What is Frax (prev. FXS) (FRAX)?

Deep Dive

1. Dual-Purpose Asset

FRAX serves two core roles:
- Stablecoin: Originally launched in 2020 as the first fractional-algorithmic stablecoin, it uses a hybrid model where part of its supply is collateralized (e.g., with crypto assets) and part is algorithmically stabilized (Frax Docs).
- Layer 1 fuel: As Fraxtal’s native token, it powers transactions and secures the network through proof-of-stake validators (planned upgrade).

2. Deflationary Mechanics

The protocol enforces scarcity through:
- Frax Burn Engine: Permanently removes tokens from circulation via transaction fees and ecosystem activities (e.g., domain registrations).
- Tail emissions: Starts with 8% annual inflation, decreasing yearly to a 3% floor, allocated to ecosystem development and staking rewards.

3. Governance via Restaking

While FRAX itself isn’t a governance token, users can lock it as veFRAX to vote on parameters across Frax Finance’s DeFi protocols (e.g., fee distributions, collateral ratios). This mirrors Ethereum’s restaking paradigm, where locked tokens amplify governance power and security contributions.

Conclusion

Frax (FRAX) uniquely merges stablecoin functionality with Layer 1 blockchain utility, using algorithmic precision and deliberate scarcity to maintain its dual identity. Its success hinges on whether Fraxtal can become a thriving DeFi hub while preserving FRAX’s peg through market cycles. Can a single token effectively serve as both stable money and blockchain commodity?