Frax Finance, also known as Frax, is a fractional-algorithmic stablecoin protocol. The project is "the world's first fractional algorithmic stablecoin with parts of its supply collateralized and parts algorithmic stabilized." 
On November 16, 2020, the testnet was released for early users to experiment with and report bugs. The protocol officially launched on the Ethereum mainnet on Sunday, December 20, 2020, at 4 pm PST (Monday December 21, 2020 at 0:00 UTC).
One hour after launch the total value locked (TVL) in Frax Finance was over $43 million. As of Jan 13, 2021, a record 100 Million FRAX tokens have been minted, with a collateral ratio of around 85%.
On February 17, 2021, Frax Finance became the first algorithmic stablecoin to be listed on Binance. Binance listed Frax Shares in their Innovation Zone with FXS/BTC and FXS/BUSD trading pairs opening on February 18, 2021, 9:00 AM (UTC) and deposits opening earlier.
The Frax protocol takes inspiration from Robert Sams' 2014 academic paper titled “A Note on Cryptocurrency Stabilisation: Seigniorage Shares.”
Before the inception of the Frax Finance protocol, stablecoins were divided into three different categories: fiat collateralized, overcollateralized with cryptocurrency, and algorithmic with no collateral. FRAX is a new type of decentralized stablecoin classifying itself as fractional-algorithmic. 
The Frax protocol is the first stablecoin designed to transition from fully collateralized to varying levels of fractional backing whereby parts of the supply are not backed by any assets but rather minted and bought back by the protocol itself to keep the price of the FRAX token at $1. 
As FRAX adoption increases, users of the protocol will be more comfortable with a higher percentage of FRAX supply being stabilized algorithmically rather than with collateral. 
The price of FRAX, FXS, and collateral are all calculated with a time-weighted average price (TWAP) of the Uniswap pair price and the ETH: USD Chainlink oracle. The Chainlink oracle allows the protocol to get the true price of USD instead of an average of stablecoin pools on Uniswap. This allows FRAX to stay stable against the United States dollar itself which would provide greater resiliency instead of using a weighted average of existing stablecoins only.
Frax v2 expands on the idea of fractional-algorithmic stability by introducing the idea of the "Algorithmic Market Operations Controller" (AMO). An AMO module is an autonomous contract(s) that enacts arbitrary monetary policy so long as it does not change the FRAX price off its peg. This means that AMO controllers can perform open market operations algorithmically (as in the name), but they cannot arbitrarily mint FRAX out of thin air and break the peg. 
Frax Share Token (FXS)
Frax Share Tokens eschew DAO-like active management similar to MakerDAO. FXS supply was initially set to 100 million tokens at genesis, but the amount in circulation is deflationary as FRAX is minted at higher algorithmic ratios. The design of the protocol is such that FXS would be largely deflationary in supply as long as FRAX demand grows. 
FXS has control of the seigniorage and revenue flow of the protocol. FXS is similar to ownership/stake in the protocol, not debt which is a separate financial primitive. 
Per the FXS yearly halvening schedule, the total FXS emissions halve every 12 months on December 20, 2020. 
60% of all FXS tokens are to be distributed through various yield farming, liquidity incentives, and exclusive governance proposals across several years. Thus, a maximum of 60,000,000 FXS will be distributed to the community for liquidity programs and other Defi initiatives as they appear in the space as voted by governance. 5% of all tokens are allocated to Project Treasury, grants, partnerships, and security bug bounties via team and community discretion. The Project Treasury is an entire community and team-governed pool of FXS. It should be used for making grants for the development of the Frax technology, open-source upkeep of the code, future audits of smart contracts, bug bounties through responsible disclosure, possible cross-chain implementations, creation of new protocol-level features and updates, Gitcoin grants for the Ethereum community, Frax Improvement Proposals (FIPs), partnerships with exchanges and DeFi projects, providing liquidity on AMMs at launch. The usage of this fund is dependent on the discretion of the team and community.
20% of all FXS tokens are to be distributed to the team, founders, and early project members. 3% are advisory tokens that are allotted for strategic work done in legal, technical, and business efforts to advance the adoption of the Frax protocol. The tokens are vested evenly over 3 years. 12% are distributed to accredited private investors. The first round in Frax was done in August 2020 with a small allocation that was sold out in under 2 hours. This allocation will have a small number of their tokens, ~2% unlocked at launch. The remainder of the round was done individually through private placements. The remaining 10% is vested evenly over 1 year, half of which has a 6-month cliff. 
In May 2020, the protocol allowed FXS holders to lock up FXS tokens to generate veFXS and earn special boosts, special governance rights, and AMO profits. 
veFXS is a vesting and yield system based on Curve’s veCRV mechanism. Users may lock up their FXS for up to 4 years for four times the amount of veFXS (e.g. 100 FXS locked for 4 years returns 400 veFXS). veFXS is not a transferable token nor does it trade on liquid markets. It is more akin to an account-based point system that signifies the vesting duration of the wallet's locked FXS tokens within the protocol. 
The veFXS balance linearly decreases as tokens approach their lock expiry, approaching 1 veFXS per 1 FXS at zero lock time remaining. This encourages long-term staking and an active community. 
