Frax Share (FXS) has been one of the few altcoins to achieve dominant price performance amid the bear market of late 2021 to early 2022. In the month between December 14 and January 14, FXS it was up 128% against the US dollar and 159% against Bitcoin (BTC). In addition to this impressive feat, FXS topped charts for historically bullish trading conditions on multiple occasions throughout this period. What is behind the token's strong recurring trading outlook?
Governing a stablecoin ecosystem
FXS is the utility token that underpins the Frax ecosystem, a stablecoin protocol that seeks to occupy a middle ground between fully collateralized and fully algorithmic stablecoins, thus taking advantage of both designs.
In keeping with the protocol's highly "governance-minimized" approach to its architecture, there is a limited set of parameters that the community can tune using the token. These include updating the collateral rate ratio, i.e. the FRAX stablecoin part of the protocol that is algorithmically or collateral stabilized, as well as adding collateral funds and adjusting various fees.
The FXS supply is initially capped at 100 million tokens, and the protocol is designed to make the token supply deflationary as demand for the FRAX stablecoin increases. This mechanism could be responsible for at least part of FXS's momentum in recent weeks. As Cointelegraph previously reported, FRAX added 300% to its circulating supply between the end of October and the end of December.
Curve Wars Winner
Because of this link between demand for FRAX and the corresponding reduction in FXS supply, rounds of FRAX adoption can theoretically result in waves of FXS appreciation. Evidence supporting this hypothesis can be found in several recent cases of the decentralized finance (DeFi) community adopting stablecoin.
On the one hand, FRAX addition to the Convex Finance platform, where several major DeFi protocols compete for voting rights that can be leveraged to boost the performance of their respective stablecoins, preceded a major spike in the price of the FXS token.
Interestingly, many of these FXS rallies, apparently inspired by major FRAX adoption events, produce recurring patterns of trading and social activity that are detected by Cointelegraph Markets Pro's algorithmic indicator, the VORTECS™ score. This AI-powered tool is trained to sift through historical token performance data, looking for familiar combinations of variables like price movement, trading volume, and Twitter sentiment that have consistently preceded dramatic price movements. .
green means go
Here, for example, is the graph of FXS's VORTECS™ score versus price for the week FRAX was added to Convex Finance. The indicator showed an ultra-high score over a full day before the token's powerful price surge.
Scores above 80 conventionally indicate the algorithm's strong confidence that conditions around the assets are historically bullish, while scores above 90 suggest extremely high confidence. In this case, on December 20, with the FXS price virtually flat, the token's VORTECS™ score exploded, reaching an impressive 96 (red circle on the chart). Thirty-two hours after the high score, the price of FXS shot up from $13.96 to $18.27 in just 18 hours.
In the weeks that followed, spikes in the FXS VORTECS™ score continued to precede price spikes. Earlier this week, two runs of scores above 80 heralded two phases of explosive price action, including the one that saw the asset hit a weekly high of $41.72.
Not many digital assets show high VORTECS™ scores as often. Additionally, CT Markets Pro internal research shows that tokens can vary widely in the degree to which historically favorable conditions anticipate its actual price movement. What is apparently happening in the case of the recent FXS rallies is that the forces driving the waves of token appreciation are similar, leading to a familiar arrangement of social and business metrics that the VORTECS™ algorithm captures. as well.
Of course, the relationship between historical precedent and subsequent price action is not always that smooth. However, in many cases, this tool, capable of analyzing asset performance data for years, can be enormously useful to cryptocurrency traders.
Cointelegraph is a publisher of financial information, not an investment advisor. We do not provide personalized or individualized investment advice. Cryptocurrencies are volatile investments and carry significant risk, including the risk of permanent and total loss. Past performance is not indicative of future results. Figures and graphics are correct at the time of writing or as otherwise specified. Live tested strategies are not recommendations. Consult your financial advisor before making financial decisions.
