In this article, we will be studying the topic “Fractional Stablecoins”. Also, we will look at the topic’s relationship with collateral, stablecoins, cryptocurrency, tokens, etc.
Fractional stablecoins are the type of stablecoins that needs a collateral as back up. They also need incomplete stabilization in a sequence. Meanwhile, they equally offer a lot of variations and benefits like its incomplete backup with liquidity. Also, it has permission of redemptions with a similar general idea. This condition depends on the protocol minting more stablecoins than it can redeem.
Meaning Of A Stablecoin
Consequently, a stablecoin is a digital asset built on the blockchain that usually retains a specific price for a long period of time. A backup helps to maintain the validity of a stablecoin as a payment. However, the backup can be in form of real money. Also, it can be crypto or tokens in Ethereum network. On the other hand, these backups serves as collateral and should be interchangeable.
A fractional stablecoin has two methods of backup, namely: Backup with collateral and Backup with sequence. In terms of collateral, the ratio is close to 100% or even the same. However, this method is beneficial for retaining capitals since it takes only less fiat currency to do so. In a different perspective, fractional stablecoins have bigger supply of tokens than that of liquidity or collateral in circulation. They usually have typical sequential methods. These methods helps to prevent bank issues through economic influence and gaming ideas.
In the case where there’s an increase from that specific price, the devices creates new stablecoin. This continues until the price goes back to its initial price. If the stablecoin has to many collaterals, reverse becomes the case. Also, burning of tokens occurs.
Stablecoins with sequence usually face some difficulties. They include: inability to improvise, slow growth, high volatility, etc. One can also use sequences to make the collateral, rise or fall to maintain its specific price. However, it generates or burn the digital tokens present.
FRAX is the only stablecoin that doesn’t deviate from its specific price. Sam Kazemian is the founder of FRAX. This is a sequential fractional stablecoin that needs incomplete backup and stability in sequence. FRAX is open-source and does not require permission, bringing a truly undoubtful, scalable and stable asset to the future of DeFi. Sam is a blockchain entrepreneur and cryptocurrency enthusiast, he has a lot of experience in the crypto space. He is currently teaching cryptocurrency, computer science and entrepreneurship at UCLA. In 2013, Sam was mining crypto in his college room, this was how his crypto journey began.