Interview with Aave Founder: The GENIUS Act Has Passed, and Stablecoins Will Ultimately Become the Cornerstone of the Financial System
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Interview with Aave Founder: The GENIUS Act Has Passed, and Stablecoins Will Ultimately Become the Cornerstone of the Financial System
As long as the U.S. government supports stablecoins, they will only strengthen the influence of the U.S. dollar rather than weaken it.
Navigating Web3 tides with focused insightsCompiled & Translated: TechFlow
Guests: Sam Kazemian, Founder of Frax Finance; Stani Kulechov, Founder of Aave
Host: Robbie
Podcast Source: The Rollup
Original Title: How The Genius Act Could Change The Dollar Forever - Sam Kazemian & Stani Kulechov
Release Date: May 29, 2025
Key Takeaways
Sam Kazemian (founder of Frax Finance) and Stani Kulechov (founder of Aave) recently participated in a discussion about the GENIUS Act. This pivotal legislation could formally establish stablecoins as legal tender, marking a significant development.
The dollar is rapidly moving on-chain, a trend reshaping the traditional financial landscape. We explore the implications of this shift, why banks oppose it, and how Frax and Aave are preparing for this transformation.
During the discussion, Sam detailed FrxUSD and explained why stablecoins and artificial intelligence (AI) are currently the most watched areas. Stani shared his view that tokenized securities may become the largest asset class on-chain. Although stablecoins currently represent only 1.1% of circulating dollars, this proportion could change dramatically soon.
Highlights Summary
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Stablecoins, DeFi, and related technologies will ultimately become foundational to the financial system.
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Simplicity enables scalability—a principle that holds true in crypto. The concept of stablecoins is very simple, which is a key reason they can shift public perception of cryptocurrencies.
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As long as the U.S. government supports stablecoins, they will enhance rather than weaken the dollar's influence.
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In crypto, we must ensure innovation isn't stifled by regulation. I remain optimistic about the future. As long as we strike a balance between regulation and innovation, we can build a more transparent and efficient financial system that better serves global users.
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The world’s $20 trillion M1 money supply could be fully digitized via stablecoins. Currently, only about 1% has been converted—from the Web 2 world of traditional finance to the Web 3 world of digital dollars. Therefore, the key is establishing a foundational digital dollar infrastructure, such as FRX USD, USDC, or bank-issued stablecoins.
Mass Adoption of Stablecoins
Robbie:
Hello everyone, welcome to The Roll Up. Today we’re excited to have two experts from the stablecoin space—Sam from Frax and Stani from Aave. Stablecoins are rising fast, and I believe they are one of the few products in crypto that have truly found product-market fit. We're seeing stablecoin-related regulatory bills advance quickly through both chambers of the U.S. Congress, and stablecoins now account for 1.1% of circulating dollars, a figure that will only grow. What are your thoughts on the current state of the stablecoin ecosystem?
Sam Kazemian:
I’ve actually been trying to contain my excitement—it's hard not to be thrilled right now. I never imagined stablecoins would reach this level; today, the two most compelling industries globally are artificial intelligence and stablecoins. In the current market environment, no other sectors come close. Seeing the area I've worked on for years reach such a peak is deeply satisfying. You could say the world is finally paying attention and recognizing its value.
I know Stani is often called the "godfather of DeFi"—he’s probably experienced this sense of validation before. When you’ve spent years building in DeFi and eventually the entire world aligns with your vision, it feels uniquely rewarding. After the Genius Act passed this Monday, the most uncertain and difficult phase for stablecoins is behind us. The U.S. political and legislative system is highly complex, and many people don’t understand how it works. The bicameral structure requires multiple rounds of voting, which often causes confusion—like “Why another vote?” But unless there’s a major shift, such as a change in Republican priorities (which is extremely unlikely), some form of stablecoin bill—or its House version—will pass.
