Feb 23, 2023
Frax Finance Votes to Fully Collateralize FRAX Stablecoin
The Frax Finance community of decentralized finance stablecoin protocol has voted to fully collateralize its native stablecoin Frax (FRAX), marking an end to the algorithmic backing of the protocol. The FIP-188 governance proposal, which was posted on Feb. 15, has reached a quorum following a 98% vote in favor, according to a snapshot on Feb. 23.
The original protocol included a “variable collateral ratio” which adjusted based on the market demand of the stablecoin, resulting in the stablecoin being 80% backed by crypto asset collateral and partially stabilized algorithmically. This was achieved by the minting and burning of its governance token, FXS, which has surged 12% over the past 12 hours.
Frax is the industry’s fifth-largest stablecoin with a market capitalization of just over $1 billion. Following the implementation of the proposal, the protocol will not mint any more FXS to increase the collateral ratio and token supply. Instead, it plans to retain protocol revenue to fund the increased collateral ratio, which includes pausing FXS buybacks. It will also authorize up to $3 million per month in Frax Ether (frxETH) purchases to increase the collateral ratio.
The move comes amid what appears to be a wider crackdown on stablecoins in the wake of last year’s catastrophic Terra/Luna collapse. On Feb. 22, the Canadian Securities Administrators (CSA) published a long list of new requirements for crypto companies and stablecoin issuers wanting to remain legally compliant in the country.
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