Frax Finance is one of those incredible innovations that have transformed the stablecoin markets in a big way. This article will discuss how much things have changed over the years, and where Frax Finance & Collateralized Stablecoins fit in the future of crypto. Frax introduced one of the first hybrid systems that combine USDC with a stabilized basket of assets. This worked well at first. But, this fractal reserve system got called into question quickly during the Terra Luna Stablecoin fiasco. This prompted Frax Finance to change the algorithmic side of its protocol in favor of a 100% collateralized system in 2023. What does this mean for the project and the future of Frax Finance? If you’re here to take advantage of the growing stablecoin ecosystem, be sure to check out How to Earn 8% APR on Frax Finance.
Frax Finance will soon make changes to how the program is collateralized. But that will not change its reliance on other altcoins and their reliance on it. An example of this would be Origin protocol using Frax Finance tokens to help back its Ethereum liquid staking program, while the largest asset backing Frax Finance is Curve Finance, which relies on Convex and several other stablecoins.
With any stablecoin you look at, everything relies on something else. Especially when we’ve come to realize that just because something has “stable" in the title, that doesn’t mean it has to maintain stability. For Dollars, the devaluation happens on a local level with our governments manipulating interest rates and the total supply. With Stablecoins, either their reliance is centered around the dollar, or separated by a third or fourth party. The market has proven this to be an evolving house of cards.