So while certain bills have passed the Senate, they aren’t law yet—they still need the President’s signature. Nevertheless, this is undoubtedly a historic moment, and everyone is eagerly anticipating it. Next week, I’ll be discussing stablecoin legislation and its post-enactment impact with Senators Bill Hagerty and Tom Member. I’m incredibly excited. I can imagine the same electrifying feeling people felt when Aave launched during “DeFi Summer.”
Stani Kulechov:
I completely agree with Sam—it’s genuinely exciting to work in this space. You might not foresee things reaching today’s scale, but deep down there’s always a belief: stablecoins,DeFi, and similar technologies will eventually become the bedrock of the financial system.
This transition is natural, just like the shift from paper-based payments to digital payments. Now we’re moving toward a new financial world, and this process takes time. Looking back at our early days with Aave, there was almost no concept of stablecoins on Ethereum. Just a few years later, stablecoins became critical infrastructure for accessing liquidity and yield—something intuitive and accessible even for institutions and mainstream users.
I’ve always believed that simple things scale more easily—and this applies in crypto too. The stablecoin concept is straightforward, which is a major reason it can shift mainstream perceptions of cryptocurrency. In the past, when people thought of crypto, they mostly associated it with speculation because most users encountered these assets through exchanges, where they often lacked real utility. But stablecoins open entirely new use cases for mainstream users—like cross-border payments and value transfer—which previously didn’t exist.
Of course, in regions with less stable financial systems—such as Argentina, parts of Africa, and certain areas in the Middle East and Asia—the “stability” of stablecoins is especially crucial. In Western markets like Europe and the U.S., stablecoins primarily offer DeFi opportunities, liquidity access, and yield generation. I find all of these applications highly compelling. Additionally, I’m very excited about stablecoins’ potential in payments and borderless value distribution.
Naturally, legislative details are vital for the sector’s future. Even with regulatory approval, we must ensure the rules are reasonable and make necessary compromises.
Stablecoins vs. the Dollar
Robbie:
One important value proposition you mentioned, Stani—and Sam echoed—is extending the dollar’s influence into markets where quality currency is scarce. For example, in Argentina, some African countries, and parts of the Middle East and Asia, hyperinflation is common. There’s strong demand for the dollar because it’s one of the world’s most stable currencies.
The first step is introducing dollars into these markets via stablecoins, helping people protect their wealth from local currency depreciation. The next step is providing yield opportunities through stablecoins, enabling not just preservation but growth of wealth.
Regarding stablecoins’ impact on the dollar’s global dominance, I’ve heard differing views. Some worry stablecoins might threaten the dollar’s supremacy. But I believe we all agree here: stablecoins actually strengthen the dollar’s global position. How do you respond to this criticism?
Sam Kazemian:
This question requires some context. I’ve been in crypto for over a decade—mining since college, even before Ethereum.
I like to divide stablecoin evolution into two phases, like history divided into BC and AD. The first phase was the original idea: Can we combine Bitcoin’s decentralization and trustlessness to create a stable asset pegged to the dollar? This was akin to pursuing a “holy grail.” Algorithmic stablecoins embodied this—attempting infinite expansion and contraction on-chain without bank accounts or fiat reserves. It combined the best of Bitcoin and Ethereum.
But practice proved this model flawed—even unworkable. Like a “perpetual motion machine,” it violates fundamental laws of economics and physics. So the industry shifted toward more realistic designs. FRAX V1 tried a hybrid decentralized model, but ultimately realized that maintaining dollar parity still required national backing and legal recognition.
Now, that possibility is real. The U.S. government may legally recognize certain stablecoins as equivalent to dollars—an idea unimaginable just years ago. That’s why FRAX’s new roadmap remains centered on stablecoins. Our target is a multi-trillion-dollar market, requiring a practical, viable design. Historically, we’ve learned that a fully decentralized stablecoin scaling to $20 trillion is impossible. But if the Fed and U.S. government support these digital assets, that would be transformative. That’s exactly where FRAX is headed.
As for whether stablecoins threaten the dollar’s status: as long as the U.S. government backs them, they will only amplify the dollar’s influence, not diminish it.
