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**Frax is a __[stablecoin]( that is dual collateral backed and has an algorithmic __[peg mechanism]( Stablecoins are crypto assets that are attached to a traditional currency’s value.** \ **The algorithmic peg mechanism makes the system highly __[scalable]( and more efficient than other stablecoins which tend to be overcollateralized. The algorithmic market operations are utilized in generating revenue for Frax and ensuring security and robustness in the protocol. It is the first of its kind. The native currency of Frax is known as FRAX. Frax finance is the on chain protocol that manages and mints the FRAX stablecoin.** \ **Frax finance is __[decentralized]( and autonomous. It is an on-chain central bank that issues and controls the monetary policy of the __[stablecoin FRAX]( FRAX is the first stablecoin that uses a dynamic collateral ratio to maintain peg stability successfully.** ## **History** **Frax was founded by Sam Sam Hamidi-Kazemian, Travis Moore, and Jason Huan. It was announced in May 2019 as Decentral bank and was launched on the __[Ethereum Mainnet]( in December 2020. The total value locked within an hour of the launch was $43 million. 100 million FRAX had been minted by January 13th 2021 that had a collateral ratio of nearly 85%.** \ **FRAX became the fifth most liquid token on February 17th 2021 with nearly $130 million in __[liquidity]( It was the first __[algorithmic stablecoin]( listed on __[Binance]( on February 21st 2021.**   ## **Biggest Claims to Fame** **The dual collateral nature of FRAX gives it an edge over collateralized stablecoins such as Maker’s currency  DAI and non collateralized stablecoins likeTerraform Lab’s currency UST. Over collateralized cryptocurrencies such as DAI have an issue with scaling that makes using the system very inefficient but have the currency remain relatively safe and reliable.** \ **Non collateralized cryptocurrency like UST face vulnerability from the risk of a bank run but are highly scalable. FRAX leverages the strengths from both of the systems and minimizes the faults from them.  FRAX is pegged at the ratio 1:1 to the US dollar. As a stablecoin, it aims to maintain that ratio . This gives the __[cryptocurrency]( a clarity that is not present with other cryptocurrencies which have the value of their currency into traditional currency fluctuate wildly according to the market.** \ **This encourages traditionally minded people to invest in crypto as the value of it remains steady. Frax is backed in part by USDC as the currency’s external collateral. This enables FRAX to leverage mechanisms to maintain its peg to the US dollar. This in turn, offers a relative amount of safety when dealing with the crypto as it will have real life damages if the currency falls but the external collateral will ensure the protocol is not fully damaged and investments are not fully lost.** \ **Through partnerships, Frax controls a part of its liquidity. This means they don’t have to pay high incentives that would have to be secured through dilution of its __[governance token]( in order to rent liquidity from mercianary third party liquidity providers. This allows Frax to mint FRAX against any position on Uniswap, thereby ensuring deep liquidity and profits from trading fees.** ## **Biggest Criticism** **Frax over relies on the USDC. By relying on a centralized stablecoin to mint and back it, Frax provides an undesirable model for any fully decentralized and uncensored cryptocurrency. Frax relies about 40% on its connection to USDC and USDC’s connection to traditional finance. This is not sustainable for a decentralized currency as the original idea behind __[decentralized finance]( was to remove traditional financial organizations from the distribution and storage of currency absolutely.** \ **The only way to buy into Frax is by purchasing it through another cryptocurrency on a decentralized exchange. __[Ethereum]( is the only cryptocurrency available at the time that anyone can use to buy FRAX. As one of the oldest and most established cryptocurrencies, Ethereum is very costly to buy and so the initial cost of FRAX is very high.** ## **Team** **Frax was founded by Sam Hamidi-Kazemian. He graduated from the University of California in 2015 after founding Everipedia with Theodor Forselius in 2014. He founded Frax with Travis Moore and Jason Huan.** ## **In Conclusion** **Frax being a stablecoin encourages people to invest in it as many consider stablecoins to be safer versions of cryptocurrency to put their money into. However, the backing from the USDC makes it easy for decentralization purists to think and consider Frax as a not fully decentralized platform. The system, however, is revolutionary and has a lot of space to grow and improve and become completely decentralized in the future.** \ \ **__[Read more Frax stories on HackerNoon](**