Authors: ultimatepro, benjamine
Frax uses ideas from Uniswap and AMMs to build a novel hybrid stablecoin design. In a Uniswap pool, the ratio of asset A and B has to be proportional due to the constant product function. The LP token is just a pro rata claim on the pool + fees so it is usually increasing in value (if fees higher than impermanent loss) or loses value (if impermanent loss greater than fees). The LP token is just passive claims on the pool.
Frax takes that idea and turns it over to design a unique stablecoin. The LP token is the stablecoin, FRAX. It is the object of stabilization and always mintable/redeemable for $1 worth of collateral and the governance (FXS) token at the collateral ratio. This ratio of the two assets (collateral and FXS) dynamically changes based on the price of the stablecoin. If the stablecoin price is dropping, then the protocol tips the ratio in favor of collateral while reducing the FXS token portion to regain confidence in FRAX. An arbitrage opportunity arises for people wanting to put in collateral into the pool at the new ratio for discounted FXS which the protocol mints for this "re-collateralization swap." This re-collateralizes the protocol to the new, higher collateral ratio.
If FRAX is over $1, then the protocol tips the collateral ratio to the FXS token to measure the market's confidence in more FRAX supply being stabilized algorithmically. As FRAX becomes more algorithmic, the excess collateral can go back to FXS holders through a buyback shares function that anyone can call to burn their FXS tokens for an equal value of excess collateral. The "buyback swap" function always keeps value accruing to the governance token any time there is excess fees/collateral/value in the system**.**
Community (65% – 65,000,000 FXS): 60% – Liquidity Programs / Farming / Community – Via gauges & governance halving naturally every 12 months 5% – Project Treasury / Grants / Partnerships / Security-Bug-Bounties – via Team and Community discretion
**Team and Investors (35% – 35,000,000 FXS):**20% – Team / Founders / Early Project Members – 12 months, 6 month cliff3% – Strategic Advisors / Outside Early Contributors – 36 months12% – Accredited Private Investors – 2% unlocked at launch, 5% vested over the first 6 months, 5% vested over 1 year with a 6 month cliff