Stani Kulechov:
I fully agree with Sam. The dollar is essentially a simple, efficient transaction tool, and the internet didn’t weaken it—in fact, it expanded its global reach. I expect stablecoins to have a similar effect, broadening the dollar’s footprint.
On scale, I also share Sam’s view. Achieving a fully decentralized global monetary system will take a long time and massive user adoption. For now, stablecoins’ technical potential lies more in extending the existing financial system.
In the coming years, I believe stablecoins will become the largest on-chain asset class. Beyond that, tokenized securities may surpass stablecoins and all other crypto assets combined, becoming the dominant on-chain category. This transition is crucial—not only reinforcing the dollar’s role in transactions but also laying the foundation for the future financial system.
Ultimately, we aim to build a more decentralized, fair, and efficient global financial system—but stablecoins are a critical stepping stone. Seeing more traditional financial institutions and tech companies enter the stablecoin space excites me. It shows growing acceptance and rapid industry progress.
Stablecoins, Real World Assets (RWAs), Tokenized Securities
Robbie:
Stani, your predictions have been validated multiple times—like DeFi lending, arguably one of DeFi’s most important components. Now stablecoins are having their moment. You’ve been right twice already—and now you predict tokenized securities will become the largest on-chain asset class, exceeding stablecoins and crypto assets combined.
Can you explain what tokenized securities are? Do they include equity? For instance, Kraken’s recent announcement and Robinhood launching tokenized stocks—do these qualify? Why do you think they’ll surpass stablecoins and crypto assets to dominate on-chain?
Stani Kulechov:
First, my predictions aren’t always correct. But regarding tokenized securities—or more broadly, “real world assets (RWAs)”—the scope is vast.
Tokenized securities can include equities, such as publicly traded stocks or private company shares. These assets are currently inaccessible to most in traditional finance, typically limited to select institutions or individuals.
They can also cover debt instruments. A prime example is Treasury Bills (T-Bills), which are already being tokenized and brought on-chain. When DeFi yields are low, these assets become particularly attractive, bridging low-risk traditional assets into the on-chain ecosystem.
Over time, we’ll see higher-yield investment opportunities move on-chain—like corporate bonds or other high-return assets. This trend expands the range of on-chain assets and unlocks value for traditionally illiquid ones. Some assets lack liquidity not due to unattractiveness but because of high entry barriers or complex trading processes. DeFi’s strength lies in aggregating liquidity and efficiently connecting capital to these opportunities via interoperability.
In a sense, stablecoins themselves can be viewed as RWAs. Their difference is they usually don’t provide direct yield to end users, making them more of a B2B tool. But their existence proves blockchain can attract massive value from traditional finance—and this trend will only grow.
Robbie:
Completely agree. I think you’ve painted a clear picture of the immense potential in bringing these assets on-chain. It’s not just about making them productive, but also leveraging on-chain composability and interoperability with traditional systems.
Yield and liquidity are key. These assets need liquidity and returns, and on-chain ecosystems perfectly meet those needs. You mentioned T-Bills—I believe they’re already a core reserve component for many stablecoins, further proving on-chain finance’s appeal.
Sam, you mentioned upcoming discussions in Las Vegas with Hagerty and other lawmakers. You said once the bill passes, it could unlock many new opportunities. Given today’s stablecoin landscape, what new developments and opportunities might emerge post-enactment?
Sam Kazemian:
This bill differs significantly from regional stablecoin regulations like the EU’s MiCA or others. The UAE has VARA, Japan has stablecoin licensing—Circle announced months ago they received Japan’s stablecoin issuance license. But the key point here isn’t just obtaining a license or guidance—it involves the issuer of the dollar itself: the U.S. government.
Over 95% of global stablecoins today are USD-pegged. Thus, the U.S. government’s stance is critical—not just regionally, but globally. If a stablecoin is recognized by the U.S. as equivalent to the dollar, it could gain widespread acceptance across global financial systems.
