricing of the FRAX finance stablecoin.

FRAX stablecoins work in unison with Frax Shares (FXS) and Frax maintains integrity and credibility by utilizing the dual-token system.

What Is FRAX Used For?

FRAX tokens are typically used as part of a trading pair on decentralized exchanges like Uniswap and Curve. Frax maintains a seamless and stable trading experience for the FRAX token through liquidity providers like Curve, where there is significant liquidity.

FRAX pools are existing collateral pools where the minting and redemption of FRAX take place through smart contract facilitation.

To mint FRAX the user will need to add $1 of value to the system, proportionate to the current collateralization ratio. For example, when the collateralization ratio is 100%, no FXS governance tokens would be required to mint FRAX – only USDC would be required.

When redeeming FRAX tokens the equation is solved for the opposite and a more in-depth calculation can be seen in the whitepaper.

FRAX tokens are commonly used for trading on decentralized finance protocols and some protocols allow for the lending and borrowing of FRAX tokens. The collateral ratio plays an important factor which is why you can never borrow more FRAX tokens than the collateral you provide.

Where To Buy FRAX Stablecoin

FRAX has the 207th largest overall market cap ($1.65 billion) and is among the largest stablecoins on the market.

FRAX tokens can be purchased on several decentralized crypto exchanges. But, before purchasing FRAX tokens, you’ll need to use one of the listed FRAX pairs on the specific exchange, and sequentially FRAX tokens will be credited to your FRAX digital wallet on the exchange.

The crypto exchanges below are the safest place where you can buy, sell and store the FRAX.

Five of the most popular crypto exchanges in use are:

1. Binance
2. Coinbase
3. KuCoin
4. Gate.io
5. Crypto.com

The list of decentralized exchanges where FRAX tokens can be acquired:

1. Uniswap
2. Sushiswap
3. Curve
4. SpiritSwap

Users will need compatible wallets like MetaMask to hold FRAX tokens and perform various actions on the decentralized exchanges.

FAQs About FRAX

How long has FRAX existed?

FRAX was launched in December 2020 and has since racked up a total value-locked (TVL) of $1.3 billion. The protocol has since gone on to secure backing from major investors including crypto.com.

FRAX is currently the only stablecoin this both algorithmically backed and asset-backed.

What’s controversial about the FRAX protocol?

Stablecoins are notoriously controversial and every stablecoin has a certain degree of controversy surrounding it. Although FRAX is relatively unique, it has still experienced its fair share of controversy.

Let’s take a look at the top two controversies surrounding FRAX.

• Stephen Moore’s writings about women – Stephen Moore, the co-founder of FRAX, has a controversial past. Most notably being a select pick for the Trump administration but withdrawing due to his past writings where he bashed women.

  Moore has been known to mock women in writings and even in public statements. Many people are opposed to the FRAX protocol because they see Moore as gender insensitive and disrespectful to women.

• Novel stablecoin pegging mechanism – FRAX is the only stablecoin on the market that utilizes both asset-backing as well as algorithm backing to achieve its dollar peg. This is seen as incredibly risky by a large number of people and many believe that this has hindered the growth of the project compared to its competitors.

  Although the stablecoin was only released recently, many fear that its novel approach might lead to the downfall of the stablecoin protocol. Only time will tell but the project has struggled to bolster user adoption to the same significant levels seen in other stablecoins.

How many FRAX tokens are there?

At the time of writing, FRAX has a circulating supply of 1.65 billion FRAX.

The total supply of FRAX is 1,652,271,770.

Can FRAX be mined?

FRAX can’t be mined. There is a very specific minting contract needed to create (increase the supply) FRAX tokens. The process involves a variable collateralization ratio whereby a certain portion of FXS governance tokens are required and a certain portion of USDC tokens are required.

Some decentralized exchanges also have various options available for FRAX holders to earn passive rewards.

What is the market cap of FRAX?

The market cap of FRAX is the total amount of coins in circulation multiplied by the current market price of FRAX.

FRAX Market Cap = 1.65B FRAX x $1 = $1.65 billion (207th largest market cap & 5th largest stablecoin).

Note that the market cap fluctuates according to circulating supply and market price.

Biggest Competitors Of FRAX

FRAX has an array of competitors in the stablecoin sector. The top competitor of FRAX is likely DAI, which recently claimed 4th place on the list of the largest stablecoins in the world.

DAI is a decentralized stablecoin that implements the usage of innovative algorithms and complex and precisely calculated burning and minting procedures that ensure that it achieves its peg.

At the current moment, DAI is the 4th largest stablecoin in the world and has a market cap of $9.44 billion.

FRAX’s competitor’s market caps are as follows:

• Tether USDT (centralized stablecoin) – $82 billion market cap
• USD coin (USDC) (centralized stablecoin) – $51 billion market cap
• Binance USD (BUSD) (centralized stablecoin) – $18 billion market cap
• DAI (decentralized stablecoin) – $6.4 billion market cap
• Magic Internet Money (MIM) (decentralized stablecoin) – $1.92 billion market cap

What Are The Future Plans For The FRAX Protocol?

Frax Finance’s FRAX stablecoin has announced its intention to make amendments to its collateral mechanism. Some of the most notable changes include the investment into Layer-1’s where the FRAX token currently runs. The move is seen as an innovative way to spread the risk more efficiently by investing in a more diverse range of digital assets – as opposed to Terra which has completely collapsed due to its BTC exposure among other reasons.

The FRAX team is part of 4pool which is a Curve-based yield farm consisting of UST (which has depegged), USDT, USDC, and FRAX. This is among one of the most innovative liquid trading pools, helping to boost stablecoin trade on decentralized platforms.

Pros And Cons Of FRAX

Pros:

• It’s a novel stablecoin – Unlike some of the most popular stablecoins, such as USDT and USDC. These are centralized stablecoins that have centralized issuers for each of their respective tokens. FRAX, on the other hand, is far more decentralized and is governed on-chain.
• Backed by other Layer-1s – FRAX has diversified the collateral of crypto assets that back the Frax finance protocol and play an integral part in keeping the FRAX stablecoin pegged to $1. This is much more diversified than stablecoins such as USDT or USDC which are backed by fiat assets only.
• You can use FRAX in DeFi – FRAX has become an increasingly popular value of transfer on decentralized platforms. The coin’s stability and deep liquidity pools make it a viable option for DeFi users on decentralized platforms such as Curve.
• Suitable for money transfers – One of the main benefits of stablecoins is the fact that they remain stable, making them suitable as a medium of value exchange.

Cons:

• It’s experienced minimal adoption – In comparison to stablecoin competitors like USDT, DAI, and USDC, FRAX has experienced minimal adoption. It is going to be very difficult for FRAX to bolster its user adoption to the levels of its competitors.