Frax Finance to Discontinue Use of Algorithmic Backing Following Stablecoin Crackdown

The Frax Finance community has decided to fully collateralize its stablecoin Frax (FRAX) by ending the protocol’s algorithmic backing.

The governance proposal FIP-188 posted on February 15 has received 98% votes in favor, according to a snapshot taken on February 23.

With the implementation of the proposal, the stablecoin will be 100% backed by crypto asset collateral, marking the end of the hybrid model.

Near unanimous vote to move $frax to 100% CR over time.

Seems like @fraxfinance serious about making it clear it’s a stable worth holding with no incentive and completely backed with exogenous collateral.

Will be interesting to see it scale$fxs https://t.co/fSQXpmsge3

— 0xChaos (@0xCha0s) February 23, 2023

Furthermore, the collateral ratio will increase through retained protocol revenue and up to $3 million per month in Frax Ether (frxETH) purchases.

The community has emphasized that the proposal does not rely on minting any FXS to achieve the 100% collateral ratio. Frax is the fifth-largest stablecoin in the industry with a market capitalization of just over $1 billion.

The implementation of the proposal will pause FXS buybacks and authorize purchases of frxETH to increase the collateral ratio, enabling the transfer of Ether liquidity within the Frax ecosystem. DeFiLlama recently reported on the growth of frxETH over the past month.

TagsCrypto