Diligent Research on FRAX Token (FRAX)

1. Executive Summary

FRAX is a stablecoin protocol that combines features of both collateralized and algorithmic stablecoins. FRAX tokens are minted by users providing a combination of USDC stablecoin and FXS governance tokens, with the ratio determined by the Frax collateral ratio. FXS tokens are burned proportionally when FRAX is minted, and new FXS are minted and distributed to liquidity providers. This hybrid model aims to provide a more stable and resilient stablecoin than purely algorithmic approaches.

SOURCES:

https://www.gemini.com/cryptopedia/frax-crypto-protocol-asset-backed-algorithmic-stablecoins

https://tokeninsight.com/en/coins/frax-ether/overview

Brief summary of the investment opportunity of FRAX.

FRAX offers an investment opportunity through its stablecoin, FRAX, which is backed by a collateral ratio of 90% centralized stablecoins and 10% FXS. The protocol aims to capture market share in the stablecoin ecosystem and potentially benefit from a bull market.

SOURCES:

https://cinjon.com/systems-frax-synthesis

https://blog.cryptostars.is/frax-investment-thesis-b1ea527ff993?gi=efa0c4ff3844

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2. FRAX OVERVIEW

Mission and Vision: FRAX long term objectives.

The long-term objectives of the FRAX token are centered around its role as a decentralized finance (DeFi) money market. The protocol aims to provide a scalable, trustless, and on-chain money solution by leveraging both asset-backed and algorithmic stablecoin models. The FRAX token is designed to maintain a peg to the U.S. dollar, while the FXS token serves as a governance and utility token for the platform. The protocol's goals include minting and redeeming FRAX tokens, staking, and providing liquidity to various trading pairs on Uniswap.

SOURCES:

https://www.gemini.com/cryptopedia/frax-crypto-protocol-asset-backed-algorithmic-stablecoins

https://www.superchain.eco/insights/guiding-ethers-phoenix-to-its-final-form

Problem Statement: Challenge or gaps FRAX aims to address.

Addressing the complexities of supply chain operations is indeed a significant challenge, and FRAX’s approach to providing a comprehensive solution is commendable. Automation, enhanced visibility, and improved collaboration are key factors in overcoming these inefficiencies. By focusing on these areas, FRAX is well-positioned to help businesses optimize their supply chain processes, reduce costs, and improve overall performance. It’s a proactive step towards operational excellence and a testament to the potential of technology to transform traditional business operations.

Solution: How the FRAX TOKEN proposes to solve these problems.

The FRAX token is part of the Frax Finance ecosystem, which is the world's first fractional-algorithmic stablecoin system. The FRAX stablecoin aims to provide high security, stability, accessibility, and efficiency in financial transactions. Its features include:

Security: Built on a secure blockchain network with advanced encryption to safeguard transactions.

Stability: Pegged to a basket of fiat currencies and other stable assets to mitigate price volatility.

Accessibility: Available globally with internet access, enabling participation in the global economy.

Efficiency: Supports fast and cost-effective transactions, suitable for micropayments and cross-border transfers.

SOURCES:

https://tradedog.io/strategic-insights-investing-in-frax-finance-for-long-term-growth/

https://www.gemini.com/cryptopedia/frax-crypto-protocol-asset-backed-algorithmic-stablecoins

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3. TECHNOLOGY AND PRODUCT

Technical Architecture: Overview of the blockchain and other technologies used.

The FRAX token is built on a secure blockchain network utilizing advanced encryption to safeguard transactions. The architecture includes nodes, consensus mechanisms, smart contracts, and cryptography. The FRAX stablecoin is designed to maintain a stable value by being pegged to a basket of fiat currencies and other stable assets, mitigating price volatility. The protocol uses a dual mechanism of algorithmic rebalancing and collateralization to adapt to market changes while ensuring a consistent value pegged to the USD.

FRAX Advisory Board: Influence and contribution of the advisors.

The FRAX advisory board plays a crucial role in providing strategic guidance, industry expertise, and network connections to support the company's growth and success. Members offer insights on market trends, competitive landscape, and strategic opportunities, leveraging their extensive networks to open new business opportunities and establish credibility. Their reputation and credibility enhance FRAX's reputation and credibility among investors, customers, and peers.

Team Structure: Effectiveness of the team's organization and communication.

The FRAX team structure relies on well-defined organization and communication. Successful teamwork involves unified goals, task interconnectedness, and clear roles. Team Topologies emphasizes arranging teams by responsibility, fostering innovation and swift delivery through cooperation, X-as-a-Service, and facilitating. Clear objectives, collaboration, and established interaction patterns enhance team performance and adaptability.

SOURCES:

https://gov.frax.finance/t/fip-341-frax-singularity-roadmap-part-1/2987

https://www.gate.io/learn/articles/a-comprehensive-study-of-the-frax-stablecoin-ecosystem/1088

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4. MARKET ANALYSIS OF FRAX

Target Market: Size, demographics, and behavior of the potential market.

