The v3 version of FRAX is gradually being unveiled.
On October 6, Frax Finance officially released the official document of the FRAX v3 version. Although the product has not yet been launched, we can already have a brief understanding of the version iteration trends of this leading DeFi protocol through the content of the document.
From a positioning perspective, Frax Finance calls the v3 version of FRAX the ultimate stablecoin, which will use AMO smart contracts and other open, non-custodial sub-protocols as the stabilization mechanism.
Specifically, the AMO smart contract refers to FRAX’s classic algorithmic market operation module; the sub-protocol is divided into two parts: internal and external. The internal sub-protocol refers to Frax Finance’s own lending market Fraxlend and the AMM exchange Fraxswap, and the external sub-protocol refers to Frax Finance’s own lending market Fraxlend and the AMM exchange Fraxswap. The sub-protocol mainly refers to Curve’s stablecoin pool.
According to the document description, FRAX will add five major levels of updates in the v3 version. The details are as follows:
1. Fully mortgaged
In the v3 version, FRAX will continue the previous trend of increasing the stablecoin collateral ratio (CR) - striving to always maintain a CR >= 100%.
In the early days of its creation, FRAX was one of the more representative “non-fully collateralized” stablecoins on the market. However, after the UST storm, the market became extremely sensitive to “non-fully collateralized” stablecoins, and FRAX, which was affected by this, has also At the beginning of the year, the CR was increased to 100% through governance, achieving full mortgage, and the v3 version will continue to advance. In the future, FRAXs real-time CR is expected to exceed 100%.
As for the storage of collateral assets, Frax Finance will approve some cooperative entities through governance to hold real-world assets, and the total value of the collateral assets will be included in Frax Finances balance sheet.
2. Anchored to the U.S. dollar, not other stablecoins
The goal of FRAX v3 is to achieve full peg to the US dollar, rather than other mainstream stablecoins.
When FRAXs CR reaches 100%, it will use the Chainlink oracle and the governance-approved reference exchange rate to confirm the anchoring status with the US dollar; if the CR is lower than 100%, FRAX will work through the AMO smart contract and governance module Restore CR and try to keep the price of FRAX at $1.000.
All related processes will not take into account the prices of other stablecoins such as USDC, USDT or DAI.
3. Refer to the dynamic income of IORB
In the v3 version, FRAX will adopt the Federal Reserve Rate (IORB, which is the interest rate paid by the Federal Reserve for commercial banks deposits with the Federal Reserve) as the reference standard for certain protocol functions (such as sFRAX pledge returns), and based on the IORB Adjust FRAXs mortgage asset class based on fluctuations.
To put it simply, when IORB is high, it is automatically converted into treasury bonds. When IORB is low, it is automatically restored to on-chain assets and earns income through Fraxlend.
4. Remove multiple signatures
FRAX v3’s smart contracts will run entirely on-chain via the frxgov module, so trust assumptions via multi-signatures are no longer required.
5. Not redeemable
Unlike some other over-collateralized USD stablecoins, FRAX stablecoins are non-redeemable, which means that holding FRAX stablecoins does not guarantee users the right to redeem them for equivalent legal currency.
The only function of FRAX is to achieve pricing equivalent to US dollars through asset collateral, AMO smart contracts, and governance actions.
What does the community think?
Judging from discussions in the community, there are mixed reviews about FRAX v3. Some users believe that this document summarizes the core upgrade points of the v3 version very concisely, but there are also opposing voices who do not recognize these updates (such as angel investors)0xSerJaMadNot very satisfied with the 4/5 changes).
But as far as the author is concerned, from the design of FRAX v3, it can still be seen that the Frax Finance team has a clear understanding of some of the current main issues of stablecoins. For example, in response to doubts about the intrinsic value of stablecoins, they chose a higher mortgage rate. To eliminate doubts; for another example, regarding the risks associated with stablecoins, we chose to directly anchor the US dollar and cut off the relationship with other stablecoins; for another example, in the current RWA APY war, we dynamically adjust the source of income by referring to IORB.
As one of the protocols with the most design sense in the DeFi world, Frax Finance has delivered impressive products in many different fields such as stablecoins, lending, and LSD. How much market competitiveness can FRAX v3 show in the future? , will be another highlight in the increasingly competitive stablecoin track.
