Fractional stablecoin
fractional reserve stablecoin
A stablecoin partially backed by collateral and partially by an algorithmic / market-driven mechanism.
FRAX v1-v2 was the prototype, oscillating its collateral ratio based on TWAP price. Fractional designs aim for capital efficiency without going full-algo, but the algorithmic component is still a stress-time vulnerability. FRAX has since pivoted to fully-collateralised in v3.
Related terms
- FRAXA stablecoin issued by Frax Finance — historically fractional, now fully-collateralised in v3.
- Algorithmic stablecoinA stablecoin that maintains its peg through programmatic supply expansions and contractions rather than 1:1 reserves.
- Fiat-collateralised stablecoinA stablecoin backed by off-chain fiat reserves (cash + equivalents) held by a regulated custodian.