Thank you to everyone who joined AMA Blockelite x Frax Finance on 10th April at 3:00 PM UTC I 10:00 PM (UTC+7). Here is the recap for those who missed this AMA.
Our special guest today is Travis Moore – CTO of Frax Finance
Segment 1: Introduction about Frax Finance and Travis Moore – CTO of Frax Finance
Q1: Can you briefly introduce yourself as well as about Frax Finance?
Travis Moore – CTO of Frax Finance: I am Travis Moore, a Co-Founder of Frax. I handle the website, API, and also code smart contracts. Frax was launched on Ethereum in 2020 is a fractional-algorithmic stablecoin protocol, and has since expanded into Matic / Polygon and BSC as well. The end goal of the Frax protocol is to provide a highly scalable, decentralized, algorithmic money in place of fixed-supply digital assets like BTC. The stablecoin (FRAX) is named after the “fractional-algorithmic” stability mechanism. Parts of its supply are backed by collateral and parts of the supply algorithmic. The ratio of collateralized and algorithmic depends on the market’s pricing of the FRAX stablecoin. If FRAX is trading at above $1, the protocol decreases the collateral ratio. If FRAX is trading at under $1, the protocol increases the collateral ratio.
Many stablecoin protocols have entirely embraced one spectrum of design (entirely collateralized) or the other extreme (entirely algorithmic with no backing). Collatralized stablecoins either have custodial risk or require on-chain overcollateralization. These designs provide a stablecoin with a fairly tight peg with higher confidence than purely algorithmic designs. Purely algorithmic designs such as Basis, Empty Set Dollar, and Seigniorage Shares provide a highly trustless and scalable model that captures the early Bitcoin vision of decentralized money but with useful stability. The issue with algorithmic designs is that they are difficult to bootstrap, slow to grow (as of Q4 2020 none have significant traction), and exhibit extreme periods of volatility which erodes confidence in their usefulness as actual stablecoins. They are mainly seen as a game/experiment than a serious alternative to collateralized stablecoins.
Frax attempts to be the first stablecoin protocol to implement design principles of both to create a highly scalable, trustless, extremely stable, and ideologically pure on-chain money. The Frax protocol is a two token system encompassing a stablecoin, Frax (FRAX), and a governance token, Frax Shares (FXS). The protocol also has pool contracts which hold collateral (at genesis USDT and USDC). Pools can be added or removed with governance.
Blockelite Host: and When have you been in crypto and why you know it?
Travis Moore – CTO of Frax Finance: We started with an encyclopedia project on EOS called Everipedia back in 2017. Our cofounder, Sam, started mining Dogecoin really early, but unfortunately not Bitcoin 😉
We still have Everipedia and it is branching into NFTs as well. There is also a prediction market called Prediqt
We launched Frax on Ethereum in 2020
Q2: Please explain how Frax Finance works? What role do FXS tokens play in the Frax Finance ecosystem?
Travis Moore – CTO of Frax Finance: Minting FRAX requires placing the appropriate ratio of collateral and burning the ratio of Frax Shares (FXS). While the protocol is designed to accept any type of cryptocurrency as collateral, this implementation of the Frax Protocol will mainly accept on-chain stablecoins as collateral to smoothen out volatility in the collateral so that FRAX can transition to more algorithmic ratios smoothly. As the velocity of the system increases, it becomes easier and safer to include volatile cryptocurrency such as ETH and wrapped BTC into future pools with governance.
FRAX can always be minted and redeemed from the system for $1 of value. This allows arbitragers to balance the demand and supply of FRAX in the open market. If the market price of FRAX is above the price target of $1, then there is an arbitrage opportunity to mint FRAX tokens by placing $1 of value into the system per FRAX and sell the minted FRAX for over $1 in the open market. At all times in order to mint new FRAX a user must place $1 worth of value into the system. The difference is simply what proportion of collateral and FXS makes up that $1 of value.
If the market price of FRAX is below the price range of $1, then there is an arbitrage opportunity to redeem FRAX tokens by purchasing cheaply on the open market and redeeming FRAX for $1 of value from the system. At all times, a user is able to redeem FRAX for $1 worth of value from the system. The difference is simply what proportion of the collateral and FXS is returned to the redeemer.
The Frax Share token (FXS) is the non-stable, value-accrual token in the protocol. It is meant to be volatile and hold rights to governance and all excess collateral of the system. The FXS token has the potential of upside and downside of the system, where the delta changes in value are always stabilized away from the FRAX token itself. FXS supply is initially set to 100 million tokens at genesis, but the amount in circulation will likely be deflationary as FRAX is minted at higher algorithmic ratios. The design of the protocol is such that FXS would be largely deflationary in supply as long as FRAX demand grows.
The FXS token’s market capitalization should be calculated as the future expected net value creation from seigniorage of FRAX tokens in perpetuity, the cash flow from minting and redemption fees, and utilization of unused collateral. Additionally, as the market cap of FXS increases, so does the system’s ability to keep FRAX stable. Thus, the priority in the design is to accrue maximal value to the FXS token while maintaining FRAX as a stable currency. As Robert Sam’s described in the original Seigniorage Shares whitepaper: “Share tokens are like the asset side of a central bank’s balance sheet. The market capitalisation of shares at any point in time fixes the upper limit on how much the coin supply can be reduced.” Likewise, the Frax protocol takes inspiration from Sams’ proposal as Frax is a hybrid (fractional) seigniorage shares model.
