Frax Finance has released official documentation for FRAX v3, a stablecoin pegged to the US dollar that relies on Algorithmic Market Operations (AMO) smart contracts and open, non-custodial subprotocols for stability.

Referred to as Frax's "Final Stablecoin," FRAX v3 incorporates two internal subprotocols: Fraxlend, a decentralised lending marketplace, and Fraxswap, an automated market maker (AMM) with unique features.

The stability mechanism is complemented by the external subprotocol, Curve.

Stability Through Governance

FRAX v3 is designed to integrate future stability mechanisms through governance.

Unlike USDT and USDC, FRAX stablecoins are non-redeemable, meaning holders do not have the right to redeem them for specific financial instruments or tokens.

The primary function of the Frax Protocol is to maintain the FRAX price at $1.000 by using AMO contracts, real-world assets (RWAs), and governance actions facilitated by frxGov, leveraging USD oracles as a reference.

In addition to the v3 stablecoin, FRAX has introduced sFRAX, or staked FRAX, alongside a bond product convertible to FRAX's stablecoin upon maturity.

Beginning next Monday, users can deposit sFRAX and receive a 10% yield, which will subsequently decrease to approximately 5.4%, aligning with the Federal Reserve's current Interest Rate on Reserve Balances (IORB) rate.

Pivoting From Terra

Frax Finance, a decentralized finance protocol, currently holds a total value locked exceeding $2 billion.

Earlier this year, the DeFi protocol decided to fully collateralize their native stablecoin frax (FRX) following the destabilization and eventual collapse of multiple algorithmic stablecoins last year, contributing to a broader downturn in crypto markets.

The collapse of terraUSD in May had a cascading effect, leading to the collapse of several digital asset firms in the ensuing contagion.