Frax Share (FXS)

About Frax Share (FXS)

What is Frax Share?

Frax Share (FXS) is the governance token of the Frax Protocol, a pioneering fractional-algorithmic stablecoin system. The Frax Protocol is designed to offer a decentralized, scalable, and algorithmic currency alternative to traditional fixed-supply digital assets like Bitcoin. The system operates with two tokens: FRAX, a stablecoin targeting a price of $1, and Frax Shares (FXS), which serves as the governance and investment token of the ecosystem. FXS holders benefit from the accrual of fees, seigniorage revenue, and any excess collateral within the Frax Protocol. The total supply of FXS is capped at 100 million tokens, with no inflationary schedule, ensuring scarcity and value over time.

How Does Frax Share Work?

Frax Share (FXS) operates as the governance token within the Frax Protocol, which utilizes a fractional-algorithmic model. In this model, part of the FRAX supply is collateralized, while the other part is stabilized algorithmically. The ratio of collateralized and algorithmic supply is dynamically adjusted based on the market price of the FRAX stablecoin. If FRAX trades above $1, the protocol reduces the collateral ratio, and if it trades below $1, the collateral ratio is increased. This unique system ensures the stability of FRAX around its target price while providing value to FXS holders.

As the governance token, FXS gives holders the ability to participate in decision-making processes regarding the protocol’s future development. In addition to governance, FXS also serves as an investment asset, accruing value from newly minted FRAX, transaction fees, and any excess collateral within the protocol.

What Makes Frax Unique?

The Frax Protocol introduces a novel fractional-algorithmic stablecoin model, positioning itself as the first decentralized stablecoin to incorporate both collateralization and algorithmic stabilization. The protocol is community-driven and entirely decentralized, with on-chain governance ensuring that decisions are made by the community of FXS holders.

Frax is distinct from other stablecoins, which typically fall into one of three categories: fiat-collateralized, over-collateralized with cryptocurrency, or purely algorithmic. Frax combines the best of both worlds, offering a dynamic and scalable solution to stablecoin design.

The protocol also uses decentralized oracles, including Uniswap and Chainlink, to ensure the accurate pricing of assets in the ecosystem. This contributes to the stability and reliability of the Frax stablecoin.

What Are the Use Cases for Frax Share?

Frax Share (FXS) has several important use cases within the Frax Protocol. As a governance token, FXS holders can vote on proposals related to the protocol’s development and future direction. The token also plays an essential role in accruing value from FRAX issuance, fees, and collateral excess, making it an investment asset. Additionally, over 60% of the FXS tokens are issued to liquidity providers and yield farmers, further encouraging participation in the ecosystem.

Tokenomics and Supply

The supply of FRAX is dynamic, adjusting according to market conditions to maintain its value around $1. This is achieved through the fractional-algorithmic model that governs the supply of the stablecoin. In contrast, the supply of FXS is fixed at 100 million tokens, with no inflation schedule, ensuring long-term value preservation. FXS serves as both a governance and investment asset, providing benefits to holders through its stake in the protocol’s success.

The History of Frax Share and the Frax Protocol

Frax Share (FXS) is part of the Frax Protocol, which was created by American software developer Sam Kazemian in 2019. Kazemian recognized the rapid growth of stablecoins but noticed that none combined an algorithmic monetary policy with collateralization. To address this gap, he devised the Frax Protocol as a solution that would measure market confidence in a partially algorithmic, partially collateralized stablecoin. The Frax Protocol, along with Frax Share (FXS), was officially launched in November 2020, ushering in the first fractional-algorithmic stablecoin system.

The team behind Frax includes Sam Kazemian, along with engineers Travis Moore and Jason Huan. They sought to create a decentralized, algorithmic stablecoin that would scale effectively and maintain stability in a way that purely algorithmic or collateralized stablecoins could not.

Conclusion

Frax Share (FXS) and the Frax Protocol represent a groundbreaking approach to stablecoin design by combining fractional collateralization with algorithmic stabilization. As the governance and investment token of the Frax ecosystem, FXS plays a crucial role in maintaining the protocol’s decentralized and community-driven nature. With its innovative approach, Frax stands as a leader in the evolving world of decentralized finance (DeFi), providing a scalable and flexible stablecoin solution that challenges traditional models.