What is Frax Finance?
Frax Finance is a DeFi protocol boasting a stablecoin (FRAX), liquid staking (frxETH), and various other financial products. The FRAX stablecoin is the center of the ecosystem. Formerly, it drew inspiration from collateralized and algorithmic stablecoin design. However, Frax recently pivoted to a fully-collateralized model, with all of its revenue being directed to achieve a 100% collateralization ratio.
FRAX is the native stablecoin of the protocol and will always be mintable/redeemable for $1 worth of collateral.
When the price of FRAX is above $1, users can mint FRAX using less than $1 of collateral + FXS tokens and then sell FRAX in the market as arbitrage. Conversely, when the price is below $1, users can redeem $1 worth of collateral + FXS tokens after purchasing cheap FRAX from the market. In the event of a 100% collateral ratio, then $1 of collateral would be equivalent to 1 FRAX.
