The community of decentralized finance stablecoin protocol Frax Finance has voted to fully collateralize its native stablecoin, Frax (FRAX), marking the end of algorithmic support for the protocol.
According to the February 23 snapshot, the FIP-188 governance proposal, originally released on February 15 which would change FRAX’s staking model has now reached a quorum, with 98% voting in favor.
“It is time for Frax to phase out protocol algorithm support,” the proposal reads. It explained that the original protocol included a “variable collateralization rate” that adjusts to the stablecoin’s market demand. The market will determine how much collateral each FRAX needs to be equal to one dollar.The hybrid model results in a stablecoin 80% backed by crypto asset collateral and partially algorithmically stable. This was achieved by minting and burning its governance token, FXS, which has surged 12% in the past 12 hours.
Frax is the fifth largest stablecoin in the industry with a market cap of just over $1 billion.
After the proposal is implemented, the protocol will no longer mint any FXS to increase the mortgage rate and token supply. It plans to retain protocol revenue to fund increased collateralization, which includes suspending FXS buybacks.
It will also authorize the purchase of Frax Ether (frxETH) up to $3 million per month to increase collateralization rates. frxETH behaves like a stablecoin but is pegged to ether instead. It facilitates the transfer of ether liquidity within the Frax ecosystem.
DeFiLlama recently reported on the growth of frxETH over the past month. The move comes amid what appears to be a broader crackdown on stablecoins following last year's disastrous Terra/Luna crash. On Feb. 22, the Canadian Securities Authority issued a long list of new requirements for cryptocurrency companies and stablecoin issuers looking to remain legally compliant in the country.
The list includes strict rules for trading stablecoins and banning algorithmic or fiat-backed stablecoins.
