Frax Finance, the DeFi project, will soon launch Frax Price Index (FPI): the new inflation-pegged stablecoin. The new token tracks the US Consumer Price Index (or CPI), using oracle data from Chainlink.
Frax Finance and FPI, the rise of inflation in recent months
According to reports, Frax Finance is the Decentralized Finance (DeFi) project that will soon launch Frax Price Index (FPI), the new inflation-anchored stablecoin that tracks the US CPI.
Specifically, the tracking will be done using oracle data from Chainlink, and each month will see an adjustment to the “dollar value” in line with the movement of inflation.
Determining the change will be the CPI, which in March alone saw inflation rise to 8.5%, up from 7.3% in February. The increase from February was the fastest monthly jump since September 2005, keeping pressure on the Fed to step up quantitative tightening measures.
After bottoming out near 0% in early 2020, inflation in the US continued on a strong upward trajectory hitting 8.5% in March.
FPI, the algorithmic stablecoin pegged to the inflation rate
In fact, details of FPI first emerged earlier in 2022, when the Frax team had announced the new algorithmic stablecoin designed to be inflation-resistant.
Unlike stablecoins pegged to fiat currencies, crypto or commodities, algorithmic stablecoins maintain price stability by using algorithms and smart contracts to manage the supply of circulating tokens.
Thus, an algorithmic stablecoin system will reduce the number of tokens in circulation when the market price falls below the price of the fiat currency it follows. Alternatively, if the price of the token exceeds the price of the fiat currency it tracks, new tokens enter circulation to adjust the value of the stablecoin downwards.
In the case of FPI, users would benefit from using an inflation-linked stablecoin, thereby protecting purchasing power.
However, this algorithmic stablecoin involves calculating the CPI, which in turn is calculated on the basis of a variable basket of assets. So a stablecoin tracked by the CPI might not be enough to keep up with the real problem of lower purchasing power.
Not only that, there is also the question of whether Frax Finance can sustain a protocol that requires returns of 8.5% APY. In this regard, Frax Finance founder Sam Kazemian said:
“[our mission is to] Solve real macroeconomic problems through the use of blockchain-based crypto assets”.
FXS, governance token marks +17% in last 24h
Frax Finance’s (FXS) governance token has recorded a +17% in the last 24 hours, now worth almost $35.
Not only that, in early April 2022, FXS recorded an 80% pump after Terra developers introduced the “4pool” liquidity pool on stablecoin swap service Curve Finance.
A few hours ago, Kazemian retweeted the following:
Zoom out to the year view gains….
Solana, Fantom, Avalanche: About equal.
Polygon and Convex were better, but Frax FXS and SPELL were better still.
DESO, EOS, BAT, CELO were negative. pic.twitter.com/nKbCwZfGGw
— Mark Jeffrey (@markjeffrey) April 18, 2022
“Zoom out to the year view gains…. Solana, Fantom, Avalanche: About equal. Polygon and Convex were better, but Frax FXS and SPELL were better still. DESO, EOS, BAT, CELO were negative”.
Source: https://en.cryptonomist.ch/2022/04/19/frax-finance-launch-fpi-inflation-anchored-stablecoin/