Conversation with Ouroboros Capital: Exploring Frax Finance's Business Development, Rebranding, and Institutional Barriers
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Conversation with Ouroboros Capital: Exploring Frax Finance's Business Development, Rebranding, and Institutional Barriers
Frax's $frxETH is a compelling reason for users to choose Frax over competitors.
Navigating Web3 tides with focused insightsCompilation & translation: TechFlow
On July 5, 2023, during the Flywheel DeFi show, DeFi Dave and Kiet welcomed Ouroboros Capital to discuss Frax’s development journey, overcoming institutional barriers, and more.
Key highlights from the discussion:
Guest Background
DeFi Dave (Host) – Curator of Flywheel DeFi
Kiet (Co-host) – Co-host of Flywheel DeFi
Ouroboros Capital (Guest) – An emerging crypto-native hedge fund founded in 2022 by a group of anonymous investors, primarily focused on DeFi opportunities across multiple blockchain platforms and executing liquidity investment strategies.
Frax Finance – A protocol offering both USD-pegged and non-USD-pegged stablecoins.
Ouroboros: Symbolism, DeFi Protocols, and Founder Contributions
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Ouroboros explained that he came across the term "Ouroboros" (the ouroboros or tail-devouring snake) by chance and appreciated its multiple interpretations. He sees symbolic parallels between this concept and how revenue generated within DeFi protocols is recycled back into the system.
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He views the self-consuming process as a painful yet evolutionary cycle, reflecting survival strategies during bear markets.
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Ouroboros shared that he has been interested in investing and trading since childhood. His career began with equity trading at an investment bank; he discovered Bitcoin in 2012 and developed interest in DeFi protocols in 2021. Drawn by the appeal of the crypto world, he decided to leave his job and start trading with his own capital, eventually raising external funds and now running a fund.
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Ouroboros said he was aware of Frax early on and was drawn to it because Sam Kazemian was active within the Frax community.
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In equity trading, assessing individuals responsible for entities is crucial. Ouroboros emphasized this point by referencing Michael Saylor's contributions to Bitcoin. By understanding the nature of leaders, one can predict how stocks might behave under various circumstances.
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When asked about founder qualities, Ouroboros values continuous product development and upgrades, focusing on adaptability rather than single iterations. He appreciates founders who remain fully committed and focused on their work, rather than those who lose motivation after early success.
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Ouroboros mentioned that he understood the difficulty of achieving such goals and shared a story about explaining Frax's complex products to market makers. He wondered that if even experienced investors struggle to grasp these concepts, ordinary traders would find them even harder to understand.
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DeFi Dave realized they had made progress in overcoming operational challenges, with more community members joining and seeking deeper knowledge about Frax.
Exploring Eastern and Western Narratives: Unveiling Frax’s Complexity in Crypto
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Ouroboros noted that Asian investors tend to favor complex ideas and narratives promising rapid, substantial profits. He believes this mindset causes Asian investors to overlook Frax.
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When DeFi Dave asked whether more narratives originate from East or West, Ouroboros replied that it does not depend on geography. Instead, he believes narratives come from people within the crypto industry who aim to profit from them.
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DeFi Dave observed that the West tends to produce builders while the East produces traders. He questioned how to bridge the gap between these two different approaches.
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Ouroboros agreed and compared this dynamic to traditional tech culture. He described Ouroboros Capital as hands-on investors who provide not just capital but also help protocols grow through insights, connections, and resources.
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Ouroboros discussed China’s role in advancing the crypto industry, noting that many early Bitcoin holders and miners were Chinese.
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In response to making Frax more trader-friendly, Ouroboros suggested improving dashboards and data ecosystems to make them more intuitive and user-friendly.
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DeFi Dave stated that the Frax team played a significant role in attracting institutional capital by showcasing Frax’s product offerings.
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Kiet mentioned Frax’s Academic Incentive Program, aimed at creating educational materials about Frax.
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When asked how to describe Frax to someone with basic DeFi knowledge, Ouroboros called it a decentralized stablecoin that operates without a central entity. However, he admitted even this simple description may be difficult to grasp, highlighting Frax’s inherent complexity.
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Ouroboros noted that Frax’s Automated Market Operations (AMOs) are sophisticated and beneficial, though challenging to explain. He praised the system’s ability to function autonomously, indicating strong design principles.
Frax: Innovating DeFi Through Stablecoins and Sub-Protocols
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Kiet described Frax as a protocol capable of issuing three stablecoins and using sub-protocols to support DeFi activities.
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DeFi Dave explained his understanding of Frax, emphasizing the various mechanisms Frax uses to back its stablecoins. He pointed out that overall activity within the DeFi space is key to Frax’s competitive advantage.
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Ouroboros expressed admiration for the Frax team, particularly their ability to build a system that functions smoothly without intervention. He recognized the value created by diverse activities contributing to the mechanism’s ongoing evolution and stability.
