How Does Frankencoin Work?
Frankencoin is a decentralized Swiss franc stablecoin (ZCHF) that uses overcollateralized positions without relying on external price oracles, instead using an internal auction mechanism for price discovery and liquidation. Deployed across 8 blockchains with $35M in TVL, its B- grade reflects the novel oracle-free design that eliminates oracle manipulation risk but introduces auction failure risk during market stress.
TVL
$69M
Sector
CDP
Risk Grade
B
Value Grade
D+
Core Mechanisms
6.1.1
Overcollateralized CDP for ZCHF minting against crypto collateral
Standard CDP model similar to MakerDAO/Liquity but denominated in Swiss francs
6.3.1
NovelOracle-free auction-based liquidation and price discovery
Novel mechanism: no external oracle dependency; uses internal auction mechanism for both price discovery and liquidation, eliminating oracle manipulation risk but introducing auction participation risk
5.1.1
FPS token governance for position approval and protocol parameters
Standard token-weighted governance for approving new collateral types and protocol changes
8.2.2
NovelMulti-chain native ZCHF deployment across 8 blockchains
Native issuance on multiple chains without canonical bridge dependency; novel supply management challenge
2.2.1
Revenue from minting fees and liquidation proceeds distributed to FPS holders
Standard revenue share to governance token holders
How the Pieces Interact
During extreme market crashes, auction participation may drop as potential bidders face their own liquidity constraints, causing liquidation auctions to fail or clear at extreme discounts, leaving the protocol with bad debt
Governance-based position approval could be gamed by actors proposing collateral types that appear safe but have hidden risks, or by accumulating governance power to approve favorable but risky positions
Maintaining consistent ZCHF supply accounting across 8 blockchains creates risk of supply invariant violations or double-minting exploits
CHF denomination limits integration with USD-denominated DeFi protocols and adds forex volatility risk for non-CHF users
What Could Go Wrong
- The oracle-free design relies on an auction-based mechanism for price discovery and liquidation, which may fail under extreme market conditions when auction participation drops.
- ZCHF tracks the Swiss franc rather than USD, limiting composability with the broader USD-denominated DeFi ecosystem and exposing holders to CHF/USD exchange rate risk.
- Community-governed position approval means new collateral types require social consensus, which could be gamed by malicious actors proposing toxic collateral.
- Multi-chain deployment across 8 blockchains introduces bridge risk and supply accounting complexity.
Auction Liquidation Failure During Market Crash
ModerateTrigger: Crypto market drops >40% within 48 hours while liquidation auction participation drops below critical mass due to market-wide liquidity crunch
- 1.Sharp crypto market decline pushes multiple ZCHF positions below collateral thresholds — Liquidation auctions are triggered for undercollateralized positions across multiple collateral types
- 2.Market-wide liquidity crunch reduces auction participation — Auctions clear at extreme discounts or fail to attract sufficient bids, creating bad debt
- 3.Bad debt accumulates in the protocol without oracle-triggered backstop — ZCHF becomes partially unbacked as collateral proceeds fall short of debt outstanding
- 4.ZCHF begins trading below CHF peg on DEXs — Depositors and users lose confidence in peg stability, accelerating redemptions
Risk Profile at a Glance
Overall: B (27/100)
Lower score = safer