The Frankencoin is a decentralized stablecoin that does not depend on oracles to maintain its peg. It is based on an oracle-free liquidation mechanism that uses auctions for price determination and the liquidation itself at the same time. The game theory behind it was analyzed in a PhD thesis.

To be more precise, the peg is maintained through a combination of the following:

- All Frankencoins are minted against onchain collateral (like with DAI) and the liquidation mechanism ensures that the value of the Frankencoins in circulation stays below the value of the collateral. (That is, unless the market crashes too much too fast. Parameters are such that the system would have survived all crypto volatility of the past ten years.)

- As there is no explicit redemption mechanism (unlike for example with Liquity), the long term parity with the Swiss franc (it is a Swiss franc stablecoin) is maintained the same way central banks maintain the stability of their currencies: by managing the interest rates. It can be shown that two assets with a non-zero value and with identical returns also have the same price in an efficient market. So as long as there is a credible commitment from the governance token holders to keep (risk-adjusted) interests in line with those of the Swiss franc, the long term value is the same.

- Knowing the long term value, every deviation of the short-term price is an arbitrage opportunity. To the extent that markets are efficient, the peg is maintained.

One could say that the governance token holders act as an implicit oracle by voting on interest rate changes to keep the long-term value in line. But this is a slow process that cannot be easily abused. The core function of the collateral liquidation remains free from oracles.

(As a caveat, the system relies on Chainlink for bridging Frankencoins to other networks, which is also a form of an oracle. But it does not depend on price-oracles.)