Frax Finance Using Chainlink to Bring U.S. CPI Data On-Chain in Support of the Frax Price Index.
Frax Finance is excited to announce that we have expanded our integration with industry-leading oracle network Chainlink to support the launch of the new Frax Price Index (FPI), an algorithmic stablecoin designed to be inflation-resistant and an entirely new unit of account. FPI will be pegged to a decentralized consumer price index (CPI) with crypto native elements added on top of Chainlink’s custom CPI oracle built for FRAX. Our initial integration, now live on Ethereum, involves using the Chainlink Any API functionality to create a decentralized, on-chain reference contract that stores the most up-to-date U.S. government Consumer Price Index (CPI) data.
FPI references this Chainlink Data Feed to manage an inflation-pegged stablecoin tied to consumer price data. This is the first implementation towards our overall goal of FPI becoming a fully decentralized and permissionless unit of account that is more inflation-resistant than the dollar but still price stable to a basket of goods. If you are interested in helping us achieve our vision, we encourage people to participate in the $200k award co-sponsored by Balaji Srinivasan and Chainlink around building a more censorship-resistant global inflation dashboard based on the Chainlink oracle technology.
Building the Frax Price Index With Custom Chainlink Oracles
The Consumer Price Index (CPI) is a widely relied upon way of measuring the inflation of any fiat currency. The index works by tracking the historic rise (or fall) in prices of common consumer products over time and within certain key markets such as food and beverages, rental housing, clothes, and more. Though the realities of inflation are real, as evidenced by the continuous price rise of these household items, consumers have historically been ill-equipped to combat its impact. Additionally, the calculation of CPI data has largely been undertaken by governments, which opens up a conflict of interest since they are often the same institution in charge of managing the narrative around monetary policy.
The Frax Price Index (FPI) aims to provide users around the world with a stable asset that yields the inflation rate at all times thus protecting against inflation while being stable in purchasing power. FPI holders can expect the same stable performance as US Dollars but without inflation. FPI is the first step towards building a CPI-backed stablecoin pegged to consumer price data, with the goal of making it as accessible, reliable, and censorship-resistant as possible. Towards that end, FPI will be managed by the FRAX DAO and decentralized CPI data feeds will be developed upon the Chainlink oracle infrastructure.
The first deployment of FPI involves pegging it to the official U.S. Government CPI data with select crypto native indices supplemented by FRAX governance. A Chainlink-powered decentralized oracle network will fetch and deliver this data on-chain to account for CPI updates, which FPI will then reference to adjust the collateral requirements used to mint FPI and set yield rates to protect against inflation. We plan to continue working with Chainlink to further decentralize the CPI metric, including following the above grant for a decentralized inflation dashboard currently under way.
We elected to leverage Chainlink as the oracle infrastructure used to obtain consumer inflation data on-chain because its optimized for:
- High-Quality Data — Chainlink oracles can manage API keys and account logins, allowing them to aggregate and deliver premium data from any API.
- Reliable Nodes — Chainlink Data Feeds are secured by a large collection of independent, Sybil-resistant oracle nodes run by leading enterprises and top DevOps teams with historical reliability during extreme market volatility and network congestion.
- Transparent Performance — Chainlink Data Feeds can be monitored by anyone in real-time using existing data analytic tools such as market.link and reputation.link, allowing users to verify the data triggering FPI adjustments.
- Scalable Infrastructure — Chainlink is highly flexible infrastructure, enabling us to scale support for more data sources and oracle nodes, as well as build custom aggregation computations and expand to additional blockchains wanting access to FPI.
“Our mission is to solve real macroeconomic problems through the use of blockchain-based crypto assets, and Chainlink decentralized oracle networks are a foundational component of making that a reality,” commented Sam Kazemian, Founder of Frax Finance. “Chainlink not only provides time-tested infrastructure for high reliability, but it’s extreme flexibility will be crucial in evolving the CPI data feed over time to include more data sources and refined calculations that better resist manipulation.”
Chainlink is the industry standard for building, accessing, and selling oracle services needed to power hybrid smart contracts on any blockchain. Chainlink oracle networks provide smart contracts with a way to reliably connect to any external API and leverage secure off-chain computations for enabling feature-rich applications. Chainlink currently secures tens of billions of dollars across DeFi, insurance, gaming, and other major industries, and offers global enterprises and leading data providers a universal gateway to all blockchains.
About Frax Finance
Frax is the first fractional-algorithmic stablecoin protocol. Frax is open-source, permissionless, and entirely on-chain. The vision for the Frax protocol is to provide a highly scalable, decentralized, algorithmic money in place of fixed-supply digital assets like BTC. FRAX is the only stablecoin with parts of its supply backed by collateral and parts of the supply algorithmic. The ratio of collateralized and algorithmic depends on the market’s pricing of the FRAX stablecoin. If FRAX is trading at above $1, the protocol decreases the collateral ratio. If FRAX is trading at under $1, the protocol increases the collateral ratio. Learn more: frax.finance