---
title: "Frax Finance"
url: "https://caper.network/wiki/daos/stablecoins/frax-finance"
updated: 2026-08-24
license: CC-BY-4.0
license_url: "https://creativecommons.org/licenses/by/4.0/"
---

# Frax Finance

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| --- | --- |
| **Name** | Frax Finance (Frax DAO) |
| **Type** | Full-stack DeFi protocol — stablecoin issuer, liquid-staking, lending, DEX and an OP-Stack Layer 2 (Fraxtal) |
| **Founded** | 2020 (Sam Kazemian, Travis & Stephen Moore); FRAX stablecoin launched 20 Dec 2020 |
| **Governance token** | FRAX (renamed from FXS in the April 2025 [North Star](https://gov.frax.finance/t/fip-428-frax-north-star-proposal-v2/3652) upgrade) — originally [100,000,000 fixed max supply](https://docs.frax.finance/fxs-and-vefxs/frax-share-fxs-distribution) with halving emissions; permanently capped at 143,000,000 by [FIP-441](https://gov.frax.finance/t/fip-441-frax-1-token-1-mission-1-vision/3826) (passed 5 Feb 2026) |
| **Governance model** | [veFXS/veFRAX](https://docs.frax.finance/fxs-and-vefxs/vefxs) — vote-escrow (lock up to 4 years for up to 4× voting weight), non-transferable |
| **What it governs** | Protocol parameters, collateral policy, and [gauge weights](https://docs.frax.finance/fxs-and-vefxs/gauge) that direct token emissions to pools – the legacy FXS gauge system is scheduled for sunset under [FIP-441](https://gov.frax.finance/t/fip-441-frax-1-token-1-mission-1-vision/3826) |
| **Links** | [frax.com](https://frax.com/) · [docs](https://docs.frax.finance/) · [governance forum](https://gov.frax.finance/) · [@fraxfinance](https://x.com/fraxfinance) |

**Frax Finance** is one of DeFi's oldest and most restlessly-redesigned protocols. It launched on 20 December 2020 with the first [fractional-algorithmic stablecoin](https://docs.frax.finance/): a dollar token (**FRAX**) that was only _partially_ backed by hard collateral, with the remainder held to peg by an algorithm that minted and burned a second, volatile [governance token](/wiki/dao-governance/concepts/treasury/dao-tokenomics) (**FXS**). Where [Maker/Sky](/wiki/daos/stablecoins/sky-dao) over-collateralised and Terra went fully algorithmic, Frax sat deliberately in between — and, unlike Terra, survived the 2022 stablecoin collapse. Over five years it grew from that single idea into a full-stack ecosystem — liquid staking (frxETH), lending (Fraxlend), a DEX (Fraxswap), a wrapped-BTC (frxBTC) and its own OP-Stack rollup, [Fraxtal](https://docs.frax.finance/frax-v3-100-cr-and-more/fraxtal) — all steered by a single vote-escrow governance layer.

## The fractional-algorithmic stablecoin and AMOs

FRAX opened at a 100% **collateral ratio** (fully backed by USDC) and was designed to lower that ratio as the market showed confidence, letting the algorithm carry the uncollateralised slice; by 2022 the CR had fallen to roughly [82%](https://messari.io/report/frax-a-fractional-algorithmic-stablecoin). The protocol's signature invention arrived in late 2021: **[Algorithmic Market Operations](https://docs.frax.finance/) (AMOs)** — autonomous smart-contract controllers that put idle collateral to work (lending it, providing liquidity, running yield strategies) under one hard invariant: _an AMO may never break the FRAX peg_. AMOs turned the treasury from a static reserve into a programmable balance sheet. After the 2022 depeg contagion, veFXS holders reversed course entirely: [FIP-188](https://gov.frax.finance/t/fip-188-increase-cr-to-100/2147) (the "FXG vote", February 2023 — [~98% in favour](https://www.coindesk.com/markets/2023/02/22/frax-finance-votes-to-fully-collateralize-its-1-billion-stablecoin)) set FRAX on a path _back_ to a 100% collateral ratio, which the protocol reached over the following months — a governance decision to trade the capital-efficiency of the fractional model for the trust of full backing.

