Podcast notes – Frax with Sam Kazemian – Blockcrunch: “Frax wants to be the Central Bank of the digital economy”

Frax milestones in 2022
-only large stablecoin that didn’t break peg (other than DAI)
-launched Frax Ether – an ETH-pegged stablecoin and liquid staking derivative

Products
-Frax stablecoin (Frax USD) has ~$1B TVL
-FPI – CPI pegged stablecoin
-Frax ETH – ETH pegged stablecoin
-Considering a BTC pegged stablecoin

Only 8 employees at Frax, all engineers (!)
Focused only on building stablecoins

Use Curve and FraxSwap for liquidity

Increasing Frax USD collateral ratio to 100% (currently 90%, 10% is FXS) – still more capital efficient than Maker (130+% collateral)

Believes it’s impossible to have a USD pegged stablecoin at scale ($1B+ TVL) without having at least one single real world asset

No one has solved the stablecoin trilemma

Central Banks don’t lend directly to Apple, Tesla – they create money, give it to commercial banks – and the banks lend it
Frax isn’t a commercial bank – “it wants to be the Central Bank of DeFi, the digital economy”

On-chain, closest thing to risk-free asset is USDC – “call a spade a spade”
Blackrock manages all USDC treasury assets, in money market fund, buys reverse repos from NY Fed trading desk

Should a stablecoin have ONE or MANY real world assets?
Frax believes should just have one – “deposits on the Fed ledger”
Not going to lend to others – too hard to assess that risk
Maker plans to do this – it’s profitable, you take more risk

Goal is:
One entity – Frax DAO
One RWA (Fed deposits), not 50, not many counterparties
Whole stack simple – no intermediaries

Frax ETH – stablecoin pegged 1:1 to ETH, fully backed (100% CR), no interest, like wETH
Can stake in ETH PoS vault to earn interest – separate token from Frax ETH – currently offering 10% yield (but will likely drop as it grows), part of this is because people need to choose between staking Frax ETH or putting into eg Curve pool
Already 4th largest LSD
Frax core teams runs all the PoS validators – commodity hardware, geo-distributed – will eventually allow others to run validators
Protocol takes 10% cut of staking yields – 2% put aside for slashing risk
Lido has whitelist – to become a validator, have to ID and KYC – if slashed, losses are socialized

Measure of currency’s usage = amount of spot demand, amount of spot holdings
Like USDC, Tether, and Dai – they don’t incentivize any stablecoin holders, only way to measure organic demand for currency

Frax USD goal is to get as close to USDC as possible (100% CR, “risk free”, only one real world asset), but without blacklist

Podcast notes – Sam Kazemian (Frax founder) on Blockcrunch: “Bear market is bull market for stablecoins”

Guest: Sam Kazemian (Frax founder, Everipedia founder)
Host: Jason Choi

Defi needs more zero-to-1 moments

Excited for FRAX’S FPI – stablecoin pegged to CPI instead of USD

Defi blue chips trending towards the “Trinity” of stablecoin, lending, and liquidity – clearly the future, strong network effects + consolidated value – it’s the original Defi stack
AAVE adding lending and stablecoin; CRV adding stablecoin; Frax has all 3; Binance does too

Frax is fractionally backed
-Didn’t believe in purely algorithmic stablecoins (like Luna)
-Claimed early that Basis and Terra don’t work
-They’re like banks with no reserves
-Frax is 93% backed by exogenous assets – protocol liquidity, stablecoins – closer to Dai than Luna
-worst case Frax will only de-peg to $0.93
-but 80+% of collateral is USDC (centralization risk)

Stablecoin trilemma – based on Vitalik’s blockchain scaling trilemma (throughput, scalability, decentralization)
1. Tight peg
2. Decentralized collateral
3. Capital efficiency
Fully decentralized ones – eg, RAI, LUSD – collectively don’t add up to much liquidity, hard to scale

“Bear market is bull market for stablecoins”
Expects Frax will approach 100% collateralized if the bear market lasts another year or so

Dai is $7B, Frax $1.5B stablecoin circulating supply
Would love for both to reach $1T supply
To get there, more economic activity needs to occur onchain – but whole industry mcap is only $1T right now

What’s he interested in angel investing?
-Really interested in L2 / scaling roadmap
-Hardware to accelerate ZKPs
-new innovative stability mechanisms for stablecoins
-new lending / liquidity methods

Here are older notes from Sam talking about Frax, Terra, Do Kwon, Curve, and more on Bankless