Frax Finance, The Crypto Bank?

WHAT IS FRAX?

Frax is an algorithmic stablecoin that is backed by other stablecoins such as USDC. Its creator, Sam Kazemian realized that many algorithmic stablecoins had failed due to the cold start problem: i.e. the risk of holding peg in a stablecoin with no collateral, so , at its inception, it set a collateralization ratio between 80 and 85%. Since then it has been fluctuating around that figure. The idea is that, over time, the market will dictate how much collateral is needed to maintain the Frax stablecoin price at $1. In addition to the FRAX token, the project has other tokens such as:

➖ FXS: The governance token.
➖ FPI: A next-generation stable coin with a value that grows at the rate of inflation, it is linked to the ICP.
➖ FPIS: The governance token that accumulates value of the stable coin. FPIS is to FPI what FXS is to FRAX.

These last three tokens will not be discussed further in this article. The main point of this article, which can potentially make FRAX the Central Bank of the Internet, is Automated Market Operations (AMO).

AUTOMATED MARKET OPERATIONS (AMOs)

AMOs are a way to automatically control the supply of stable algorithmic currencies, while also improving decentralization, scalability, and transparency. AMOs work…