## veFXS: vote-escrow governance and the gauge system

Frax governs through a [Curve](/wiki/daos/dexs/curve-dao)-derived **vote-escrow** model. Locking FXS produces **veFXS**: one FXS locked for the maximum [four years](https://docs.frax.finance/fxs-and-vefxs/vefxs) yields 4 veFXS, and the balance decays linearly toward 1:1 as the lock runs down. veFXS is explicitly _"not a transferable token nor does it trade on liquid markets"_ — it is an account-bound weight, not an asset. Each veFXS carries one vote over protocol parameters and, crucially, over **[gauge weights](https://docs.frax.finance/fxs-and-vefxs/gauge)**: the weekly allocation of FXS emissions across pools that integrate FRAX. Cash flow earned across the stack (AMOs, Fraxlend, Fraxswap) was historically used to buy FXS from the market and distribute it to veFXS lockers as yield; since [FIP-441](https://gov.frax.finance/t/fip-441-frax-1-token-1-mission-1-vision/3826) the DAO allocates up to 10% of eligible net protocol revenue to veFRAX instead, reviewed on a six-month governance cadence. This is the same [vote-escrow](/wiki/dao-governance/concepts/voting/token-weighted-voting) primitive that made [Convex](/wiki/daos/lending/convex-finance) the kingmaker of the Curve Wars, and Frax was itself a major combatant, amassing a large [vlCVX position](https://tokenbrice.xyz/crv-wars-l2/) to steer Curve emissions toward its own pools.

## Fraxtal and the North Star governance overhaul

In February 2024 Frax launched **[Fraxtal](https://docs.frax.finance/frax-v3-100-cr-and-more/fraxtal)**, an [OP-Stack rollup](https://l2beat.com/scaling/projects/fraxtal) whose blockspace-incentive system (**Flox**) rewards users and developers with **FXTL points** for spending gas and deploying used contracts. The defining governance event came in 2025: [**FIP-428, the "North Star" proposal**](https://gov.frax.finance/t/fip-428-frax-north-star-proposal-v2/3652) — moved to a Snapshot vote on 18 March 2025 and executed on 29 April 2025 — collapsed the two-token branding and rewrote the tokenomics. FXS was renamed **FRAX** and made Fraxtal's gas token (replacing frxETH; the old ERC-20 became a `wFRAX` wrapper); veFXS became **veFRAX**; and the original FRAX stablecoin was renamed _"Legacy Frax Dollar"_, with frxUSD taking over as the flagship dollar. (For a contrasting stablecoin design that reaches its peg by hedging volatile collateral rather than over-collateralising, see [Ethena's USDe](/wiki/daos/stablecoins/ethena).) Most consequentially for holders, North Star retired FXS's [fixed 100M cap and halving schedule](https://docs.frax.finance/fxs-and-vefxs/frax-share-fxs-distribution) in favour of a **tail emission**: ~8% annual issuance declining 1%/year to a 3% floor over five years — turning a deflationary share into a mildly-inflationary network commodity to fund Fraxtal security and FXTL conversions. A DAO voting to re-issue its own supply schedule is one of the sharper examples of governance reaching all the way down to a token's monetary policy – and that schedule did not survive the year.

