Frax Finance’s community voted to completely collateralise its native stablecoin Frax (FRAX), ending the protocol’s algorithmic underpinning.
The FIP-188 governance proposal, which would alter the FRAX collateralisation model, was posted on February 15 and has now reached a quorum with 98% in favour, according to a snapshot taken on February 23.
“The time has come for Frax to gradually remove the algorithmic backing of the protocol,” read the proposal.
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
It was explained that the original protocol included a variable collateral ratio adjusted according to the stablecoin’s market demand. The market would determine the amount of collateral required for each FRAX to equal one U.S. dollar.
The hybrid model resulted in the stablecoin being 80% collateralised by crypto assets and partially algorithmically stabilised. This was done by minting and burning its governance token, FXS, whose value has increased by 12% in the last 24 hours.
With a market valuation of approximately $1 billion, Frax is the 5th largest stablecoin in the industry. After implementing the proposition, the protocol will no longer mint FXS to increase the collateral ratio and token supply. It intends to retain protocol revenue to finance the increased collateral ratio, including postponing FXS buybacks.
It will also authorise up to $3 million monthly in Frax Ether (frxETH) purchases to boost the collateral ratio. frxETH operates similarly to a stablecoin, but is pegged to Ether instead. Within the Frax ecosystem, it facilitates the transmission of Ether liquidity.
Recently, DeFiLlama reported the growth of frxETH over the previous month. The move appears to be part of a broader assault on stablecoins after last year’s Terra/Luna collapse.
FraxETH grew by 46.33% over the past month and now has over 100k ETH tokens locked pic.twitter.com/5NxhKnTHUt
— DefiLlama.com (@DefiLlama) February 20, 2023
The Canadian Securities Administrators published a list of new requirements for crypto companies and stablecoin issuers on February 22. This list encompasses severe rules for trading stablecoins and a ban on algorithmic or non-fiat-backed stablecoins.
