Crypto markets in general are very volatile compared to other commodities. Stablecoins such as USDT, USDC, and those issued by Frax Finance play an important role as they serve as primary tools that are directly tied to conventional assets such as the Dollar and Euro.

 

Frax Finance is an innovative DeFi protocol that has proven its importance in the global crypto market. They have three unique stablecoins, namely FRAX, FPI, and frxETH, which are maintained through mutually supportive subprotocols.

 

Frax Finance maintains price stability by using their native government tokens, Frax Share (FXS) and FPIS. Now, to find out what Frax Finance is, from how it works, its uniqueness, to how FRAX differs from USDT and USDC, check out the following review.

 

 

What is Frax Finance?

 

Frax Finance is a DeFi protocol that issues and supports three stablecoins, ranging from FRAX tied to USD, Frax Price Index (FPI) tied to a consumer goods basket, and FraxEther (frxETH), which is tied to ETH.

 

The protocol utilizes three interconnected subprotocols, namely Fraxswap to balance collateral and spread liquidity, Fraxlend for loan origination and collateral assets, and Fraxferry for token transfer across multiple blockchains.

 

The management of these protocols is done through the native Frax Share token (FXS) and FPIS token, which govern the Frax and FPI ecosystems, respectively.

 

How Frax Finance Works

 

Frax Finance is a multifunctional platform that uses a reservation mechanism combined with a specialized algorithm to maintain a balance between supply and demand in the market.

 

When the FRAX price rises above USD1, the Frax algorithm will issue new coins and exchange them automatically with USDC to keep the price stable.

 

Conversely, if the FRAX price drops below USD1, the algorithm will use FXS to buy FRAX and restore its value to USD1.

 

The way Frax Finance works relies entirely on automated algorithms with no centralized entity control. The process is governed by community members through a governance mechanism.

 

Frax Protocol Uniqueness

 

The Frax Protocol has a number of unique features that make it one of the best stablecoins on the crypto market today. Here are some of those unique features, including:

 

1. Diverse Stablecoins

 

Frax Finance currently has three types of stablecoins in its ecosystem. First, FRAX, which has a 1:1 value with the US dollar.

 

Second, FPI, which is a coin that represents a specific good or commodity. Finally, FraxEther, whose value is directly linked to the price of ETH.

 

2. Decentralized Governance

 

The Frax Protocol also provides a fully decentralized system through a decision-making mechanism based on Frax Shares (FXS) ownership.

 

FXS owners contribute to decision-making regarding protocol policies, development, as well as the selection of supervisory committees.

 

3. AMO Mechanism

 

The Algorithmic Market Operations Controller (AMO) is a unique mechanism that manages reserves and maintains coin price stability.

 

The algorithm automatically buys or sells crypto assets in the reserve portfolio based on current supply and demand conditions, to ensure the coin value remains stable.

 

4. Staking Program

 

The development team also provides a staking program that provides incentives for users who provide liquidity or participate in certain activities.

 

Frax Protocol offers rewards in the form of FXS with a fairly competitive rate of return compared to other platforms.

 

Introduction to Frax Shares (FXS) Token

 

Frax Shares (FXS) is the primary governance and utility token in the Frax Finance ecosystem. It allows holders to vote on key parameters and has a decreasing deflationary supply as FRAX demand increases.

 

FXS can also be locked into veFXS, which provides additional privileges. With a market capitalization of around $500,000,000, FXS is among the top 100 crypto assets globally.

 

 

How FRAX differs from USDT and USDC

 

FRAX, USDT, and USDC essentially function as stablecoins in crypto trading, but there are significant differences between FRAX and the other two stablecoins.

 

FRAX uses the AMO mechanism to manage its reserves and keep its value stable. Dynamic AMO automatically buys or sells crypto assets in the reserve portfolio based on current market conditions.

 

USDT is entirely dependent on the reserve assets held by Tether Limited, including US dollars, bank deposits, and other financial instruments.

 

Meanwhile, USDC is a collaboration between Circle, Coinbase, and several other companies. The basic mechanism of USDC is similar to USDT, which relies on reserves held in financial institutions.

 

Let’s Buy Frax Finance on INDODAX

 

Before buying Frax Share (FSX) at INDODAX, you can check the price of Frax Share (FSX to IDR) first at INDODAX Market.

 

Then, if you don’t have an account on the INDODAX platform, you can create one first. After registering and verifying the account, please make a deposit to your INDODAX account.

 

In this case, you can use the available payment methods, ranging from bank transfers to other payment methods.

 

If the funds have entered the INDODAX account then proceed to search for FSX in the list of assets available for trading.

 

After finding it, please select the appropriate trading pair, for example FRAX/IDR if you want to buy using Rupiah.

 

Next, enter the amount of Frax Finance you wish to buy and set the desired order type, such as market order or limit order.

 

Continue with confirming the transaction details and complete the purchase. After a successful transaction, Frax Finance will appear in your crypto asset balance on INDODAX.

 

Conclusion

 

In conclusion, Frax Finance offers the advantage of being a fully decentralized stablecoin.

 

Frax Finance’s success lies in its ability to maintain value stability through its Algorithmic Market Operations Controller (AMO) mechanism, which automatically adjusts reserves based on market conditions, without requiring control from a centralized entity.

Furthermore, amid concerns about centralization in other stablecoins, Frax Finance provides an interesting solution.

 

Traditional stablecoins such as USDT and USDC rely on reserves managed by specific companies or institutions, which can pose risks related to transparency and central control.

 

With its decentralized approach, Frax Finance reduces reliance on a single entity, offering greater transparency and increasing trust in the DeFi ecosystem.

 

FAQ 

 

1. What is Frax Finance?

Frax Finance is an innovative DeFi protocol that creates a stablecoin with a reservation mechanism and an automated algorithm to maintain price stability.

2. What are the main stablecoins offered by Frax Finance?

Frax Finance offers three main stablecoins: FRAX (held to USD), FPI (tied to a consumer goods basket), and frxETH (tied to ETH).

3. How does Frax Finance keep their stablecoin prices stable?

Frax Finance uses a reservation mechanism and an automated algorithm known as the AMO Mechanism to keep their stablecoin prices balanced.

4. What is the community’s role in Frax Finance’s governance?

Holders of Frax Shares (FXS) have the right to participate in protocol-related decision-making through a decentralized governance mechanism.

5. How is FRAX different from other stablecoins such as USDT and USDC?

FRAX uses a dynamic AMO mechanism to maintain price stability, while USDT and USDC rely on central reserves held by financial institutions such as Tether Limited and the partnership between Circle and Coinbase.