Frax Finance Votes To Fully Collateralize Its $1 Billion Stablecoin

Key Points:

• According to a vote that was completed on Wednesday, the community of Frax Finance, a decentralized financial system with almost $2 billion in total value locked, decided to fully collateralize the protocol’s native stablecoin frax (FRX).
• Via community suggestions and votes, a decentralized autonomous organization manages its issuer, Frax Finance.
• In the project’s Telegram group conversation, Sam Kazemian, co-founder of Frax Finance, stated that he preferred boosting the collateral since it was the “safest design.

According to a vote that was completed on Wednesday, the community of Frax Finance, a decentralized financial system with almost $2 billion in total value locked, decided to fully collateralize the protocol’s native stablecoin frax (FRX).

Using protocol earnings to boost the stablecoin reserves, the proposal FIP-188, which was posted last week on Frax’s governance forum, urged boosting the desired collateral ratio to 100%.

As a result, the algorithmic component of the stablecoin’s stabilizing mechanism is eliminated, which represents a substantial change for FRX, the fifth largest stablecoin with a market valuation of more than $1 billion.

To keep its pricing tied to the dollar, Frax uses a hybrid design. It is partially algorithmically stabilized and 80% backed by crypto asset collateral, burning and minting the protocol’s governance token FXS. Via community suggestions and votes, a decentralized autonomous organization manages its issuer, Frax Finance.

The protocol won’t add more FXS, as that would increase the collateral ratio and increase the token’s supply, according to the proposal. Instead, it suggests keeping protocol income and allowing up to $3 million worth of frxETH, the protocol’s liquid ether staking counterpart, to be bought in order to maintain reserves.

In the project’s Telegram group conversation, Sam Kazemian, co-founder of Frax Finance, stated that he preferred boosting the collateral since it was the “safest design.

Almost all voters—98%—supported the proposition

Once several algorithmic stablecoins lost their price peg and ultimately fell last year, leading to a larger decline in the cryptocurrency markets, Frax made its decision. The contagion that followed the most high-profile decline, TerraUSD’s death spiral in May, destroyed a number of digital asset enterprises.

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