Some, like Arthur Hayes, claim, “This bill only applies to the U.S. market.” But that’s incorrect—it concerns the dollar’s legal status. Once a stablecoin is deemed a dollar unit, it can circulate anywhere dollars are accepted. Even EU banks might accept these stablecoins, provided they connect via blockchain instead of legacy SWIFT systems.
Legally, the bill’s significance isn’t merely legalizing stablecoins—it grants them dollar-equivalent status. In jurisdictions where the dollar is legal tender, such stablecoins could operate freely. This shift makes banks seriously consider issuing their own stablecoins—JP Morgan, Citigroup, and others are exploring consortium models to launch regulated stablecoins. I can’t disclose more due to NDAs, but we’re in deep talks. This is a pivotal event.
Additionally, with FRX USD and other payment-focused stablecoins emerging, I believe Circle’s USDC is closely watching. Tether’s Paolo was recently active in Washington—clearly signaling awareness of this bill’s importance. This isn’t just about regional rules; it’s a defining moment for the global stablecoin market.
Robbie:
Absolutely. This bill redefines the relationship between the dollar and stablecoins. Previously, dollar issuance was controlled by a single entity. Now, multiple institutions—like JP Morgan and Citigroup—may jointly issue stablecoins. Hearing you’re already negotiating with banks under NDAs shows tangible progress. Very exciting indeed.
Expanding Dollar Credit
Robbie:
We’re now seeing many companies explore stablecoin issuance—Meta considering launching one, Apple possibly doing the same. More financial, tech, and DeFi entities are entering. As long as these stablecoins are labeled “$1,” they fall into this category. This is a systemic shift. Previously, only one entity controlled dollar issuance; now, multiple organizations can participate. To me, this could lead to decentralized dollar issuance.
Ultimately, what impacts might this trend bring? When different companies can issue dollars, what economic ripple effects arise? For example, could multiple issuers foster more localized credit markets? More issuers mean more lending, expanding dollar supply. What are your thoughts?
Sam Kazemian:
You’ve hit a crucial point. The Fed already defines various forms of the dollar—M1, M2, M3—reflecting different types of dollar assets in the financial system. Some look like dollars but aren’t truly dollars. In DeFi, we’ve seen similar cases—like Terra’s stablecoin, once considered a dollar but later collapsed.
M1 is the most basic form—assets immediately usable in the economy, like bank deposits or money market funds. These can instantly convert to cash, directly fueling economic activity. M2 includes higher-risk dollar-denominated assets.
Regarding the Genius Act and payment stablecoins, the bill’s core significance is allowing non-bank entities to issue M1 for the first time. Previously, only chartered banks in the U.S. financial system could issue M1 under strict regulation. This bill could break that monopoly, enabling other institutions to innovate and issue M1.
Of course, issuance must follow strict rules—backed by money market funds, Treasuries, or Fed reverse repos. These assets are nearly equivalent to cash, fitting the Fed’s M1 definition. FRAX USD aims to become the first entity licensed for payment stablecoin issuance—a historic milestone.
Stani Kulechov:
I fully agree. The bill’s details matter greatly—not just for stablecoin regulation, but for shaping innovation space. Looking back at fintech history, such as the rise of P2P lending, regulation often follows quickly and constrains innovation. This can disadvantage small teams and startups unable to bear high compliance costs.
In crypto, we must ensure innovation isn’t stifled by regulation. The EU’s MiCA is an example. While it sets rules for crypto firms and stablecoins, its drafting was largely stablecoin-centric and doesn’t fully suit today’s crypto landscape. Legislation must address real industry needs rather than hinder innovation.
I remain optimistic. As long as we balance regulation and innovation, we can build a more transparent and efficient financial system that better serves global users.
Reaction to the Genius Act
Robbie:
From the outside, the U.S. government seems to be easing financial regulation. A key point Sam raised is that dollar issuance was historically monopolized by banks—only chartered banks could issue dollars, part of M1. Through the Genius Act, despite increased oversight, this monopoly is broken, extending issuance rights to more institutions. This regulatory approach fosters industry growth and lowers barriers for new innovators.
