Frankencoin

zchf
Rank #510•
CoinYQ Dossier

Frankencoin replaced the price oracle with a public argument backed by collateral

Frankencoin’s defining choice was to let a borrower name a collateral price and let anyone challenge it. The protocol does not know the Swiss-franc price of an asset; it asks whether another participant will put matching collateral behind a dispute. That turns valuation from a data feed into an auction, and it makes liquidity and attention part of the safety system.

A franc target without francs in custody

Frankencoin emerged from a monetary-design thesis and reached audited Ethereum contracts in early 2023. Its ZCHF name points to the Swiss franc, but the asset is not a tokenized bank balance. Borrowers lock crypto collateral and create debt; market trading determines whether ZCHF actually stays near CHF 1.

The Association later formed as a Zug non-profit to support development, documentation and interfaces. Its own materials deny that it controls the protocol. Legal opinions commissioned by it classify ZCHF for Swiss and EU purposes, while expressly preserving regulatory uncertainty and creating no fiat redemption promise.

Every new collateral begins as a contestable proposal

A prospective minter may clone an accepted position or pay 1,000 ZCHF to propose new terms. The proposal names collateral, interest, reserve, liquidation price, duration and a cap. At least three days must pass before minting; qualified FPS holders can veto during that window.

This permissionless opening is bounded by public opposition. A poorly chosen collateral can still pass if nobody with sufficient votes vetoes, so the mechanism replaces a committee’s approval with an observable duty to monitor.

The reserve absorbs losses in a deliberate order

If someone thinks a liquidation price is too high, they challenge with units of the same collateral. The auction switches whose collateral is sold around the debt threshold, so a borrower cannot cheaply validate an inflated price by buying from herself.

Successful liquidation first uses auction proceeds and the position’s borrower reserve. Any remaining deficit reduces FPS equity; if equity is exhausted, the general borrower reserve is the documented final layer, potentially shifting loss to other minters. A surplus benefits equity. The design fails at its edge when challengers cannot obtain collateral, which is why scarce or monopolized assets are dangerous.

Immutable code still leaves a governance perimeter

FPS holders do not vote on every action. Votes accumulate with holding time, and more than 2% can veto; without a veto, anyone can execute a mature proposal. The core contracts cannot be upgraded.

Yet governance can authorize a new minter module, and such a module can mint, move and burn ZCHF. On 2026-09-05 the official index showed both the original Minting Hub and V2 active, along with several bridge, savings and cross-chain modules. The protocol is immutable at the code layer but extensible at the authority layer, so a ZCHF holder must check which modules are active, what backs their liabilities, and whether auctions have enough real bidders.

How the project changed

  1. 2023-02
    First published audit

    Scherer reviewed the collateralized stablecoin contracts.

  2. 2023-04
    Competitive review

    Code4rena reviewed the core minting, position and equity contracts.

  3. 2024-08-14
    Swiss classification opinion

    LEXR described ZCHF as a decentralized payment token, subject to its factual assumptions.

  4. 2026-02-09
    EU MiCA opinion

    LEXR argued issuer rules do not apply while stressing continuing DeFi uncertainty.

Evidence and primary sources

Last evidence review: 2026-09-05

What is Frankencoin?

Frankencoin (ZCHF) is an Ethereum-based, crypto-collateralized token designed to track one Swiss franc. The canonical 18-decimal Ethereum contract is 0xb58e61c3098d85632df34eecfb899a1ed80921cb. It is not a bank deposit or a vault of fiat francs: approved minting modules create ZCHF against collateral positions, while bridges can issue representations on other chains.

Frankencoin Pool Shares (FPS) are the separate risk-capital and governance token at 0x1bA26788dfDe592fec8bcB0Eaff472a42BE341B2 on Ethereum. ZCHF holders transfer the currency; borrowers own positions; FPS holders provide the equity buffer and accumulate time-weighted veto power. Keeping these roles separate is central to the design.

What problem does Frankencoin solve?

A collateralized currency normally relies on an oracle to tell a contract what collateral is worth. Frankencoin instead lets anyone dispute a position’s liquidation price with real collateral and an auction. This removes one price-feed dependency, but it moves safety to market participation: challengers must notice weak positions and possess enough of the collateral to contest them.