Frax Price Index (FPI)
In January 2022, Frax Finance announced the expansion of their integration with Chainlink to support the launch of the new Frax Price Index (FPI), an algorithmic stablecoin designed to be inflation-resistant and an entirely new unit of account. FPI will be pegged to a decentralized consumer price index (CPI) with crypto native elements added on top of Chainlink’s custom CPI oracle built for FRAX. Frax and Chainlink's initial integration, now live on Ethereum, involves using the Chainlink Any API functionality to create a decentralized, on-chain reference contract that stores the most up-to-date U.S. government Consumer Price Index (CPI) data. 
Frax Price Index Share (FPIS)
On October 13, 2022, Frax Ether, the liquid staking system, went live. The system has three components – frax ether (frxETH), staked frax Ether (sfrxETH) and the Frax ETH Minter. Staking refers to locking up coins in a crypto wallet in return for rewards. Liquid staking is the process of locking up funds to earn rewards while still having access to the funds locked via their liquid derivative coins.   
frxETH is an ether-pegged stablecoin meant to be equal to one ether (ETH). Users can deposit ETH into the Frax ETH Minter contract and get an equivalent amount of frxETH, unlocking the liquidity of ether staked. The frxETH tokens can be used to provide liquidity on the decentralized exchange Curve. To earn rewards on the ether staked, however, users need to exchange frxETH with the staked frax ether or sfrxETH tokens.
Frax Finance's two-token model eliminates risks associated with rebasing and simplifies DeFi integrations. The frxETH stablecoin doesn't rebase and is fully backed by algorithmic market operations plus ether. Further, the sfrxETH tokens, which earn staking rewards, increase in price like the Yearn vault token.
The FRAX gauge weighted system for controlling FXS emissions & FRAX expansions allows FXS holders to stake for up to 4 years to generate veFXS and vote where future FXS emissions are directed. Users can vote for FRAX gauge weights with their veFXS balance. They can distribute their voting power across multiple gauges or a single gauge. This allows veFXS holders who are the most long-term users of the protocol to have complete control over the future FXS emission rate. Additionally, the gauge system lowers the influence of FRAX pairs where the majority of rewards are sold off since those LPs will not have veFXS to continue voting for their pair. This system strongly favors LP providers who continually stake their rewards for veFXS to increase their pool's gauge weight. Essentially, FRAX gauges align incentives of veFXS holders so that the most long-term oriented FXS holders control where FXS emissions go until the full community FXS allocation is distributed. Gauge weights are updated once every week every Wednesday at 5 pm PST. This means that the FXS emission rate for each pair is constant for 1 week and then updates to the new rate each Wednesday. Any user can change their weight allocation every 10 days. 
After all, FXS has been distributed, the gauge system will transition to controlling FRAX stablecoin expansions as rewards for LPs. This switch from FXS to FRAX rewards will not occur for a few years until FXS emissions are nearing completion and allow the stablecoin to build trust, confidence, and the Lindy effect first. Additionally, veFXS stakers can feel confident staking the maximum duration of 4 years knowing that the gauge program is not temporary and won't be deprecated when FXS rewards end. The gauge weights will simply transition to distributing FRAX stablecoins as rewards perpetually.
Fraxswap is the first constant product automated market maker with an embedded time-weighted average market maker (TWAMM) designed by Frax Finance. Fraxswap is mainly used for conducting large trades over long periods of time trustlessly. On June 2022, the Frax Finance team announced the launch of Fraxswap.
In January 2022, Frax was introduced as a service on Ondo Finance. The partnership will build on Ondo's Liquidity-as-a-Service offering and enable the use of $FRAX (provided by the protocol itself) as liquidity for token issuers. 
In December 2021, FRAX partnered with Sacred Finance to bring privacy and stability to Defi. The partnership will allow users to lend FRAX privately and earn yield privately through Sacred. The same month, the Decentralized 3 Pool went live on Convex Finance. This is a triple collaboration between Frax, Fei Protocol, and Alchemix (ALCX). The vision is to make the D3 Curve pool the top choice for farming, saving, and holding decentralized dollar stablecoins. In December, NearPad partnered with Frax Finance to bring FRAX and FXS over to the Aurora and Near ecosystem. 
In September 2021, Pangolin and Frax Finance collaborated to bring the FRAX stablecoin to Avalanche. With the collaboration, Pangolin boosts the availability of stablecoins on the Avalanche network for users of Pangolin and provides sufficient liquidity in innovative stablecoins like Frax. They added reward pools for the AVAX-FRAX pair and the AVAX-FXS pair to support liquidity. 
Investors & Backers
- ParaFi Capital
- Mechanism Capital
- Dragonfly Capital
- Crypto.com Capital
- Electric Capital
- Multicoin Capital
- Galaxy Digital
- Tribe Capital
- Robot Ventures
- Ascensive Asset Management
- Calvin Liu (Div. VC)
- Stani Kulechov (Aave)
- Kain Warwick, Jordan Momtazi (Synthetix)
- Eyal Herzog, Guy Benartzi (Bancor)
- Balaji Srinivasan
- Santiago Roel Santos