Exclusive Interview with the Founder of Frax Finance: Frax's Monetary Premium and Product Development
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Exclusive Interview with the Founder of Frax Finance: Frax's Monetary Premium and Product Development
This article will discuss topics such as Frax's currency premium, invisible products, and on-chain governance.
Navigating Web3 tides with focused insightsWritten by: Revelo Intel
Compiled by: TechFlow
In this episode, DeFi Dave interviews Sam Kazemian, founder of Frax, discussing topics such as Frax's monetary premium, invisible products, on-chain governance, and more. Below are some notes from the discussion—let’s dive in for more insights.
Stablecoins
Any stablecoin that isn't backed by at least 100% external collateral will not succeed. Recently, the Frax community voted to fully back 100% of $FRAX supply with collateral. $FRAX is the only fully collateralized decentralized stablecoin.
Frax’s Monetary Premium
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Monetary premium is a concept where if you issue a stablecoin or liability, people use it without expecting the issuer to pay interest.
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The vast majority of crypto protocols will become stablecoin issuers or will issue their own stablecoins at scale.
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Most financial primitives resemble fractional reserve banking.
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LSDs or liquid staking derivatives are essentially $ETH stablecoins.
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A stablecoin is something issued by an entity, with implicit or explicit commitments to maintain a certain price.
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$frxETH has a Curve AMO that allows swapping between $frxETH and $ETH, functioning like a minting and redemption mechanism.
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Financial laws or incentives shape protocols, builders, and communities.
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The most important and valuable way for large DeFi protocols to build moats and protect themselves while maximizing value is by issuing a liability that people adopt as money.
Stablecoinism
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Stablecoinism is abstracted, much like how people might not think of cross-chain bridges this way.
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The most valuable advantage of a cross-chain bridge is its defensibility—others can’t fork or commoditize it simply by lowering fees, because in reality, it issues a stablecoin on the other chain.
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Cross-chain bridge projects are fundamentally stablecoin issuers.
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Curve is an excellent exchange, better than anything else out there.
Being a Builder
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Above all, safety must be ensured, and it should be seen as a responsibility—it’s foundational to this industry.
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It’s no coincidence that Frax has become increasingly secure as it has grown larger and more important.
Frax’s Invisible Products
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They are developing a product called BAMM—Borrowing Automated Market Maker—which could be a potential zero-to-one innovation for DeFi.
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The idea is to create liquidity for any asset without relying on oracles, allowing users to borrow against it when asset liquidity increases.
Frax’s On-Chain Governance
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Frax is designing a mechanism called FRXGov, based on the idea that large protocols always need some form of human intervention. They aim to propose such interventions without requiring trust from users.
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When Frax creates a signature, it is fully submitted to the FRXGov contract on-chain, after which $FXS holders can vote to approve or veto it. After a set period, the smart contract itself allows execution of the signed action on-chain.
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There are many people who enjoy actively participating in governance.
Regulation
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Everything will eventually be figured out in the future.
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The U.S. doesn’t have a history of ruining major financial or technological revolutions.
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There are many areas in crypto that require proactive cooperation with regulators.
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Stablecoins need their own regulation.
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