Hybrid USD stablecoin FRAX expands to Avalanche
FRAX, the world’s first fractional-algorithmic stablecoin, is bringing its US dollar-pegged stablecoin to Avalanche’s decentralised finance (DeFi) ecosystem.
Upon completion of the deployment (expected to be by 20 March), FRAX will expand the selection of stablecoins available on the platform and offer unique functionality as a decentralised, permissionless stablecoin.
FRAX employs a hybrid, fractional-algorithmic model that combines the best qualities of 100 per cent fiat-backed stablecoins and pure algorithmic stablecoins. It seeks to be the first stablecoin protocol to create scalable, trustless, stable, and ideologically pure on-chain money.
The team behind FRAX will expand to Avalanche by moving FRAX over the Avalanche-Ethereum Bridge (AEB) but will actively explore plans to port its reserve and minting contracts to Avalanche in the future should the demand be sufficient.
“The vision for FRAX is to be the first and biggest multi-chain algorithmic stablecoin. Getting FRAX stablecoins on Avalanche is our first major step in realising the multichain vision,” says Sam Kazemian, one of the core team members.
Many stablecoin protocols have entirely embraced one spectrum of design (entirely collateralised) or the other extreme (entirely algorithmic with no backing). Collateralised stablecoins either have custodial risk or require on-chain over-collateralisation. These designs provide a stablecoin with a fairly tight peg with higher confidence than purely algorithmic designs.
Purely algorithmic designs provide a trustless, scalable model that captures the vision of decentralised money, but have some drawbacks. Notably, they are difficult to bootstrap, slow to grow (as of Q4 2020 none have significant traction), and can exhibit extreme periods of volatility, which erodes confidence in their usefulness as actual stablecoins.
The FRAX Protocol is a two token system encompassing a stablecoin FRAX (FRAX) and a governance token FRAX Shares (FXS). FRAX can always be minted and redeemed from the treasury contract for 1 dollar in value. Arbitrageurs and users are able to use this mechanism to keep the FRAX price close to 1 dollar. Technical details behind the price stability mechanism can be found here. Impressively, FRAX has kept the peg tight to $1 with less than 2 per cent deviation since launch without exception.
Since the launch of the AEB on 8 February, smart contract activity on Avalanche has boomed, with transactions increasing by 848 per cent to over 515,000, and unique wallets increasing by 1,530 per cent to top 35,000.
In the five months since launching mainnet on 21 September, Avalanche has gained over 830 full, block-producing validators participating in-network consensus, and an additional 5,500 delegators participating in staking. Collectively, they make Avalanche the most decentralised layer 1 blockchain platform, and the third-largest in staked value at over USD8 billion.