The second task is keeping ZCHF near CHF 1 without promising fiat redemption. Borrowing demand, secondary-market liquidity, savings rates and optional swaps with other CHF tokens can pull the price, while reserve capital absorbs losses. None is an unconditional one-franc cash window.

How does Frankencoin work?

A borrower proposes or clones a position, deposits collateral and chooses a liquidation price, limit, fee, reserve contribution and challenge period. A new collateral proposal costs 1,000 ZCHF and waits at least three days. Qualified FPS holders can deny it; otherwise anyone can activate it after the waiting period. Interest is charged up front and part of minted ZCHF is retained as that position's borrower reserve.

A challenger deposits the same collateral asset and starts an auction. Below the critical price bidders buy the borrower’s collateral; above it they buy the challenger’s, making self-bidding costly. Auction proceeds and the position's borrower reserve repay the debt first. A remaining deficit reduces FPS equity; if that is exhausted, the general borrower reserve is the final layer and can shift losses to other minters. The method cannot police collateral monopolized by one owner or assets that challengers cannot obtain.

Core contracts are immutable, but governance can approve new minter modules with broad mint, transfer and burn powers. More than 2% of time-weighted FPS votes can veto, and delegation can combine votes. On 2026-09-05 the official index listed the original Minting Hub at 0x7546762fdb1a6d9146b33960545c3f6394265219 and Minting Hub V2 at 0xde12b620a8a714476a97efd14e6f7180ca653557 as active alongside other modules. Immutability prevents code replacement while module approval changes the live minting perimeter.

Key facts

  • ZCHF targets CHF 1 but is backed by on-chain collateral rather than francs in a bank.
  • The canonical Ethereum token is 0xb58e61c3098d85632df34eecfb899a1ed80921cb with 18 decimals.
  • Borrowers can mint only within a position’s collateral, liquidation-price and supply-limit constraints.
  • A new collateral proposal costs 1,000 ZCHF and has an initialization period of at least three days.
  • Anyone with enough of the same collateral can challenge a position and trigger price discovery by auction.
  • Liquidation losses pass from the position's borrower reserve to FPS equity and finally to the general borrower reserve.
  • FPS is a separate pool-share token whose votes increase with holding time.
  • More than 2% of total time-weighted votes can veto a proposal; votes can be delegated.
  • Contracts are immutable, yet accepted minter modules can receive broad mint, move and burn authority.
  • The Frankencoin Association is a Zug non-profit supporting development and interfaces; it says it does not control the protocol.
  • A 2024 Swiss opinion describes ZCHF as a payment token; a 2026 EU opinion says DeFi classification remains legally uncertain.
  • Neither opinion creates a bank claim or unconditional redemption of ZCHF for one Swiss franc.
  • FPS is the Ethereum token at 0x1bA26788dfDe592fec8bcB0Eaff472a42BE341B2.
  • On 2026-09-05 both 0x7546762fdb1a6d9146b33960545c3f6394265219 and 0xde12b620a8a714476a97efd14e6f7180ca653557 were active Minting Hub modules; other approved modules also had minting authority.

Official links

Official websiteWhitepaperBlock explorerX / TwitterGitHub

Frequently asked questions

Is each ZCHF backed by one franc in a bank?

No. Collateral positions, borrower reserves and FPS equity back the system economically; the general borrower reserve is the documented final loss layer. The reference is CHF 1, but there is no central fiat reserve.

How can the protocol work without a price oracle?

A challenger supplies the same collateral and an auction tests the position’s liquidation price. Safety depends on active challengers and accessible collateral.

Who can mint ZCHF?

Approved module contracts can mint. On 2026-09-05 both the original Minting Hub and V2 were active, together with bridge, savings and cross-chain modules. Governance can admit another minter after its proposal and veto period, so the live list must be checked again.

What is FPS?

FPS represents the protocol equity pool and time-weighted veto power. It can gain from fees and liquidations or lose value when bad debt reaches equity; after equity, the general borrower reserve is the documented final loss layer.

Can ZCHF always be redeemed for CHF 1?

No unconditional redemption against the Association or a bank is documented. Market trading and optional bridges or on-ramps are separate facilities with their own terms.

Can contracts be upgraded?

The deployed core contracts are immutable. Governance changes the perimeter by approving modules and parameters rather than replacing core bytecode.

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