Frax Finance wants to increase its reserves
The Frax protocol is a two-token system consisting of the stablecoin and a governance token, Frax Shares (FXS). FRAX maintains a peg to the U.S. dollar by being partially backed by other stablecoins, while FXS is regularly bought and sold to maintain its market capitalization. However, the protocol seems to take inspiration from Terra's approach, as the protocol discusses the creation of a "stability fund" of various crypto assets.Like Terra, FRAX is considering increasing its reserves. FRAX is considering purchasing native tokens from Layer 1 blockchains that support the FRAX stablecoin. These could be Ethereum, Avalanche, Solana, or Fantom. In addition to buying native tokens from Layer 1 blockchains, FRAX is also interested in increasing its reserves with various crypto assets that can provide cash flow and interest-bearing on-chain loans.
What distinguishes it from Terra's approach?
Luna Foundation Guard (LFG), a nonprofit organization, has started buying billions of dollars worth of Bitcoin and $100 million worth of Avalanche token AVAX, ushering in a new stablecoin trend. FRAX's approach differs in a few ways, however: Instead of focusing on Bitcoin, FRAX plans to acquire the native assets of all blockchains on which stablecoin have been issued, and FRAX is also looking at loans kept outside of crypto protocols to serve as a hedge against downturns in the crypto market.Although the news makes it seem that FRAX wants to compete with Terra's stablecoin UST, that is not the case. Last week, Terra and Frax teamed up to create "4pool," a liquidity pool on stablecoin swap service Curve Finance. The pool consists of two algorithmic stablecoins, UST and FRAX, and two centralized stablecoins, USDC and USDT. It is designed to grow the overall decentralized stablecoin market rather than compete with each other.
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