The Frax Price Index (FPI) is the second stablecoin of the Frax Finance ecosystem which launched in April, 2022. FPI is the first stablecoin pegged to a basket of real-world consumer items as defined by the US CPI-U average.
FPI is designed to be the first on-chain stablecoin with its own unit of account derived from a basket of goods, both crypto and non-crypto. FPI is pegged to a basket of real-world consumer items, as defined by the US Consumer Price Index for All Urban Consumers (CPI-U). The underlying goal of FPI is maintaining purchasing power- as the price of items in the CPI rises, the price of FPI grows accordingly.
Like everything part of the Frax ecosystem, FPI is maintained through use of on-chain Algorithmic Market Operations (AMOs). The stablecoin uses a specialized Chainlink oracle to pull CPI-U unadjusted 12-month inflation rate on-chain as soon as it is publicly released by the US Federal Government. This inflation rate is then applied to the redemption price of the FPI stablecoin in the system contract. The redemption price is updated on-chain every second, with the peg calculation rate being updated once every 30 days when the monthly CPI price data is released by the government.
When someone buys FPI stablecoins with another asset, like ETH, they are taking the position that the purchasing power of the CPI basket is growing faster over time than the value of the ETH they are selling. Conversely, when someone sells FPI stablecoins for ETH, they are taking the position that the value of ETH is outpacing the inflation rate of the US Dollar as represented by the CPI basket of goods.
The intention is for FPI to be used as a stablecoin to denominate transactions, value, and debt, and to help gauge the real-term value accrual of on-chain economics against inflation. The FPI stablecoin is also intended to help ground on-chain economics to baskets of real-world assets.