Sam Kazemian:
Your point is crucial. This specific regulation and bill are positive—unlike typical cases where small businesses oppose regulation due to resource gaps, as Stani noted. Usually, regulation strengthens incumbents’ monopolies. Yet the opposition from bank lobbying groups and traditional finance to this legislation proves otherwise. This is one of the rare bills that genuinely opens up competition.
Ideally, regulation should promote more innovation within competition, incentivizing entrepreneurs to enter the field with clear rules for all. Such cases are rare. If I asked you for the last example where entrepreneurs said, “Yes, we need more regulation,” while incumbents resisted, it would be hard to name. That’s why this bill is so significant—it flips the script on traditional regulation.
Robbie:
With more issuers entering this competitive space, we’re seeing diverse stablecoins emerge. I’m curious—how do existing players like you position yourselves amid these new entrants? We’ve discussed big banks entering stablecoins. How do you view FRAX’s interaction with bank-issued stablecoins or those from Meta? Are they complementary, or will they create new competition?
Stani Kulechov:
I don’t see direct competition among stablecoins. In fact, I prefer viewing them as different payment rails. It might sound odd, but when people choose GHO or USDC, they’re choosing a payment method. I believe this logic applies to nearly all stablecoins.
From Aave’s perspective, stablecoins are vital to lending protocols. We maintain strong relationships with stablecoin issuers because DeFi enables not just yield and spending, but also long-term holding. For example, about half of Aave users hold their stablecoins for over six months—highly beneficial for issuers.
From GHO’s standpoint, it’s primarily backed by native crypto assets like Ethereum and Bitcoin, but can also be minted using other stablecoins, achieving scale.
For example, in GHO’s ecosystem, we introduced the GHO Stability Module (GSMS), currently supporting USDT and USDC, with potential expansion to more stablecoins. This module allows users to mint GHO by collateralizing these assets, broadening the collateral base.
Sam Kazemian:
I fully agree with Stani—liquidity attracts more liquidity. The economy isn’t necessarily zero-sum; sometimes it’s positive-sum. We don’t need to take a slice from someone else’s pie—we can grow the whole pie together through collaboration. That’s why I often say, the world’s $20 trillion M1 supply could be fully digitized via stablecoins. Currently, only about 1% has transitioned—from Web 2’s traditional finance to Web 3’s digital dollars. Therefore, the key is building a foundational digital dollar system, such as FRX USD, USDC, or bank-issued stablecoins.
FRX USD is still young—only three months old. We’re currently listing on Aave and undergoing KYC, with future plans to become a stability module supporting GHO-like minting, since FRX USD is fully redeemable and a legally recognized digital currency issued by FRAX. This exemplifies symbiosis, not competition, among stablecoins.
Interestingly, digital dollars like FRX USD, USDC, and USDT can’t directly compete with higher-yield instruments. Their value must stay fixed at $1 and be fully redeemable. But through innovation, we can offer additional yield programs. For example, Coinbase offers yield on USDC, and we’ll launch a similar service called FRAX Net. Users can register fintech accounts, link their Web 2 bank or brokerage accounts, mint and manage FRAX USD, and earn risk-free yield.
This way, stablecoins not only boost digital dollar liquidity but also increase their usage across DeFi. Ultimately, these different stablecoins will complement each other, collectively advancing the digital dollar ecosystem.
Frax’s Transition from L2 to L1
Robbie:
Hearing about your progress excites me. We mentioned that stablecoins—or circulating dollars—currently make up only 1.1% of M1. This shows we’re just getting started. As more liquidity enters blockchains, funds will spread to other areas—like Aave, DeFi money markets, trading platforms, and DeFi apps. This is a critical moment for the industry to prepare for an on-chain liquidity surge.
You’re innovating your protocols so institutions can pass due diligence when they arrive. Sam, I heard you’re transitioning from L2 to L1. Is this part of preparing for institutional capital? What’s your thinking? What changes will occur when liquidity floods into L1?
