Algorithmic stablecoin platform Frax Finance intends to acquire “billions of dollars” worth of tokens to create a reserve fund for FRAX algorithmic stablecoin. The founder of the project, Sam Kazemyan, has told The Block.
The FRAX stablecoin is backed by the native token of the Frax Shares (FXS) project and the centralized “stablecoin” USDC. The platform uses a fractional reserve system, the parameters of which depend on the ratio of liquidity of FXS and the total supply of FRAX.
When FRAX trades above $1, the system reduces the collateral ratio, below it raises it. At the same time, arbitrageurs can buy or issue FRAX, facilitating its binding to the $1 target.
FRAX was initially fully funded by USDC, but as the project evolved, the algorithmic component started to play a more prominent role.
