Frax Finance DeFi protocol will give up algorithmic backing for its stablecoin
98% of the community’s members supported the move to the full collateralization model of the stablecoin
23.02.2023 - 09:00
235
2 min
0
The community of decentralized finance stablecoin protocol Frax Finance has voted to fully collateralize its native stablecoin Frax (FRAX), marking an end to the algorithmic backing of the protocol.
The FIP-188 governance proposal — which would change the collateralization model of FRAX — initially posted on Feb. 15 has now reached a quorum with 98% voting in favor, according to a snapshot on Feb. 23 .
“The time has come for Frax to gradually remove the algorithmic backing of the protocol,” the proposal read.
It explained that the original protocol included a “variable collateral ratio” that adjusted based on the market demand of the stablecoin. The market would dictate how much collateral was required for each FRAX to equal one United States dollar.
The hybrid model resulted in the stablecoin being 80% backed by crypto asset collateral and partially stabilized algorithmically. This was achieved by the minting and burning of its governance token, FXS, which has surged 12% over the past 12 hours.
Frax is the industry’s fifth-largest stablecoin with a market capitalization of just over $1 billion.
Following the implementation of the proposal, the protocol will not mint any more FXS to increase the collateral ratio and token supply.
“To be clear, this proposal does not rely on minting any FXS to achieve the 100% CR.”
It plans to retain protocol revenue to fund the increased collateral ratio, which includes pausing FXS buybacks.
It will also authorize up to $3 million per month in Frax Ether (frxETH) purchases to increase the collateral ratio. frxETH behaves similarly to a stablecoin but is pegged to Ether ETH tickers down $1,671 instead. It facilitates the transfer of Ether liquidity within the Frax ecosystem.
DeFiLlama recently reported on the growth of frxETH over the past month.
The move comes amid what appears to be a wider crackdown on stablecoins in the wake of last year’s catastrophic Terra/Luna collapse.
On Feb. 22, the Canadian Securities Administrators published a long list of new requirements for crypto companies and stablecoin issuers wanting to remain legally compliant in the country.
Included on that list were strict rules for stablecoin trading and a prohibition on algorithmic or non-fiat-backed stablecoins.
This material is taken from the website cointelegraph.com.
Useful material?
Market
Due to supply shortages, the asset’s pre-market exchange rate was climbing above $1000
Dec 16, 2024
Incidents
Reports about the hacking of the exchange with calls to withdraw assets began to spread on December 13
Dec 13, 2024
Crypto regulations
Stablecoins from issuer Circle will not be affected by the changes
Dec 12, 2024
Crypto regulations
The platform will launch after meeting the preconditions of the local exchange authority
Dec 9, 2024
Market
The $1,1 billion figure was reached after the bitcoin correction
Dec 6, 2024
Crypto regulations
By early January, all open positions and loans of local users will be closed and repaid automatically
Dec 5, 2024