Frax Price IndexPrice

(FPI)

The Frax Price Index (FPI) is the second stablecoin launched by Frax Finance in April 2022. Its core purpose is to offer an inflation-resistant stablecoin pegged to the U.S. CPI-U average. This peg allows it to track the cost of a basket of real-world consumer items, aiming to preserve and potentially enhance users' purchasing power over time, distinguishing it from stablecoins pegged to a single fiat currency.

FPI maintains its stability primarily by being directly pegged to the U.S. CPI-U's 12-month inflation rate. A specialized oracle commits this CPI-U data on-chain, applying the inflation rate to FPI's redemption price. The protocol utilizes Algorithmic Market Operations (AMOs) to manage collateral, consistently targeting a 100% collateral ratio. Should AMO yields underperform inflation, the system can use Frax Price Index Share (FPIS) tokens to maintain this ratio. The redemption price dynamically adjusts on-chain, reflecting changes in the CPI.

FPI offers diverse use cases, serving as an effective inflation hedge to preserve asset purchasing power. It is designed to function as a novel on-chain unit of account for various transactions, valuing both crypto and non-crypto goods. Decentralized Autonomous Organizations (DAOs) can denominate their treasuries in FPI, enabling more accurate real-term value assessment against inflation. Additionally, users can engage in arbitrage trading, staking, or lending FPI to generate income, or utilize it as collateral for loans, benefiting from its inflation-linked value growth.

Frax Price Index Share (FPIS) is the governance token for the FPI stablecoin system. Holders of FPIS can participate in FPI's governance, specifically influencing its CPI peg properties. FPIS also entitles holders to seigniorage, representing excess yield generated by the protocol. This mechanism mirrors how Frax Share (FXS) holders benefit from the wider Frax ecosystem. It is important to note that FPIS is scheduled to be phased out by March 22, 2028, after which it will be convertible into FXS.

The Frax ecosystem includes several stablecoins, each with distinct pegging mechanisms. FPI is uniquely designed to be pegged to the U.S. CPI-U, meaning its value tracks the cost of a diverse basket of consumer goods, making it inflation-resistant. In contrast, FRAX, another prominent stablecoin within the same ecosystem, maintains its peg directly to the U.S. Dollar. This fundamental difference defines their primary purposes and how they aim to preserve value.

FPI is a foundational element of the Frax Finance ecosystem, which is a decentralized finance (DeFi) protocol issuing several stablecoins. The entire ecosystem, including FPI, is managed through governance tokens like Frax Share (FXS) and, specifically for FPI, Frax Price Index Share (FPIS) until its scheduled conversion to FXS. The Frax ecosystem's overarching mission is to deliver scalable, decentralized, and algorithmic forms of money, with FPI contributing an inflation-resistant stablecoin component to this vision.