Concept engineer@voltprotocol | product@friggeco

How Frax beats the Rest

# How Frax beats the Rest

*Written by [jackchong.eth](https://twitter.com/jackchong_jc) and [0xkowloon.eth](https://twitter.com/0xkowloon)*

Stablecoins represent a large portion of the cryptocurrency’s total market capitalization, with a market size of **[$180 billion](https://www.theblockcrypto.com/data/decentralized-finance/stablecoins)+.** The simplest definition of a stablecoin is a digital currency with a value that's pegged to a ‘stable’ reserve asset, usually the U.S. dollar. For institutions, stablecoin is a [wedge](https://www.bloomberg.com/news/articles/2022-02-24/stablecoins-soar-in-value-as-everything-else-in-crypto-shrinks) into the broader digital asset market: providing a higher yield and faster settlements to fiat whilst retaining the benefits of low volatility.

As much as crypto promises decentralization, stablecoins are still dominated by centralized products. **80%+ of the market** is represented by fiat-backed assets such as USDC and USDT. These products are issued by centralized entities: Circle and Tether Holdings respectively.

Increasingly centralized issuers have been under greater regulatory scrutiny. Driven by [the Tether scandal](https://www.bloomberg.com/news/features/2021-10-07/crypto-mystery-where-s-the-69-billion-backing-the-stablecoin-tether#:\~:text=For%20years%20a%20persistent%20group,coin%20is%20essentially%20a%20fraud.), Congress, Feds, and the Treasury [have all eyes](https://www.bloomberg.com/news/articles/2022-02-08/need-for-stablecoin-legislation-urgent-treasury-official-says) on stablecoins. In a [recent public report](https://www.theblockcrypto.com/post/132542/fed-releases-new-research-on-risk-and-promise-of-stablecoins), the Feds ever considers stablecoins a ‘collateral sinkhole’ that challenges monetary policy and financial system security.

![From the Block](https://images.mirror-media.xyz/publication-images/eb2E7FUDoqPasTTdJDMIY.png?height=1260&width=2401)

As centralized stablecoins come under attack, decentralized stablecoins have become more attractive. In December 2020, fiat-backed stablecoins market capitalization was **21x** that of algorithmic. Today, that ratio is just **5x.**

This article is a deep-dive on Frax Finance, an algorithmic-backed stablecoin. Its market capitalization has grown nearly 530% since October 2021, [$2 billion](https://app.frax.finance) in total protocol value, making it currently the fastest-growing protocol.

The task of building an anti-fragile algorithmic-backed stablecoin is [very difficult](https://twitter.com/QwQiao/status/1405584720315006977?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed&ref_url=notion%3A%2F%2Fwww.notion.so%2Femperorming%2FFrax-Finance-4af9636ee9b947fd84c30b600121765b). There are three core competencies that need to be satisfied:

1. Stable (low volatility)
2. Maintains a peg to a chosen asset over a period of time
3. High utility (integration with the wider ecosystem)

In his book *[Civilization: The West and the Rest](https://www.amazon.co.uk/Civilization-West-Rest-Niall-Ferguson/dp/0141987936),* the historian Niall Ferguson attributed six reasons why the West is more economically developed than the rest of the world (’the Rest’). He named those factors, e.g. competition, property rights, and medicine, as ‘[Killer Apps](https://www.npr.org/2011/11/02/141942357/how-the-west-beat-the-rest-six-killer-apps?t=1645893942464)’.

Haseeb Qureshi at Dragonfly [called](https://medium.com/dragonfly-research/blockchains-are-cities-564327013f86) Layer 1 cities. Balaji called a digitally native country a ‘[crypto-civilization](https://Crypto-Civilization)’. Here, we call Frax a Civilization like the West, a tribute to Niall Ferguson. You hear it from us first.

We have identified 3 Killer Apps that enable Frax to beat the Rest This article is also the first technical deep dive into Frax’s codebase.

Read on to find out how Frax beats the Rest!

*This deep-dive concerns [Frax v2](https://docs.frax.finance/amo/overview) for protocol design a