The FRAX market size is large due to its potential use by individuals, businesses, and financial institutions. The market size depends on geographic reach and target audience. The demographics include investors, financial advisors, business owners, and financial institutions. Users desire informed financial decisions and effective risk management, making FRAX a valuable tool for active investors and financial professionals.

Competitive Landscape: Analysis of competitors and FRAX position in the market.

FRAX competes with established players like Riskalyze, BlackRock's Aladdin, and Bloomberg's PORT. FRAX differentiates itself through user-friendliness, customizability, and affordability. It targets a niche market segment prioritizing simplicity, customization, and affordability, carving out a unique position in the market by highlighting these key features and benefits.

Market Trends: Current anticipated trends that could affect FRAX.

Market trends that could affect FRAX token include increased focus on risk management, technological advancements, and mass adoption of cryptocurrency. These factors will drive the growth of the token, leading to optimistic price predictions.

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5. TEAM AND ADVISOR

Background: Experience and expertise of FRAX founding team and key members.

The FRAX Finance founding team has extensive experience and expertise in the blockchain and DeFi space:

Sam Kazemian, a co-founder, has a background in programming and is a UCLA alumnus. He previously co-founded Everipedia, a blockchain-based online encyclopedia.

Travis Moore, another co-founder, also graduated from UCLA and has experience in the corporate world, including roles at the insurance company Anthem and as CTO of Everipedia.

Jason Huan, the Director of Development, is a 2021 UCLA graduate with a computer science degree and prior experience at the blockchain company WhiteBlock.

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6. FRAX  Tokenomics and Financials

FRAX Utility: The purpose and use cases for FRAX token.

The FRAX algorithm, developed by the University of Sheffield, is a widely adopted and validated computer-based method that estimates the 10-year likelihood of major osteoporotic fracture and hip fracture. It integrates data from 12 prospective population-based studies across North America, Europe, Asia, and Australia, involving 60,000 men and women and over 250,000 person years of observation.

FRAX Distribution: Allocation of tokens (e.g., team, advisors, public sale).

The FRAX token distribution involves allocating tokens across various categories to ensure community ownership and balanced distribution among stakeholders. The distribution includes:

65% community ownership through governance tokens.

35% divided among the team (20%), strategic advisors (3%), and other entities.

60% of FXS tokens allocated to farming rewards

5% to the treasury, grants, partnerships, and bug bounties.

20% to the team and investors, including 3% to advisors and early contributors.

12% to private investors.

These allocations define the ownership and participation structure within the FRAX ecosystem, ensuring a balanced distribution among stakeholders.

SOURCES:

https://www.helloarc.ai/blog/frax-share--redefining-stablecoins-and-decentralized-finance

https://docs.frax.finance/token-distribution/frax-share-fxs-distribution

FRAX Financial Model:

FRAX's financial model generates revenue through a buyback and recollateralization mechanism, which maintains FRAX's trading value within a narrow price range. This mechanism involves arbitrageurs purchasing FRAX below $1 and redeeming collateral for less than $1 worth of FRAX when its price rises above $1, retaining the difference as revenue. The cost structure includes 35% of FXS tokens allocated to the team, investors, advisors, and early contributors, and 5% to the treasury for grants, partnerships, and expenses.

Funding History: Previous funding rounds, investors, and current valuation.

FRAX Finance has secured funding from several investors, including:

Arbitrum Foundation (Strategic, $1.21M)

Crypto.com Capital (Seed, $1.21M)

Ascensive Assets (Extended Seed, $1.21M)

A195 Capital

Fairum Ventures

DeltaHub Capital

The total raised is $1.21M.

SOURCES:

https://tracxn.com/d/companies/frax-finance/__i9rkNM6kz_9NYU5VxiS6UR9fkqAuL65ukJa0i0YyH9Y 

https://www.cbinsights.com/company/frax-finance 

https://tracxn.com/d/companies/frax/__Or51ij-65FzTjOsMXZ2DHKqLI2DONJYkRCpSR_88Etw/funding-and-investors 

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7. FRAX Community and Ecosystem

Community Engagement: Size, growth, and engagement levels of the community.

The robust economic design and seigniorage revenue of the protocol significantly contribute to its achievements. Frax Finance's tokenomics are structured with farming rewards (60%) and treasury (5%), while team and investors receive 35% of the tokens, with veFXS lockable for up to four years for increased voting power and farming rewards. The community plays a vital part in Frax Finance's expansion, with airdrops encouraging users to participate in social channels and stay updated, fostering a strong community. Additionally, Frax Finance offers a trustless, permissionless, and non-custodial lending platform, Fraxlend, which facilitates lending markets between any two ERC20 tokens.

Partnerships: Strategic alliances and partnerships.