## FIP-441: the tail emission reversed and the gauge system retired

Ten months after North Star executed, the same electorate undid its most consequential term. [**FIP-441, “$FRAX: 1 Token, 1 Mission, 1 Vision”**](https://gov.frax.finance/t/fip-441-frax-1-token-1-mission-1-vision/3826), posted by the core team on 26 January 2026, eliminated the perpetual 3% tail emission entirely and fixed FRAX supply permanently at **143,000,000** – the total North Star had already set – pre-minting 43M of it against seven annual budget caps, FPIS redemptions and the legacy-FRAX wind-down. What had been an issuance schedule became a _spending_ schedule: seven declining annual caps (4M, 4M, 4M, 3.5M, 3M, 2.5M, 2M across the emission years April 2025 to March 2032) that the team may spend down but never exceed. The same proposal retires the mechanism the section above describes – the historical FXS gauge emission system “will be sunset in the future in a separate governance vote in 2026”, with incentives moving to FXTL, treasury FRAX allotments and veFRAX-aligned systems – migrates veFXS locks from Ethereum to **veFRAX on Fraxtal** with the locks intact, and sets veFRAX revenue share at up to 10% of eligible net protocol revenue, reviewed by governance on a six-month cadence rather than paid as a fixed yield. It [closed on Snapshot on 5 February 2026](https://snapshot.box/#/s:frax.eth/proposal/0x83a5db79bb868b3ba952ea8417ee8ac94b67b69c8b99521454691a0003b5b226) with 29,661,643.41 veFXS in favour and 0.08 against. Frax has now voted its own supply schedule open and then shut again inside a year, which makes it an unusually clean record of how far down a token’s monetary policy governance can actually reach – and of how fast that layer moves.

## How Caper approaches this

Frax is a study in governance _doing real work_: veFXS lockers have voted the collateral ratio down and back up, redirected emissions pool by pool, and ultimately rewritten the token's own supply schedule. But its influence still rests on the [vote-escrow](/wiki/dao-governance/concepts/voting/token-weighted-voting) bargain — lock a transferable, tradable token to buy weight — which is exactly what let [Convex](/wiki/daos/lending/convex-finance) aggregate and rent that weight a layer up. A [caper](/wiki/foundations/what-is-a-caper) pursues the same end (coupling say to commitment) without the lock. Its [voting weight](/wiki/governance/voting) multiplies the caper tokens a member holds by the _participation_ they have earned, and that participation record is **soulbound** — non-transferable, so it cannot be pooled into a veToken, tokenised, or sold to a cartel. The same weight formula also fixes each member's [treasury exit share](/wiki/markets/bonding-curve), so the metric that decides your vote is the metric that decides your redemption — you cannot vote with weight you would not also cash out on. And because a caper has no emission gauges to steer — its tokens come from a bonding curve, not a weekly inflation vote — there is no emission stream for a Curve-style "war" to capture. This is a design contrast, not a claim of superiority; the mechanics are on the linked pages and verified against the contract.

## References

- [Frax Finance documentation](https://docs.frax.finance/) — ecosystem overview, the fractional-algorithmic design and AMOs (primary).
- [veFXS](https://docs.frax.finance/fxs-and-vefxs/vefxs) and [Gauges](https://docs.frax.finance/fxs-and-vefxs/gauge) — the vote-escrow lock, 4-year 4× weight, and gauge-weight emission control (primary).
- [FIP-428 — Frax North Star Proposal V2](https://gov.frax.finance/t/fip-428-frax-north-star-proposal-v2/3652) — the FXS→FRAX rename, veFRAX, Fraxtal gas token, and tail-emission plan (primary governance record).
- [FIP-188 — increase CR to 100%](https://gov.frax.finance/t/fip-188-increase-cr-to-100/2147) — the February 2023 "FXG" vote back to full backing (primary governance record).
- [FIP-441 – $FRAX: 1 Token, 1 Mission, 1 Vision](https://gov.frax.finance/t/fip-441-frax-1-token-1-mission-1-vision/3826) – the January 2026 proposal that fixed FRAX supply at 143M, eliminated the 3% tail emission, migrated veFXS to veFRAX on Fraxtal and scheduled the FXS gauge sunset; [closed 5 February 2026](https://snapshot.box/#/s:frax.eth/proposal/0x83a5db79bb868b3ba952ea8417ee8ac94b67b69c8b99521454691a0003b5b226) on 29,661,643.41 veFXS for and 0.08 against (primary governance record).
- [Fraxtal](https://docs.frax.finance/frax-v3-100-cr-and-more/fraxtal) and [Fraxtal on L2BEAT](https://l2beat.com/scaling/projects/fraxtal) — the OP-Stack rollup, Flox incentives and FXTL points.