Algorithmic stablecoin protocol Frax has announced the idea of acquiring billions of dollars of major blockchains altcoin projects to use as backup collateral for the stablecoin. So what will the protocol take? Here are the details…
FRAX can buy altcoins
The stablecoin called FRAX is partially secured by the USDC, as well as an algorithm that buys and sells FRAX with another token called Frax Shares (FXS) to value the dollar. protecting. When the stablecoin was launched, it was fully collateralized by USDC, but as it expanded, it used algorithmic elements to keep it stable to the dollar.
It was always an idea for the project to accept other coins as collateral. The project’s documentation states that unstable cryptocurrencies such as Ethereum and Bitcoin can be added as collateral once the system becomes more robust. Still, a plan to set up another “stability fund” of various crypto-assets has been discussed as a possibility.
Terra similarity with Frax’s latest move
Frax Finance founder Sam Kazemian said that such a multi-chain approach to collateral support will encourage the flow of FRAX-denominated transactions on this Blockchain. According to Kazemian, the system will contribute to the incoming demand for native tokens of these layer-1 chains. “Remember, this strategy means that every L1 chain (including BTC/Lightning) will have an incentive for FRAX stablecoins to flow in their economy, as this creates a central bank-sized market demand for L1 tokens,” Kazemian said. As we reported on
Kriptokoin.com, the decision was recently made with Terra, a DeFi-based blockchain that has made large Bitcoin purchases to create a stabilization fund to support Terra USD (UST). bears similarities. However, instead of just buying Bitcoin as with Terra, Frax aims to acquire all the blockchain native assets the stablecoin is offered. So which ones are they? While the biggest asset of FRAX is in Ethereum, it is present in many other Blockchains. So the company is likely to buy Avalanche’s AVAX, BNB Chain’s BNB, Fantom’s FTM and Solana’s SOL to support FRAX circulating on these chains in the coming months.
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