FRAX Stablecoin Upgrades to Chainlink Price Feeds to Secure Minting and Redeeming Functions
Frax, a novel fractional-algorithmic stablecoin protocol, has upgraded its entire oracle mechanism to Chainlink Price Feeds. By integrating Chainlink’s industry-leading decentralized oracle network, users get even greater security and reliability around the minting and redemption of FRAX and FXS being consistently in accordance with a collateral ratio that reflects the most up-to-date and accurate global market prices. Simply put, FRAX has stronger data infrastructure in place for maintaining its peg, especially critical as FRAX scales in value.
This integration involves the use of Chainlink Price Feeds for both FXS/USD and FRAX/USD. We selected Chainlink as our go-to oracle solution because its infrastructure is time-tested in production and proven to secure tens of billions of dollars in value for leading DeFi protocols, even amidst unexpected situations like exchange downtime, flash crashes, and data manipulation attacks via flash loans. Chainlink Price Feeds also run natively across many different blockchains, enabling us to quickly expand our protocol to other blockchains in the future.
Additionally, we are working closely with Chainlink Labs on our Frax Price Index (FPI), the world’s first attempt at creating a crypto native Consumer Price Index. The FPI will be a combination of a Chainlink CPI oracle custom made for Frax as well as new crypto native indices. The vision for the FPI is to create a new fully decentralized unit of account for stablecoins to peg to which is more inflation-resistant than the dollar but still price stable to a basket of goods.
Understanding FRAX and Our Upgrade to Chainlink Price Feeds
Frax pioneered the fractional-algorithmic stablecoin protocol, with parts of its supply backed by collateral and parts of the supply algorithmic. FRAX’s collateral requirements fluctuate algorithmically depending on its market price. If FRAX is trading above $1, the protocol decreases the collateral ratio. If FRAX is trading under $1, the protocol increases the collateral ratio. Frax is also a community-governed project with a strong emphasis on being a fully autonomous stablecoin, requiring no active management from users or developers.
Prior to Chainlink, FRAX maintained its peg using Uniswap’s TWAP price feeds. However, as FRAX scales to secure more value for users, we needed to upgrade the security and reliability of our price feed oracles. While TWAP price feeds do provide a fully on-chain solution, they suffer from insufficient market coverage and are a lagging market indicator, which can lead to inaccurate and/or stale prices, especially in periods of rapid volatility when we need it most. Additionally, as the DeFi ecosystem quickly moves to a multi-chain and multi-layer 2 world, liquidity is increasingly fragmenting across different ecosystems, further decreasing the market coverage derived from any single on-chain source.
We elected to upgrade to Chainlink Price Feeds because they provide the most expansive market coverage in the blockchain industry, along with a historical track record of price updates during even the worst network conditions. Some of the notable features of Chainlink Price Feeds that can benefit FRAX include:
- High-Quality Data — Chainlink Price Feeds source data from numerous premium data aggregators like BraveNewCoin and Kaiko, leading to price data aggregated from hundreds of exchanges, weighted by volume, and cleaned of outliers and wash trading. This generates accurate global market prices that are inherently resistant to inaccuracies or manipulation on any single or small set of exchanges.
- Secure Node Operators — Chainlink Price Feeds are secured by independent, security-reviewed, and Sybil-resistant oracle nodes run by leading blockchain DevOps teams, data providers, and traditional enterprises. Chainlink nodes have a strong track record for reliability, even during high gas prices and infrastructure outages (e.g., Infura).
- Decentralized Network — Chainlink Price Feeds are decentralized at the data source, oracle node, and oracle network levels, generating strong protections against downtime and tampering by either the data provider or oracle network.
- Reputation System — Chainlink provides a robust reputation framework and set of on-chain monitoring tools that allow users to independently verify the historical and real-time performance of node operators and oracle networks.