How It Works
FRAX v1 used a fractional reserve model where the collateral ratio (CR) started at 100% USDC and reduced algorithmically as demand grew. When CR was 85%, minting $1 of FRAX required $0.85 USDC + $0.15 worth of FXS (which was burned). When redeeming, $0.85 USDC was returned + $0.15 FXS was minted. Since 2022, Frax has pursued 100% CR through the AMO system, which deploys excess USDC into Curve, Convex, Aave, and other yield-generating protocols. The yield generated by these AMO positions funds the Frax ecosystem and helps defend the peg. Fraxtal L2 and frxETH have added new revenue streams.
Backing Type: Hybrid
Hybrid stablecoins combine multiple backing mechanisms — typically a mix of fiat collateral, crypto collateral, and algorithmic supply adjustments — to balance capital efficiency with stability and decentralization.