⁉️Background FAQ
Some questions we think might get frequently asked.
What is this all about?
From a bird's eye perspective, the Frankencoin system resembles a bank that creates money against collateral. In the traditional banking system, this can for example be done with real estate. The bank accepts a house as collateral, and prints the agreed amount of money by adding it to that persons bank account. Then the buyer of the house can transfer the money to the seller, where it ends up as a deposit with maybe the same or another bank, thereby closing the circle. When doing so, banks need to observe some reserve and other legal requirements to ensure the mortgage is well-secured. The Frankencoin system essentially enables users to do the same, printing some money against a (hopefully) valuable collateral. Also, like a bank, the Frankencoin system has a reserve pool that resembles the equity capital of a bank and serves as a buffer to absorb risks. However, in contrast to a bank, there is nothing that qualifies as credit as the users print their money themselves, processes are largely automated and fully transparent, and there is no explicit governance besides a veto mechanism that is open for everyone with enough pool shares.
Is the Frankencoin ecosystem useful?
If used with the necessary care, most definitely. Most of the usefulness of the Frankencoin comes from its decentralized nature. It is open, fully transparent, and freely interactible by humans and software alike. Thanks to its transparency, anyone can analyze its solvency at any moment. If it is in imbalance, it can be expected to be attacked by speculators who know exactly at which market prices the Frankencoin is not fully backed any more. The goal is not to imitate traditional banking, the goal is to create something immanently better.
What is the main goal of the Frankencoin?
The primary objective of the Frankencoin is to establish a decentralized financial system that enables individuals to generate currency backed by collateral, akin to traditional banking practices. This initiative is driven by a commitment to transparency, decentralization, and inclusivity, aiming to empower users with the ability to mint their own Swiss Francs. By decentralizing the process of money creation, Frankencoin seeks to foster economic resilience and provide an alternative to conventional centralized financial frameworks.
How does Frankencoin differ from other stablecoins?
Frankencoin sets itself apart from other stablecoins by employing an auction-based system for collateral determination, eliminating the need for external oracles. This approach prevents price manipulation by switching collateral assets during auctions, ensuring system integrity without relying on third-party sources. Additionally, its emphasis on collateral availability enables ongoing challengeability, while autonomous operation reduces owner intervention. Equity holders bear losses in case of insufficient auction proceeds, ensuring robust risk management within the system.
What are Frankencoin Pool Share (FPS) tokens?
FPS tokens represent ownership in the equity reserve pool of the Frankencoin system, functioning like shares in a bank. They enable holders to earn profits from system fees, participate in governance through voting rights, and provide liquidity by minting and redeeming tokens. FPS tokens play a crucial role in maintaining stability, governance, and value creation within the Frankencoin ecosystem. Read more here: Frankencoin Reserve Pool Shares
What role do governance token holders play in the Frankencoin ecosystem?
The Frankencoin Pool Shares (FPS) represent a share in the equity capital of the system. The FPS holders get the profits (earned interests and fees) from the system, but are also covering the residual liquidation risk. Furthermore, FPS token holders accumulate voting power over time. Any FPS holder that has 2% of the votes - alone or together with others - can veto proposals.
What opportunities does Frankencoin offer for preserving purchasing power and investment?
Frankencoin offers a stablecoin pegged to the Swiss franc, preserving purchasing power and providing an alternative to existing stablecoin models. Additionally, it allows users to leverage assets like BTC and ETH to mint new Frankencoins or invest in the future of the project through FPS tokens.
How can individuals invest in the FPS tokens of the Frankencoin ecosystem?
Option 1:
Step 1: Download the Frankencoin App
Step 2: Click on deposit/buy
Step 3: Choose either FPS on ETH or WFPS on Polygon
Step 4: Pay via bank wire or credit card with Apple and Google Pay
Option 2:
Step 1: It’s possible to use the following website: https://frankencoin.dfx.swiss/
Step 2: Connect with Metamask
Step 3: Either choose FPS on ETH or WFPS on Polygon
Step 4: Pay via bank wire or credit card with Apple and Google Pay
Option 3:
Step 1: Via Uniswap (ZCHF to FPS/FPS)
Option 4:
Step 1: Polygon: Via Uniswap (ZCHF to WFPS)
Tip: Due to fees, it might be better to use Polygon if the value is below USD 1'000.
How long is the locking period for FPS?
FPS are not locked. FPS can be transferred at any time. FPS can also be sold at any time. FPS can be exchanged for WFPS and sold via Uniswap. All this is possible and there is no lock. If you want to destroy FPS with the smart contract, these FPS must be at least 3 months old. However, this is not a sale but a destruction of the FPS. After that, these FPS no longer exist and the quantity in circulation of all FPS has decreased.
Is the Frankencoin a security?
No, it neither qualifies formally nor functionally as a security. It does not qualify formally as a security under Swiss law as it does not represent a claim towards an issuer. Also, it does not qualify functionally as a security as it does not serve a financing purpose.
Is Frankencoin political?
Yes, to some extent. The Frankencoin addresses issues within the current system of money creation, highlighting how it distorts capital allocation. For example, regulatory constraints may incentivize investments that aren't optimal for society. Traditional capital requirements tend to favor certain sectors like real estate and government bonds over others. By leveraging blockchain technology, Frankencoin offers an alternative outside the traditional financial system. It seeks to empower individuals by allowing them to create their own money, potentially leading to a stronger economy and more growth if used responsibly.
When obtaining Frankencoin against a collateral, is that really borrowing?
We are having an ongoing debate on whether the term "borrow", "mint", or something entirely different should be used. "Borrow" is more intuitively understandable, but it implies the presence of a counterparty and by extension that the Frankencoin system is a legal entity - which it is not as the law does not recognize distributed systems as such. Also, the term "borrow" is usually applied to things that already exist before they are being borrowed. So the alternative term that could be used is simply "mint", which is technically correct as that is what happens when obtaining Frankencoins against a collateral: new tokens are being minted using the mint function of the Frankencoin smart contract. However, the term "mint" does not cover everything that is happening, so while it is more accurate than "borrow", it is less complete. "Borrow" correctly implies that at some point in time, the created Frankencoins need to be returned, which "mint" does not. Given the choice between the more complete but slightly misleading "borrow" and the more accurate but incomplete "mint", we decided to label the according buttons "borrow".
Are Reserve Pool Shares securities?
Probably not.
Functionally, they can be used to invest in an system and allow the holders to make capital gains (or losses) as the system grows (or shrinks). This is how the system compensates the FPS holders for their willingness to stabilize the system with their capital. However, the FPS tokens lacks some of the most important economic functions of a security. Most notably, when buying newly issued FPS tokens, no funds are moved into the hands of a third party. Instead, the funds are just locked until used for one of the pre-defined purposes on the blockchain.
Formally, reserve pool shares do not represent securities as there is no identifiable issuer. So a regulator following the "function over form" approach might conclude reserve pool shares to be securities. However, this would create all kind of hairy legal questions as most securities laws have been written with traditional securities in mind that represent a claim towards an identifiable issuer. In the long run, legislators will have to figure out whether to create new laws designed designated to crypto assets (the European Union is in the process of doing so with their MiCA regulation) or whether they want to make existing securities regulation applicable to functionally similar crypto assets.
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