Frankencoin Explained
Discover the mechanisms behind yield generation and protocol security, where 1 Frankencoin (ZCHF) is designed to maintain a 1:1 value with the Swiss Franc (CHF).*
How is Return Generated and Paid Out?
Return generation in the Frankencoin system works similarly to the lending business at a bank. Borrowers pay fees, which are passed on to savers in the form of a return.
Borrower Pays
Fees flow into the system
System Processes
Savings module calculates claims
Saver Receives
ZCHF returns are paid out
Source of Return
The return primarily comes from fees that borrowers pay when they mint ZCHF against crypto collateral such as WBTC or ETH.
When a user opens a position, they initially pay the fees for the entire duration of the loan, which flow directly into the system's reserve pool.
Payout Mechanism
A smart contract (Savings Module) calculates each saver's claim based on the current system-wide base rate.
The system calculates the return for the saver in real-time in the background and distributes the ZCHF from the reserve pool.
How is the Reserve Pool Filled?
The reserve pool (Equity Pool) is fed from four sources:
Borrower Fees
Fees paid upfront by borrowers flow directly into the equity pool and form the primary revenue source.
Sale of FPS Tokens
Users can acquire Frankencoin Pool Shares (FPS) by depositing ZCHF. Similar to shares, they allow participation in success.
Minter Reserve
A portion of the minted amount is retained to protect the position. Liquidation profits also flow here.
Governance Fees
To propose a new position, 1000 ZCHF must be paid, keeping governance traceable and monitored.
With the FPS token, users own a share of the reserve pool. If the system is successful, the pool grows and the value of FPS increases. Liquidation losses and returns to savers directly reduce the pool size and thus the value of FPS tokens.
What Happens When the System Comes Under Pressure?
The Frankencoin system has a three-tier security architecture ensuring stability even in extreme market scenarios. If a position is liquidated at a loss due to a sharp drop in collateral price, losses are covered as follows:
Individual Minter Reserve
First, the reserve of the affected borrower is used up.
Reserve Pool
If not sufficient, losses are covered by the equity capital. FPS value decreases.
System-Wide Reserves
In extreme scenarios, reserves from other positions can be drawn upon.
Over-collateralization
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The "worst case": Should all buffers and reserves be completely exhausted, there is a theoretical risk of a de-peg. However, the probability is considered very low due to high over-collateralization. The system is currently backed by 0.00x assets.
Since the inception of Frankencoin (March 2023), the system has not recorded any liquidations with losses, despite sharp price fluctuations of the collateral, such as in October 2025.
* ZCHF is a decentralized stablecoin with a soft-peg; theoretical deviations from the Swiss Franc are possible.