Definition
FRAX is a decentralized stablecoin concept in decentralized finance (DeFi) that aims to maintain a stable value relative to a target peg, most commonly one US dollar. It is designed as a crypto-native unit of account that combines on-chain collateral with algorithmic controls to keep its market price close to the intended peg. As a stablecoin, FRAX belongs to the same broad category as assets like USDC, TUSD, and DAI, but it emphasizes a hybrid approach to stability rather than relying solely on fully centralized reserves or purely algorithmic design.
The FRAX model treats stability as a spectrum between fully collateralized and algorithmic, adjusting its collateralization level based on market conditions. Collateral for FRAX can include other cryptoassets, such as established stablecoins, which are held to support its value. The protocol’s design focuses on preserving the peg through economic incentives and collateral management, rather than through discretionary intervention by a centralized issuer.
Context and Usage
Within DeFi, FRAX functions as a stable medium of exchange and accounting unit that is intended to remain close to its peg across on-chain markets. Its design positions it as an alternative to more centralized stablecoins like USDC and TUSD, while also differing from overcollateralized models such as DAI by targeting a more capital-efficient structure. The concept of FRAX is closely tied to the broader idea of a robust, crypto-backed monetary primitive that can be integrated into lending markets, liquidity pools, and other financial primitives.
Because FRAX is defined by its peg behavior and collateralization framework, it is often discussed in the context of stablecoin taxonomy and risk profiles. Observers evaluate FRAX by how consistently it holds its peg, the quality and composition of its backing assets, and the transparency of its on-chain mechanics. In this way, FRAX illustrates an intermediate design space between purely custodial stablecoins and fully algorithmic systems, while still fitting squarely within the stablecoin category.