Q3: Your project becomes “the world’s first fractional-algorithmic stablecoin”, so what can you bring for users and DeFi world? Why users should choose your project instead of other stablecoin as Tether, Dai, BUSD?
Travis Moore – CTO of Frax Finance: Frax maintains its stability without needing to be overcollateralized, and is thus more capital efficient than other stablecoins. This will allow it to expand faster, as users desire stability above all else.
As usage increases, the value of the seignorage token (FXS) increases because FXS is needed to mint new FRAX. FXS thus becomes a sort of inflation hedge
Q4: How do people join Frax Finance? Are there any conditions? What is your market strategy to help you build a great community and attract more users to join your project?
Travis Moore – CTO of Frax Finance: They can just go to https://app.frax.finance. We have also branched out in to BSC and Matic, and are working to expand additional language support.
Our main community is at https://t.me/fraxfinance
Our Vietnamese one at https://t.me/Frax_Finance_Vietnam
Who is the partners of project now?
You can see more integrations on that link as well
Q5. What milestones have Frax Finance achieved so far and what is the next roadmap for 2021?
Travis Moore – CTO of Frax Finance: We have reached just under $200M in combined market cap for the FRAX and FXS tokens.
Algorithmic Market Operations (AMOs):
Frax v2 expands on the idea of fractional-algorithmic stability by introducing the world to the idea of the “Algorithmic Market Operations Controller” (AMO). Simply put, an AMO controller is an autonomous contract that enacts arbitrary FRAX monetary policy so long as it does not lower the collateral ratio and change the FRAX price. This means that AMO controllers can perform open market operations algorithmically (that’s where they get their name), but they cannot simply mint FRAX out of thin air and break the peg. This keeps FRAX’s base layer stability mechanism pure and untouched which has been the core of what makes our protocol special and has inspired other smaller projects. It also keeps AMO controllers economically disciplined knowing that there is a ceiling for the amount of FRAX that can be unbacked which stops the protocol from unrestrained money printing of classical central banks.
The AMO controllers will programmatically pause operation if any of their logic requires minting FRAX that would require recollateralization of the CR. The base layer fractional-algorithmic mechanism is always running just like before. If FRAX price is above the peg, the CR is lowered, FRAX supply expands like usual, and AMO controllers keep running. If the CR is lowered to the point that the peg slips, the AMOs pause all market operations, the system recollateralizes just like before as FRAX is redeemed and the CR goes up to return the peg. This allows all AMOs to operate with input from market forces, the same way that the v1 mechanism works.
Segment 2: Live questions.
Q1: Could you please tell me just a little more about the team and some of their backgrounds? I have personally seen many projects launch with inexperienced team members, and some of those didn’t go so well due to easily avoidable mistakes.
Travis Moore – CTO of Frax Finance: Good question
Here is a list of our cofounders:
Me, Travis Moore: https://everipedia.org/wiki/lang_en/travismoore5036459
Jason Huan: https://everipedia.org/wiki/lang_en/jason-huan
Sam Kazemian: https://everipedia.org/wiki/lang_en/samkazemian12
Q2: Token burning is beneficial to any project because it can control the number of tokens in circulation and provide investors with greater incentives. Does your great project have a plan for token burning?
Travis Moore – CTO of Frax Finance: You need to burn some FXS to mint FRAX. Additionally, we have the collateral investor function, which invests the collateral to earn interest and buy and burn FXS back
Q3: How do plan to spread awareness about your project in different countries where English is not spoken well? Do you have local communities for them to let them better understand about your project?
Travis Moore – CTO of Frax Finance: We take language support seriously and are working to expand there. First thing to do is to translate the documentation and the interface. The Vietnamese documentation can be found here: https://docs.frax.finance/v/tieng-viet/
Q4: Many projects rug pulled and exit scam recently. Why should investors trust your project not to do the same?
Travis Moore – CTO of Frax Finance: We are not an anonymous project. Our reputation is on the line. We live in the US as well, and don’t want to face the SEC or criminal prosecution
Q5: How secured is your smart contracts code, did you ever audit it via any third party? What has been the biggest challenge you have faced in your project development?
Travis Moore – CTO of Frax Finance: We have had Certik audit the code, as well as community members look it over. We hope to have additional audits soon.
Q6: Eth gas fee is crazy high. So, do you have any plan to move on other Blockchain such as BSC or other L2 solution?
Travis Moore – CTO of Frax Finance: We have already bridged some tokens over to BSC and Matic, and plan to do so with Avalanche (AVAX) as well
Q7: Are you considering to get listed on the new Exchange soon? Are there any top tier exchange on your list? Also, are there exchanges that you are currently negotiating?
Travis Moore – CTO of Frax Finance: We are always looking to get listed on exchanges. Binance was the biggest one as of late
Q8: Presently as at today, can we possibly use your token in real life for payment? any plan for increase use cause for the token?
Travis Moore – CTO of Frax Finance: Yes you can. The gas fees for it are high on Ethereum mainnet, which is one reason why we are expanding to other chains / L2
Q9: what are your mining and staking rewards?
Q10: Do you have room for experienced developer? I mean do you have plan to launch Hackethon program to check the security of your project gradually?Do you have room for experienced developer? I mean do you have plan to launch Hackethon program to check the security of your project gradually?
Travis Moore – CTO of Frax Finance: If you want to get involved, we offer FXS rewards to people that code meaningful things. Just message us with your idea and we can go from there. As far as full-time, you would have to do some work beforehand to show you really like the project