FRAX Finance has secured partnerships with several organizations, including:

Arbitrum Foundation: Strategic investment in August 2021

Crypto.com Capital: Seed round in July 2020

Ascensive Assets: Extended seed round in October 2019

A195 Capital: Extended seed round in October 2019

Fairum Ventures: Extended seed round in October 2019

DeltaHub Capital: Extended seed round in October 2019

Robot Ventures: Investor

Break: Investor

These partnerships aim to support the growth and adoption of the FRAX protocol.

SOURCES:

https://docs.frax.finance/token-distribution/frax-share-fxs-distribution

https://www.helloarc.ai/blog/frax-share--redefining-stablecoins-and-decentralized-finance

Network Effects: The project's strategy for achieving and benefiting from network effects.

The project's strategy for achieving network effects involves collaborating with Coinstox on joint ventures, co-marketing campaigns, and co-development projects to maximize synergies and create win-win opportunities.

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8. Risks and Challenges

Market Risks: Exposure to market volatility and competitive threats.

FRAX's market risks include exposure to market volatility, competitive threats, and increased risk due to a large attack surface. Traders should carefully evaluate these risks and potential rewards before investing in FRAX or FXS tokens.

Technical Risks: Potential technical hurdles in development or deployment.

FRAX's technical risks include potential scalability issues as the protocol attracts more capital, as well as dependencies on other protocols like Curve for maintaining its stablecoin peg and providing high yields for stakers.

Regulatory Risks: Legal challenges that could impact the project's viability.

FRAX's regulatory risks include potential increased scrutiny and regulation of DeFi services and the broader cryptocurrency market, as well as legal and regulatory issues related to money transmission, AML/CTF, and financial stability. To mitigate these risks, FRAX and other DeFi services should ensure compliance with applicable laws and regulations and engage with regulators and policymakers to help shape the regulatory environment for DeFi.

Other Risks: Any other potential risks not covered above.

FRAX Finance's economic instability is mitigated by its algorithmic adjustments and collateralization mechanism. This ensures a stable and scalable solution, adapting to market changes while maintaining a consistent value pegged to the USD. The dual mechanism of algorithmic rebalancing and collateralization provides a more resilient stablecoin, addressing the volatility often seen in the cryptocurrency market.

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9. FRAX SWOT Analysis

FRAX Finance's SWOT analysis highlights its strengths, weaknesses, opportunities, and threats:

Strengths:

Comprehensive Ecosystem: FRAX stands apart from competitors by offering a full suite of products, including a hybrid stablecoin, decentralized exchange (DEX), lending and borrowing capabilities, a bridge for seamless interoperability, Liquid Staking Derivatives (LSD), and a financial instrument pegged to the US Consumer Price Index.

Unique Model: FRAX Ether's model integrates two tokens, allowing users to choose between staking rewards and other opportunities for higher returns.

Market Presence: As awareness of DeFi grows, FRAX Finance is well-positioned to attract users seeking a diverse range of use cases within a single ecosystem.

Weaknesses:

Limited Market Presence: FRAX Finance has a relatively small market share compared to established competitors.

Governance and Decision-Making: The governance structure is primarily controlled by the Frax protocol and its associated entities, introducing centralization risks.

Oracles: FRAX Ether relies on external price oracles, which can be compromised or controlled, introducing centralization risks.

Opportunities:

Growing DeFi Awareness: As DeFi adoption increases, FRAX Finance can capitalize on its comprehensive ecosystem and unique model.

Strategic Partnerships: Collaborations with other DeFi protocols, such as Curve Finance and Convex Finance, can boost rewards and expand the user base.

Decentralized Governance: The upcoming V2 launch aims to make the model completely decentralized, addressing governance and decision-making weaknesses.

Threats:

Market Volatility: FRAX Finance is exposed to market fluctuations, which can impact its stability and value.

Competitive Landscape: Established competitors can adapt to market changes faster, potentially outcompeting FRAX Finance.

Regulatory Risks: Regulatory changes or enforcement actions can negatively impact the DeFi sector and FRAX Finance specifically.

By addressing these strengths, weaknesses, opportunities, and threats, FRAX Finance can optimize its strategy for long-term growth and success.

SOURCES:

https://tradedog.io/strategic-insights-investing-in-frax-finance-for-long-term-growth/

https://www.sciencedirect.com/science/article/pii/S1877042813040068/pdf?md5=a5b541fc716ada163ae0f0d21bc76550&pid=1-s2.0-S1877042813040068-main.pdf

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10. How FRAX works with TheStandard.io 

Possible collateral type: 

FRAX is utilized as collateral within TheStandard.io protocol, enabling users to secure loans in EUROs and, soon, USDs, without incurring any interest. Moreover, the process is completely non-custodial.

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11. Conclusion and viability score

Final assessment and Score.

FRAX Token Conclusion and Viability Score:

FRAX is a valuable tool for assessing fracture risk, widely used in clinical settings. It has a high viability score due to widespread adoption, continuous development, strong community support, strategic partnerships, and an innovative approach. Limitations include dichotomous risk factors and dependence on other protocols. Overall Score: 8.5/10.

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