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FRAX has one of the tightest pegs relative to its peers. It has performed well historically, especially during times of broader market stress. However, it is partially collateralized by the protocol’s native FXS token, which makes it prone to bank-run risks, but with limited loss potential.
The Frax protocol is led by a public team of seasoned entrepreneurs/programmers based in the United States.
Although Frax aims to be a decentralized protocol,
It is heavily reliant on centralized assets such as USDC, USDT and DAI
The core team controls a majority of the voting power (>51%) and also has complete control over FRAX's monetary policy and the protocol’s assets.
In our assessment, FRAX is neither suitable for the average retail stablecoin holder nor for the decentralization-focused holders. It is more suited to risk-seeking yield farmers and liquidity providers who understand the complexities and nuances of the protocol and have appropriate risk management systems in place.
FRAX's rating can be upgraded from D to C by:
introducing a fully-functional voting system with binding votes and on-chain execution AND
implementing any two anti-governance attack measures.
The Stability factor is evaluated on the following:
1. Reserves Management - Quality, quantity, storage and segregation of reserve assets
2. Market Feedback - Indicators of market's confidence in a stablecoin derived from price and trade data
3. Mechanism - Stabilization methods that protect the stablecoin
Very Low Risk
Very Low Risk
The Management factor is evaluated on the following:
1. Restrictions - What deterrents exist to prevent key personnel of stablecoin projects from unethical and illegal behavior?
2. Negative Track Record (if applicable) - Have key personnel been involved in scams, frauds or other illegal activities?
This factor aims to assess risks arising from technical implementations – i.e, smart contract code and oracles. It is currently not assessed, but we plan for it to be evaluated in the future.
The Decentralization factor is evaluated on the following:
1. Platform Censorship Risk
2. Custodian Risk
3. Type of Collateral
4. Diversified Voting Power
5. User Censorship Risk
The Governance factor for on-chain stablecoins is evaluated on the following:
1. Voting Systems - Does the governance function have binding votes and automated on-chain execution of proposal outcomes?
2. Anti-Governance Attack Measures - Are there appropriate preventive and reactive measures to counter governance attacks?
This factor seeks to incorporate external feedback mechanisms such as market and social sentiment into our internal ratings. It is currently not assessed, but we plan for it to be evaluated in the future.