What is FRAX?
$FRAX # is a fractional-algorithmic stablecoin that aims to maintain a 1:1 peg with the U.S. dollar using a mix of collateral and algorithmic mechanisms. �
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🧠 Key Features
Hybrid Peg Mechanism: FRAX is partially backed by collateral (like USDC) and partially stabilized via algorithms adjusting collateral ratios. �
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Algorithmic Stability: The protocol increases or decreases backing depending on market conditions to maintain the $1 peg. �
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Seigniorage Model: When FRAX deviates from the peg, the protocol incentivizes arbitrage, helping maintain stability. �
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Active Liquidity Deployment: Collateral isn’t idle — it is deployed into yield-generating pools, increasing efficiency. �
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💡 Use Cases
Medium of Exchange: Because FRAX holds near-dollar stability, it’s useful for trading, payments, or as DeFi liquidity.
DeFi Integrations: FRAX integrates with lending platforms, DEX pools, and yield strategies. �
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⚠️ Risks & Considerations
Partial Collateralization: FRAX isn’t fully backed by dollar-value assets — algorithmic components assume some risk if market stress increases. �
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Smart Contract Risk: As with all DeFi protocols, bugs or exploits could cause loss. �
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Stablecoin Competition: FRAX competes with larger stablecoins like USDC and USDT in both liquidity and trust.
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