1/ Our Risk Analysis of frxUSD
We conducted a comprehensive assessment of @fraxfinance’s frxUSD, a fiat-redeemable, fully collateralized stablecoin backed by tokenized U.S. Treasury funds and cash equivalents held with regulated custodians.
Here are our key findings.
2/ Issuance & Backing
frxUSD is issued natively on Ethereum and Fraxtal, backed 1:1 by USD-denominated assets held with U.S.-regulated custodians.
As of August 2025, frxUSD reserves consisted primarily of short-term U.S. Treasuries and cash.
3/ Minting & Redemption
frxUSD can be minted and redeemed through two primary pathways: custodian contracts and FraxNet.
Custodians mint frxUSD 1:1 against cash-equivalent assets like USDC or USTB. Users can burn frxUSD through a custodian’s on-chain contract to receive the corresponding asset.
FraxNet enables cross-chain minting and redemption using @LayerZero_Core infrastructure.
4/ Liquidity
frxUSD trades primarily on Ethereum, with @CurveFinance as the main venue.
DEX liquidity supports routine volume, while FraxNet enables large redemptions directly to USDC at 1:1. frxUSD’s peg has remained stable, with deviations typically resolved via arbitrage and custodian redemption.
5/ Cross-chain architecture
frxUSD utilizes @LayerZero_Core's OFT standard to transfer cross-chain, without wrapping or liquidity fragmentation.
Tokens are locked or burned on the source chain and unlocked or minted on the destination, maintaining unified supply.
Fraxtal serves as a hub for routing, simplifying bridging and supporting a cohesive multi-chain system.
6/ Our Assessment
We view frxUSD as a fiat-redeemable, cross-chain stablecoin with a clean and composable architecture.
• Custody and compliance are handled by FRAX Inc under FIP-432, while the DAO retains revocation authority and revenue rights. This structure supports a strong balance between regulatory alignment and decentralized governance.
• frxUSD is backed 1:1 by assets held with U.S.-regulated custodians with long operating histories, minimizing solvency risk.
• Transfers use LayerZero’s OFT standard, avoiding wrappers and fragmented pools to support unified cross-chain liquidity.
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