A recent announcement claimed that Frax Finance has voted to phase out the algorithmic backing of its native stablecoin in favor of fully collateralizing it. This news has come at a time when the global cryptocurrency market is seeing a crackdown on stablecoins, with governments, regulators, and exchanges demanding more transparency and accountability from the issuers of these tokens.
The company’s commitment to transparency and sound financial management is at the heart of Frax Finance’s strategy to phase out algorithmic backing. As a token issuer, Frax Finance has taken the necessary steps to ensure its tokens comply with current regulations.
This decision comes after a rigorous review of the token’s underlying asset, backed by the price of an index of global commodities and fiat currencies.
The Frax Finance team has voted to secure FRAX with collateral, closing the algorithmic backing of the stablecoin. The FIP-188 governance suggestion – which would modify the collateralization model of FRAX – was first posted on Feb. 15 and has now accomplished a quorum with 98% voting in support, as noted in a snapshot on Feb. 23.
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The proposal said, “It is time to start eliminating the algorithmic backing of the protocol for FRAX.” The explanation of the initial protocol entailed a “variable collateral ratio” that changed according to the market demand for the stablecoin.
The market could determine the amount of collateral needed for each FRAX to equate to one United States dollar. The hybrid structure end product had the stablecoin being 80% backed by cryptographic asset collateral and partially stabilized algorithmically.
FRAX is the fifth biggest stablecoin, with a market capitalization of more than $1 billion. After the execution of the plan, no new FXS will be available to bring the collateral ratio up and expand the token supply.
Recently, DeFiLlama has reported the impressive growth of Frax Ether (frxETH) over the past month. Like a stablecoin, this cryptocurrency is affixed to ETH and designed to promote Ether liquidity within the Frax ecosystem.
With authorization, up to $3 million worth of frxETH is available for purchase monthly to help maintain the collateral ratio.
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