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Regarding areas for improvement, Ouroboros suggested Frax could benefit from broader dashboards and educational resources to enhance understanding of protocol operations. He stressed the importance of comprehending key metrics like collateral ratios.
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DeFi Dave mentioned the Frax ecosystem’s educational incentive program and Frax hackathons, which encourage development of data and analytics dashboards. He also expressed excitement about the upcoming $FRAX balance sheet, which he believes will offer greater transparency than anything currently available in traditional finance.
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Ouroboros recommended improvements in Frax’s business development efforts. He compared Frax’s approach with Lido, which actively seeks partnerships, and encouraged Frax to more widely promote its high-yield Ethereum staking product ($frxETH). He saw no reason why other protocols shouldn’t adopt Frax’s $frxETH.
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DeFi Dave acknowledged that Frax’s $frxETH offers a compelling reason for users to choose Frax over competitors. He indicated that upcoming product changes would further decentralize the system and increase validator rewards.
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Ouroboros added that beyond yield, liquidity is another critical factor in the attractiveness of staking products. He noted that Frax’s system ensures ample liquidity, allowing users to quickly withdraw assets when needed.
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Ouroboros explained that even if the Curve $ETH-$frxETH pool becomes imbalanced, it remains close to a 1:1 trading ratio. When imbalance increases, Frax’s AMO intervenes to rebalance it, which benefits the protocol.
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Ouroboros revealed he is writing a report summarizing his conviction in the Frax protocol. The report emphasizes Frax’s asymmetric risk/reward profile and argues that its current valuation is low despite projected rapid growth.
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Ouroboros detailed several upcoming Frax features he believes will drive growth, such as Fraxchain and Frax v2. He expects these innovations—and improved valuation—to significantly boost the market cap of Frax products.
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In his report, Ouroboros also addressed common misconceptions about Frax, asserting that it represents a secure and profitable opportunity.
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When Kiet asked about risks behind Ouroboros’ optimistic outlook on Frax, he acknowledged regulatory risks—particularly potential security issues and U.S. regulations—but noted these are common across the crypto industry.
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Ouroboros expressed hope that Frax could gain widespread adoption, potentially being loaded onto crypto credit cards for daily spending. He highlighted Frax’s potential to offer a decentralized alternative ($FRAX) to stablecoins like USDT and USDC.
Frax’s Growth: Business Development, Fraxchain, Rebranding, and Institutional Barriers
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Ouroboros believes Frax could increase its monetary premium by expanding business development (BD), citing the Reserve protocol as a good example.
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He noted that one current limitation for Frax is its heavy presence on Ethereum, where high gas fees are a problem. Introducing Fraxchain could alleviate this by reducing gas costs and enabling faster transactions.
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DeFi Dave suggested renaming Fraxchain to “Fractal,” believing the name holds stronger market appeal and better reflects Frax’s complexity and scalability as a DeFi protocol.
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Ouroboros agreed, stating that rebranding Fraxchain as “Fractal” would be an excellent marketing move.
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Ouroboros shared his mixed feelings about decentralization, noting that while it empowers passionate community members to contribute ideas, it often takes time for those ideas to be proposed and executed. He especially highlighted the difficulty of measuring and incentivizing BD efforts—crucial yet intangible work.
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DeFi Dave said from personal experience, BD efforts often struggle to secure funding due to their intangible nature. He mentioned he is currently developing a commission-based model for another DeFi protocol—Gelato.
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Kiet proposed creating a “Core Advocacy” budget within the Frax DAO to incentivize and reward those promoting the protocol. Ouroboros agreed and suggested establishing monthly or quarterly awards for top business developers.
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Ouroboros shared advice he gives to many protocols—mainly connecting the protocols he invests in, with a focus on BD, aiming to make them as commercially viable and user-friendly as possible.
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Ouroboros doubts large-scale institutional adoption of DeFi. He believes traditional financial institutions, like banks, prefer to maintain control over the financial sector.
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He noted that early signs of institutional adoption in 2021 and 2022 were largely confined to permissioned pools due to the importance of KYC requirements.
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Despite institutional hesitation, Ouroboros believes DeFi is primarily a retail-focused product. He emphasized that everyday consumers and merchants can use it, still representing a massive potential market.
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DeFi Dave agreed with the idea of permissioned pools and predicted that major institutions like JPMorgan and Goldman Sachs might eventually enter the space. He acknowledged these institutions have entrenched practices and may resist change.
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Ouroboros found it ironic, as DeFi’s purpose is openness and accessibility. He questioned the value of institutions entering DeFi if they don’t embrace its core principles—suggesting such entry would be meaningless.
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Kiet suggested Coinbase could serve as a bridge for institutional entry into DeFi, given its large user base and existing relationships with institutions in custody services. He believes Coinbase could make DeFi more accessible to retail users, especially younger ones interested in exploring decentralized finance.
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Ouroboros stated that while institutions may offer on-chain products, he doubts they will fully integrate into the DeFi ecosystem. He emphasized that institutional compliance frameworks would pose the main barrier.
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