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Frax Finance

Jan 21, 2021 · 13 min read

By Medio Demarco

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Recently, we’ve seen a proliferation of algorithmic stablecoins with elastic supplies. Their design mechanics can vary drastically, ranging from completely uncollateralized to partial collateralization. Our friends over at Mechanism Capital recently published a great post on this topic that touches on the history of this sector and different design trade-offs. A permissionless, scalable, capital efficient, composable and price stable cryptocurrency has long been considered a holy grail in this space. The utility it could have in global commerce is self evident.

Frax Finance is a new algorithmic, partially-collateralized stablecoin protocol that launched towards the end of December. It implements a two-token economic model:

FRAX – price stable token with an elastic supply that algorithmically adjusts based on market demand FXS – volatile governa

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