Sam Kazemian:
It’s indeed a significant and complex decision, both technically and structurally. We upgraded the old FXS token—originally Frax’s governance token—to serve as the gas and unit-of-account token on L1.
We also renamed the Frax Share token to simply Frax, as the new stablecoin is FRX USD. Now, the two tokens have entirely separate functions. L1 Frax is a scarce asset primarily used for gas fees. Of course, users can also stake Frax to earn yield from the Frax ecosystem.
Regarding Libra, it’s a great analogy. Frax is realizing Libra’s vision at the right time and place. By building its own L1 blockchain, Frax becomes a center for stablecoin issuance and settlement, focused on supporting U.S.-based FRX USD. For FRX USD to truly be a “good money,” it needs to circulate across multiple ledgers and platforms. Frax L1 achieves this.
Think of our Frax L1 as similar to Circle’s CCTP—but fully programmable. CCTP is a cross-chain transfer protocol allowing 1:1 USDC transfers across chains. Frax L1 extends this further, already supporting liquidity across 14–15 chains including Solana, Ethereum, and L2s. With validator nodes running, full functionality will go live in the next hard fork.
Long-term, this chain’s vision is to become core stablecoin infrastructure, supporting digital dollar payments and settlements. A similar concept exists with Hyperliquid. Hyperliquid is an L1 focused on perpetual contracts and high-performance trading. Frax L1 focuses on payments and establishing digital dollar standards.
In the future, this L1 structure will merge with multi-trillion-dollar markets, accelerating digital dollar adoption. I believe Libra was the first project to attempt this vision, and Frax is the second. Through FRX USD and Frax L1, we’re striving to build a more decentralized and efficient financial ecosystem.
AAVE V4 Proposal
Robbie:
Stani, you’re about to launch V4, and I hear there are exciting architectural innovations. One highlight is the unified liquidity layer, offering greater adaptability across modules. Why did Aave choose this unified liquidity layer instead of building its own L2 or L1? What makes this design optimal for Aave?
Stani Kulechov:
First, clarification: while we’re developing V4, it hasn’t officially launched. We submitted proposals last year and are nearing completion. Our core idea is that as more value moves on-chain, we need a way to isolate risks across different collateral types and markets, while avoiding fragmented liquidity. Centralizing liquidity is key to achieving scale.
Aave’s architecture introduces “Liquidity Hub” and “Liquidity Spokes.” The Liquidity Hub stores primary liquidity, while Liquidity Spokes can be configured for different needs—like varying collateral assets or risk parameters. For example, one spoke might focus on conservative assets, another on higher-risk ones. The Hub acts like a central bank, providing credit lines to spokes. So whenever new innovation emerges—say, Sam proposes an idea—he can quickly spin up a spoke and get initial credit from the Hub. This design offers flexibility for future innovation while simplifying user experience.
V4 also introduces a risk premium mechanism, dynamically adjusting borrowing costs based on collateral risk. For instance, users posting low-risk collateral to borrow USDC enjoy lower rates, while riskier collateral pays extra premiums. This enables more precise pricing and ensures users aren’t penalized for others’ risky behavior. These improvements enhance user experience while boosting Aave’s flexibility and adaptability.
Stani Kulechov:
Hearing these details, I’d like to share a recent idea that could serve as a great Aave use case. We plan to launch a rewards program in the Fraxnet fintech app—users earn yield by depositing FRAX USD into non-custodial wallets. I’d like to extend this—say, users deposit FRAX USD into Aave, earning deposit yield plus amplified returns via Aave’s lending. Imagine FRAX USD, a fully redeemable legal digital dollar, generating both Frax rewards and Aave lending yield when deposited. This would further solidify Aave’s core role in DeFi, already seen as closest to risk-free yield.
If we integrate FRAX USD’s reward program with Aave’s Liquidity Hub, it could create a powerful partnership. This wouldn’t just broaden digital dollars in DeFi, but also merge traditional finance’s risk-free returns (like Fed short-term rates) with DeFi innovation. I believe this is a highly promising direction.
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